By Parmy Olson
Mark Zuckerberg will likely wish he was airboating in Hawaii on Wednesday instead of disclosing Meta Platforms Inc’s second-quarter earnings. Analysts have lowered their estimates for the social media giant, and Zuckerberg’s own prescient comments to staff suggest that the figures will not be good. He will also have to face a harsh reality about the lack of direction of WhatsApp, his biggest investment to date.
Challenges abound in Zuckerberg’s conglomerate. Instagram is stuck trying to copy ByteDance Inc’s TikTok, with mixed success. Young people don’t want to use Facebook, whose overall growth has slowed, and Apple Inc is blocking advertisers in the Facebook app from targeting people.
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But then there is WhatsApp. The little green app that never really caught on in the US is the most popular messaging service for most of the rest of the world. About 2 billion people actively use WhatsApp, but in Zuckerberg’s universe it has been more of a defensive ploy and profit loss than a cash cow like Instagram.
The contrast couldn’t be starker: Zuckerberg bought Instagram for $1 billion in 2012, and the app contributed $20 billion to Facebook’s revenue in 2019 alone. He bought WhatsApp for $19 billion in 2014, and by comparison , has contributed pennies.
It’s amazing that eight years after Zuckerberg made the acquisition, he still hasn’t turned WhatsApp into a remotely viable business. Founded in 2009, WhatsApp initially made money on a 99-cent annual subscription because its founders despised ads. After the sale, both eventually quit over how Meta was trying to monetize the app with advertising. But by 2020, Meta had backed away from that idea, saying he would try to charge companies for interacting with customers on the app.
For a while, it looked like WhatsApp might become the center of Facebook’s future as a company. In March 2021, Zuckerberg announced his “privacy-focused vision for social media” and predicted a future where communication would shift to private services like WhatsApp.
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But seven months later, Zuckerberg’s vision had changed. He announced that the future of the Internet lies in the immersive world of the metaverse, which represents the “next chapter” for the new Meta. Beyond an announcement about the launch of a new customer chat service on WhatsApp in May, Zuckerberg has said little about messaging since then.
WhatsApp’s place within the Meta hierarchy has risen and fallen like a hydrofoil board. And now, with Zuckerberg determined to go virtual reality, the app’s real value is likely to come from something more ignoble than making money as a viable business. It will likely be the sacrificial offer Zuckerberg needs to fend off antitrust regulators.
That would explain Zuckerberg’s lack of drive to turn WhatsApp into a going concern. The problem has never been that it’s too hard to make money from messaging. After all, Tencent Holdings Ltd’s WeChat, a messaging competitor in China, generated more than $500 million in June 2022 alone, according to an estimate by market intelligence firm Sensor Tower, much of it from payments, advertising and acting as a gateway to games.
The problem was that Zuckerberg’s main motivation for buying WhatsApp in the first place was to reject it as a competitive threat, according to mounting evidence from antitrust regulators like the US Federal Trade Commission. Facebook executives even worried about how WhatsApp could threaten Facebook’s business after the company acquired it, according to a report. Bloomberg last week’s news. That hardly sounds like a parent company with grand visions for its subsidiary.
Now, to deal with the FTC’s attempt to force the company to ditch WhatsApp and Instagram as part of a lawsuit against the firm, Meta’s lawyers may push for a settlement that includes the sale of just one. If they do, you can probably guess which company Zuckerberg would prefer to break up.
How could a WhatsApp sale work in practice? Without substantial revenue, an initial public offering would be off the table. Meta could sell the company to a private equity consortium, or to a company like Microsoft Inc, which has shown interest in buying a messaging business before and has (oddly enough) managed to make a number of big acquisitions in recent years without evoking scrutiny. actual antitrust officials. If Softbank’s final IPO of Arm Holdings pans out, and Masayoshi Son decides to shift his own focus from artificial intelligence and the Internet of Things to the world of messaging, he too could be a potential buyer.
But closing that chapter on WhatsApp will highlight a disturbing truth for Meta investors: The company can’t seem to make money from anything other than traditional online advertising.
Digital advertising accounts for approximately 98 percent of Meta’s revenue. Meta, like Alphabet Inc’s Google, is hooked on business. While Microsoft and Amazon Inc managed to diversify into cloud computing and gaming, Meta failed to do the same with cryptocurrencies, e-commerce, and of course messaging.
Perhaps the metaverse will be different, and Zuckerberg will find a way to pivot his thriving ad business into virtual reality. But the humiliating shift in WhatsApp’s value from potential business to Meta’s most likely regulatory bid underscores just how much that view is on shaky ground.