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Facebook Just Spent $1 Billion to Monetize Messaging

By Adam Levy - Dec 2, 2020 at 2:48PM

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Its latest acquisition aims to get more businesses using its messaging apps.

Facebook ( FB -1.14% ) has been taking small steps toward monetizing its messenger properties for years with the aim of providing tools to connect businesses to customers. It's adding a new tool to the box with the acquisition of Kustomer, a customer relationship management software start-up. Facebook will pay about $1 billion, according to The Wall Street Journal.

With 200 million businesses using various tools offered by Facebook every month, there's a massive opportunity to grow Kustomer and offer more monetized customer relationship tools to businesses.

Monetizing messaging

Facebook's best effort to monetize its messaging apps has been through its WhatsApp Business. The app has quickly amassed 50 million users and has potential for a lot more. The app is mainly monetized through an API that allows other applications, like Kustomer, to connect with the WhatsApp messaging system. 

Women's hand typing on a smartphone. Messaging graphics overlayed.

Image source: Getty Images.

Kustomer takes that effort a step further by helping customer service teams manage their entire customer relationship across multiple social media platforms and communication channels. Facebook plans to continue supporting all communication channels on Kustomer.

Facebook's other efforts to monetize messaging are less direct. It's building more and more social commerce tools, including catalogs and payments in WhatsApp and Facebook Shops. Those tools position Facebook to do everything for a business from customer acquisition to sale, and with the addition of Kustomer, it can foster those customer relationships providing customer support and producing repeat sales.

"We want businesses of all sizes and across all industries to discover the value of messaging," Dan Levy, VP of Ads and Business Products, and Matt Idema, COO, WhatsApp wrote in a press release. To that end, Facebook has a long way to go. It says 175 million users contact companies through WhatsApp daily. But WhatsApp has over 2 billion monthly active users. Meanwhile, WhatsApp Business's 50 million users represent a tiny portion of the 200 million businesses across Facebook's platforms.

The more reasons and ways Facebook can provide businesses to connect with customers on messaging, the more adoption it will see. And some of those tools will invariably present themselves with monetization potential.

The bigger business at Facebook

Monetizing messaging directly isn't the endgame for Facebook. Giving businesses a reason to use WhatsApp, Messenger, or Instagram is part of a strategy to grow businesses' engagement across all of their properties. Being able to support the entire customer journey from discovery to sale and then managing the customer relationship will likely lead to greater interest in Facebook's bread and butter: advertising.

Facebook's advertising business brought in $21.2 billion in the third quarter, up 22% year over year. Growth has been slowing, however, and not just because of the secular headwinds created by the coronavirus pandemic or because of the advertiser boycott it faced in July. Facebook has maxed out the ad load in its feed products on Facebook and Instagram, and it's seeing time spent shift to its Stories products, which carry lower ad loads and lower ad prices.

For Facebook to accelerate its ad revenue growth again, it needs to produce more value per ad impression. And it's done an excellent job providing the tools to businesses to do that. Facebook Shops, for example, is a great tool to improve sales conversions. Meanwhile, Facebook continually improves its targeting and measurement capabilities so marketers can tweak their audience and creatives for maximum effect.

Kustomer is another way for Facebook to sell businesses on the value of starting and managing customer relationships on Facebook, feeding the value of its ad impressions. If the tech company can also sell it as a service and grow the number of paying WhatsApp Business API users, that's gravy.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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