Mark Zuckerberg previously told investors that products don't become interesting as businesses to Facebook (NASDAQ:FB) until they reach about 1 billion users. Well, it already jumped the gun with Instagram (400 million), and a leaked document provided to TechCrunch reporters Josh Constine and Jon Russell indicate it might be gearing up to do the same with Messenger, even though it only had 800 million users as of Facebook's latest update.
The document indicates Facebook will allow businesses to send advertisements to users who have previously contacted them via Messenger. Facebook is encouraging the 50 million businesses with a presence on its platform to start interacting with users more, so that they can take advantage of the opportunity when it rolls out direct advertising next quarter.
If the documents are accurate, it would be a huge opportunity for Facebook to continue growing revenue.
Facebook's most expensive ad yet
Constine and Russell provide some examples of the kinds of ads that might lend themselves to Messenger: informing customers of flash sales, announcing new product launches or store openings, deliver new digital content, or alert a customer that a product they were interested in is back in stock or on sale. All of these would be targeted at customers that have already had a one-on-one personal interaction with the business in the past, ensuring the conversion rates should be much higher. Additionally, the nature of the ad is more intrusive, sending a push notification to users' phones. As such, Facebook will likely charge a significant premium for such ads.
Additionally, Facebook will likely want to deter businesses from spamming its users, which will result in still higher prices. Facebook currently shows its users a limited number of ads based on the value they add to their News Feed compared to the price businesses bid. With Messenger (as with Instagram and News Feed), Facebook wants advertisements to add to the value of the product. Keeping prices high will help ensure that advertisers craft ads that actually offer value.
But I'd venture this new ad product isn't the end game for Messenger. Zuckerberg previously told analysts that ad aren't the best way to monetize messaging when Facebook acquired WhatsApp in 2014. WhatsApp CEO Jan Koum has also come out strongly against advertisements several times in the past.
So, if ads aren't going to be Messenger's main form of monetization, why is Facebook supposedly rolling them out?
Businesses on Messenger
The leaked document encourages businesses to start interacting with more customers on Messenger in order to take advantage of the new ad products. In other words, the opportunity is the incentive Facebook is using to get more businesses using Messenger, something it's been trying to do for about a year now.
At last year's F8 conference, Facebook introduced Businesses on Messenger, a platform aimed at helping businesses provide better customer service to customers. Since, it revamped Pages with badges that show how fast businesses reply to messages as well as big "Contact Us" or "Click to Message" call-to-action buttons at the top of Pages on mobile. Additionally, Facebook made it easy for businesses to produce canned responses and reply to wall posts with private messages.
Facebook is doing everything it can to convince businesses to use Messenger more to interact with its users. During Facebook's second quarter earnings call in 2015, Zuckerberg said the key to monetizing messaging is creating organic interactions between businesses and users just as Facebook did with its flagship product before launching News Feed ads in earnest.
Advertisements may just be a carrot to get more businesses on Messenger. At the same time, they could provide a nice revenue stream for Facebook as it funnels businesses onto another platform. The real revenue opportunity could come from facilitating commerce further down the sales funnel, when customers are already prepared to buy something. Facebook is already working on solutions for that within Messenger as well, but it needs businesses on the platform first.
Adam Levy has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Facebook. Try any of our Foolish newsletter services free for 30 days. 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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