Zuckerberg’s biggest bet might not pay off
PremiumYears after the Facebook founder’s $19 billion purchase, WhatsApp could wind up more valuable as a sacrifice to regulators than as a viable business.
Mark Zuckerberg will probablywish he was hydrofoiling in Hawaiion Wednesdayinstead of revealing Meta Platforms Inc.’s second-quarter earnings. Analysts have curbed theirestimates for the social giant, and Zuckerberg’s ownforeboding comments to staff suggest the numbers won’t be good. Healso will have to face a stark reality about theaimlessnessof WhatsApp, his biggest investment to date.
Challenges abound across Zuckerberg’s conglomerate.Instagram ismired in trying to copyByteDance Inc.’s TikTok, with mixed success. Young people don’t want to use Facebook, whoseoverall growth has slowed, andApple Inc. isblockingadvertisers on Facebook’s appfrom targeting people.
But then there’s WhatsApp. The little green app thatnever really went mainstream in the USis the most popular messaging servicefor most of the rest of the world. Approximately 2billion people actively use WhatsApp, but in Zuckerberg’s universe it has been more of adefensive ploy andearnings voidthan amoney maker 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 it has contributed penniesby comparison.
It’s astonishingthat eight years after Zuckerberg made the acquisition, he has yet to turn WhatsApp into a remotely viable business. Founded in 2009, WhatApp initially made money from a 99 cent annual subscription because its foundersdespised ads. After the sale, both eventually quit over how Meta was trying to monetizethe app withadvertising. But by 2020, Meta had backed away from that idea, and said it would trycharging businesses to engage with customerson the app instead. (ref)
It looked for a whileas if WhatsAppmightactually becomecentral to Facebook’s future as a business. In March 2021, Zuckerberg announced his“privacy-focused vision for social networking" and predicteda future where communication would shift to private services like WhatsApp.
Butseven months later, Zuckerberg’svision had changed.He announced that the future of the internet lay inthe immersive world of the metaverse,representingthe “next chapter" for newly named Meta. Beyond an announcement aboutthe launch of a new customer chat service on WhatsApp in May, Zuckerberg hassaid little about messaging since.
WhatsApp’s place within the Metahierarchy has bobbed up and downlike a hydrofoilboard. And now, with Zuckerberg resolved to pivotto virtual reality, the app’sreal value is likely to comefrom something more ignoble than making money as a viable business. It will probably be the sacrificial offering that Zuckerberg needs tofend 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’stoo difficult to make money from messaging. After all, Tencent Holdings Ltd.’s WeChat — a messaging competitor in China — generatedmore than $500 million in June 2022 alone, according to an estimate by market intelligence firm Sensor Tower, largely from payments, advertising and acting as a gateway to games.
The problem was that Zuckerberg’s primary motivation for buying WhatsApp in the first placewas to fend it off as a competitive threat, according tomounting evidence from antitrust regulators like the US Federal Trade Commission. Facebook executives even frettedabout how WhatsAppmight threaten Facebook’s business after it had been acquired by the firm, according to a Bloomberg news reportlastweek.That hardly sounds like a parent company with grand visions for its subsidiary.
Nowto deal with the FTC’s attempt to forcethe companyto divest both WhatsApp and Instagram as part of alawsuit against the firm,Meta’s lawyers may push for a settlement that includes divesting just one. If they do, you can probably guess which company Zuckerberg would prefer tocarve off.
How might a sale of WhatsApp work in practice? With no substantial revenue, an IPO would be off the table. Meta could sell the company to a private equity consortium, or a company like Microsoft Inc.,which has indicated an interest in buying amessaging business before, and(somewhat oddly) has managedto make an array of bigacquisitions over the last few years without evoking real scrutiny from antitrust officials. If Softbank’s eventual IPO of Arm Holdings proves fruitful, and MasayoshiSon decides to shift his own focus from artificial intelligence and the Internet of Things to the world of messaging, he could be a potential buyer, too.
But closing that chapter on WhatsApp willhighlight an unsettling truth for Meta’s investors: The company can’t seem to make money from anything other than traditional online advertising.
Digital advertising makes up approximately 98% of Meta’s revenue. Meta — like Alphabet Inc.’s Google — is hooked on the business. While Microsoft and Amazon Inc. have managed to diversify 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 ad business to virtual reality. But the humbling shift in WhatsApp’s value from potential businessto Meta’s most likely regulatory offeringunderscores how much that vision is on shaky ground.
This story has been published from a wire agency feed without modifications to the text.
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