Facebook's retreat on WhatsApp ads puts a blemish on its celebrated Instagram playbook
- Facebook is rowing back on plans to put ads in WhatsApp and has disbanded a team that was working on the effort.
- The surprise move suggests it will not be as simple for Facebook to monetize the app, which it acquired for $22 billion, as analysts hoped.
- Instagram was a template for a successful Facebook acquisition, with the company filling it with ads and turning it into a massive cash cow.
- But WhatsApp will need to find a new model, and the team is working on features that will let businesses interact with users.
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Facebook is backing off on plans to stick ads inside WhatsApp - raising questions about its vision for monetizing the messaging app.
The Menlo Park, California-based social networking giant acquired WhatsApp for a cool $22 billion in 2014, and the expectation has long been that it would - eventually - load it up with ads to monetize its millions-strong userbase.
But industry watchers that were hoping that day would soon materialise are out of luck: On Thursday, The Wall Street Journal reported that Facebook has paused its plans to add ads to WhatsApp. It has disbanded the team working on a team exploring the app's potential for ads, it reported, and "the team's work was then deleted from WhatsApp's code."
Facebook insists that it is still committed to adding ads to WhatsApp over the long term, and the full circumstances of the team's shuttering aren't yet known. But the news makes clear that WhatsApp's path to profitability won't be as simple as some had hoped.
Instagram stands as the prime example of Facebook's success with acquisition, acquired for a not-insubstantial $1 billion in 2012, it is now worth more than a hundred times that: An estimate in 2018 pegged it as worth $100 billion, and its value seems certain to have increased since then.
Instagram's advertising business is thriving, helping power Facebook's continued growth in profits, revenues, and users, and has been hailed as "arguably the best acquisition in the history of tech." Its ad business is functionally similar to the core Facebook app's - ad buyers pay to target users with ads that appear in their feeds, and later, in the ephemeral Stories feature too - and was viewed as a business template for how Facebook could spin up wildly profitable advertising units in other services it builds or acquires.
WhatsApp's future will now evolve differently. A company spokesperson told Business Insider that it is now focusing on building other features that allow businesses to interact with ordinary users, like catalogs that can show what a business has for sale. They said it does still plan to eventually add ads to Status, WhatsApp's version of stories posts that delete after 24 hours, but didn't offer any kind of timeframe for doing so.
The messaging app may still make money off this business-feature approach, either by charging for access to certain features or via developing its ecommerce tools that might allow it to take a cut of purchases and payments made through the platform. (Ecommerce and payments may ultimately bring in billions of dollars a year in new revenue for Facebook.)
Bank of America analysts previously predicted in December 2019 that advertising - along with payments and transactions - on WhatsApp and Messenger could add $12 billion in annual revenue over the next three to five years, working to offset the cost of maintaining the messaging apps for Facebook and start generating profits. Facebook's decision raises question marks over such estimates.
WhatsApp remains an incredibly strong product, with more than 1.5 billion monthly active users (as of 2018). But Facebook's strategic shift indicates that turning it from a popular app into another cash cow won't be as simple as turning an ad spigot to replicate Instagram's success.
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