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Inside Facebook's Plan to Monetize Messenger

By Andrew Tonner – Jan 10, 2016 at 8:38AM

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Facebook's recent pact with Uber illustrates the tantalizing long-term potential of both Messenger and WhatsApp.

Image source: Facebook.

Though a problem in name only, one could fairly argue that social media giant Facebook (META -0.74%) suffers from an embarrassment of riches as it heads into 2016.

Facebook's core social media platform will almost assuredly remain the engine that propels the bulk of its financial performance in the years to come. Though the success of Facebook's core business can at times overshadow them, several key Facebook subsidiaries also have their own multibillion-dollar-potential businesses, including its communication platforms Messenger and WhatsApp. And in that vein, Facebook recently released fresh details about its strategy to monetize its hugely popular Messenger that speak to its plans to eventually profit from these services.

Hitch a ride on Messenger
Messaging apps are some of the most popular services on smartphones today, and many of tech's most prominent companies see a tremendous financial opportunity to layer services and third-party integrations onto these services' swelling ranks. According to research company Activate, roughly 2.5 billion people have registered with at least one messaging service, a number it argues will increase to over 3.6 billion by 2018.

In its latest effort to monetize the service, Facebook announced last month that Messenger users could now hail, track, and pay for rides from ride-sharing behemoth Uber directly within Messenger. While not the first instance of Facebook integrating new services to Messenger, its Uber partnership serves as another shining example of Facebook's long-term business strategy for its sprawling messaging empire.

Image source: Facebook.

Since Facebook opened Messenger to third-party integrations, over 700 apps have been created to sit atop the communication platform. Additional examples include those from Zulily, where customer service interactions can now occur within Messenger, or Dutch carrier KLM's plans to issue booking confirmations and mobile boarding passes through the service. Clearly, this makes ample sense from a strategic sense. However, it isn't precisely clear when or to what degree Facebook will begin to receive a meaningful financial impact from this move.

Playing the long game
With so much in flux, what can we say about Messenger's and WhatsApp's profit potential? Two things occur to me, which can hopefully do at least something to inform investors' understanding. Facebook's economic opportunity to monetize Messenger is, first, quite large, and second, unlikely to meaningfully manifest itself in Facebook's results in the near term.

Messenger and WhatsApp combined have a whopping 1.6 billion users, more than the 1.55 billion monthly active users (MAUs) on Facebook's social networking platform. Few businesses can enjoy customers at anything approaching this level of scale.

And by layering on numerous types of apps, we can somewhat confidently predict that Facebook can eventually earn substantial sums from Messegner, even if estimating those exact sums would be guesswork at best. To name just a few possibilities, Facebook could simply opt to monetize Messenger and WhatsApp by service advertisements to their users. That seems unlikely, but it does deserve mentioning. Beyond that, Facebook could charge referral fees to third-party services that conduct business through Messenger or WhatsApp. This is perhaps the most obvious and likely scenario.

However, because Facebook most likely also wants to continue to attract companies to develop products for Messenger and WhatsApp, it will likely also favor a go-slow approach to charging companies that conduct business over its communication platforms. Facebook favored a similarly patient approach in rolling out its own advertising business, which we can all agree has proven a resounding success.

While deals like Facebook's recent pact with Uber point to an eventual and sizable profit stream awaiting its investors, Facebook will likely have to wait beyond 2016 to reap the massive rewards that Messenger and WhatsApp promise.

Andrew Tonner has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Facebook. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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