Facebook (NASDAQ:FB) is already one of the major hubs for exchanging messages, and now the company is ramping up efforts to grow its Messaging service. Facebook hiring eBay (NASDAQ:EBAY) executive David Marcus to grow one of the largest free apps in the world illustrates that the company wants to have an even bigger presence in mobile messaging with multiple services. Facebook made big forays into Mobile messaging with WhatsApp, but the company's new move shows that it wants to grow this segment even more.
Mobile messaging is already big
While many users might not be familiar with Facebook's Messaging app, it is already one of the top 10 free apps on Apple's App Store, well ahead of others including Facebook, WhatsApp, and Instagram. However, unlike WhatsApp and Facebook's own social network, the company doesn't monetize its Messaging service.
But, that might be about to change with the hiring of PayPal CEO, David Marcus. Under his leadership, PayPal has done a great job of being a leading payments platform worldwide. PayPal generated total payments volume of $190 billion in the last twelve months and has 148.4 million active users on its platform. So, Mark Zuckerberg is probably tapping him to experiment and devise innovative new ways to monetize Facebook's platform.
However, even before Facebook makes a big push to drive app installations for Messaging, the app already has 200 million users. With more effort on Facebook's part, the number of installations can rise significantly. Considering that Facebook has 1.3 billion monthly users, the Messaging service can get to 500 million app users, and then it will have the opportunity to become a more monetizable asset due to increased consumer adoption.
With two major mobile apps, Facebook can be very dominant in the growing mobile messaging space, where numerous apps are getting big. Since Facebook doesn't generate revenue from mobile messaging, it will likely be an area of focus for the former PayPal chief.
Facebook allocating more resources to its Messaging business is a good thing, as the market for mobile messaging is growing, and having two distinct services will enable the company to have a compelling market position in the space. Leading Internet companies worldwide are ramping up efforts in the space. Tencent Holdings has WeChat, Rakuten recently bought Viber, and Facebook bought WhatsApp. These services are growing rapidly and have added more than 1 billion users in less than five years, according to KPCB.
Facebook having the very successful WhatsApp is a major plus for the company. The cross-platform mobile app has been a huge hit and has more than 500 million monthly users. WhatsApp continues to utilize its own playbook and has a very engaged customer base.
WhatsApp doesn't show ads, and instead charges an annual fee of $0.99 after a free one-year run. WhatsApp's founders do not like ads, so the service is likely to remain subscription-based, at least in the near future. However, Facebook has the option to alter its business model to accommodate ads and more aggressively monetize that platform. Having two services with different approaches is a very good thing for Facebook.
Facebook recently started informing users that the company will be showing ads on its social media platform, using pages a user likes, as well as apps and websites they use. These types of interest-based ads will enable Facebook to get much higher pricing on ads from marketers and enhance the user experience as well.
Facebook has a lot of opportunity to experiment via trial and error and come up with new methodologies of monetizing the mobile messaging app. However, WhatsApp is likely to stay subscription-based, at least in the near term. Plus, both of these avenues will contribute to Facebook's already-robust EPS growth in the long-term.