Zuckerberg’s Biggest Bet May Not Pay Off

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Mark Zuckerberg will likely want to hydrofoil Hawaii on Wednesday instead of revealing Meta Platforms Inc’s second-quarter results. Analysts have limited their estimates for the social giant, and Zuckerberg’s own worrying comments to staff suggest the numbers won’t be good. He will also have to face the harsh reality of the uselessness of WhatsApp, his biggest investment yet.

Challenges abound in the Zuckerberg conglomerate. Instagram is mired in 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 Facebook app advertisers from targeting people.

But 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 world it’s more of a defensive ploy and revenue vacuum than a moneymaker like Instagram.

The contrast couldn’t be more stark: 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 he contributed pennies in comparison.

It’s amazing that eight years after Zuckerberg made the acquisition, he has yet to turn WhatsApp into a viable remote business. Founded in 2009, WhatsApp initially made money from a 99 cent annual subscription because its founders despised ads. After the sale, the two eventually dropped the way Meta was trying to monetize the app with advertising. But by 2020, Meta had scrapped that idea and said it would instead try to charge companies to engage with customers on the app. (ref)

For a while, it looked like WhatsApp could become a central part of Facebook’s future as a company. In March 2021, Zuckerberg announced his “privacy-driven vision of social media” and predicted a future where communication shifts to private services like WhatsApp.

But seven months later, Zuckerberg’s view had changed. He announced that the future of the Internet lies in the immersive world of the Metaverse, representing the “next chapter” of Meta’s new name. Beyond an announcement about the launch of a new customer chat service on WhatsApp in May, Zuckerberg has said little about messaging since.

WhatsApp’s place within the Meta hierarchy has oscillated up and down like a hydrofoil. And now, with Zuckerberg intent on pivoting to virtual reality, the app’s real value will likely come from something more dastardly than making money as a viable business. This will likely be the sacrificial offer Zuckerberg needs to fend off antitrust regulators.

This would explain Zuckerberg’s lack of motivation to turn WhatsApp into a live business. The problem has never been that making money from messaging is too difficult. After all, WeChat from Tencent Holdings Ltd. — a messaging competitor in China — generated more than $500 million in June 2022 alone, according to an estimate by business intelligence firm Sensor Tower, largely from payments, advertising and marketing. gateway to games. .

The problem was that Zuckerberg’s main motivation for buying WhatsApp in the first place was to push it away 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 it was acquired by the company, according to a Bloomberg report last week. It hardly sounds like a parent company with big visions for its subsidiary.

Now, to deal with the FTC’s attempt to force the company to divest both WhatsApp and Instagram as part of a lawsuit against the company, Meta’s lawyers could push for a settlement that would include the divestiture of only one. If they do, you can probably guess which company Zuckerberg would rather part ways with.

How might a WhatsApp sale work in practice? Without substantial revenues, an IPO would be out of the question. Meta could sell the company to a private equity consortium or a company like Microsoft Inc., which has already shown interest in buying a courier business and (somewhat oddly) managed to make a series major acquisitions in recent years. without mentioning any real scrutiny from antitrust officials. If the potential IPO of Arm Holdings by Softbank proves successful and Masayoshi Son decides to shift his own focus from artificial intelligence and the Internet of Things to the world of messaging, he could also be a potential buyer.

But closing this WhatsApp chapter will highlight a troubling 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% of Meta’s revenue. Meta – like Alphabet Inc.’s Google – is addicted to business. While Microsoft and Amazon Inc. have managed to branch out into cloud computing and gaming, Meta has failed to do the same with cryptocurrency, e-commerce and, of course, messaging.

Maybe the metaverse will be different, and Zuckerberg will find a way to pivot his thriving advertising business to virtual reality. But the modest shift in WhatsApp’s value from a potential business venture to Meta’s most likely regulatory offering underscores just how shaky that view is on shaky ground.

More writers at Bloomberg Opinion:

AT&T jumps out of media pot and into dividend fire: Martin Peers

Mark Zuckerberg’s cruelty is what Facebook needs now: Parmy Olson

China’s cyber isolationism has serious security implications: Tim Culpan

(Correct WhatsApp spelling in 5th paragraph)

(1) That year, around 175 million people were exchanging messages with a business on WhatsApp every day, a promising start but still only around 8% of its total user base.

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Parmy Olson is a Bloomberg Opinion columnist covering technology. A former journalist for the Wall Street Journal and Forbes, she is the author of “We Are Anonymous”.

More stories like this are available at bloomberg.com/opinion

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