Chip-Monks  ⁄  Specials

Facebook’s Business Model For Messenger Will Not Be Payments And Commerce, After All

11 May, 2017
Facebook Business Model For Messenger Will Not Be Payments And Commerce After All

In the last couple years, as Facebook has expanded into messenger services in a big way. Adding a lot of features and capabilities to it’s captive Facebook Messenger app, Facebook seems to have a mission chalked out for real-time messaging.

In fact, Facebook, realising the scope for the commerce and payments within the service, introduced person-to-person payments in 2015, and very recently enabled the same in group chats.

The thinking initially was that building on commerce and payments would offer a secondary revenue stream, an addition to the already existing ad revenue. Other messaging apps like Line (primarily in Japan) and WeChat (primarily in China) are already building fast growing models around commerce and payments.

When, back in 2014, Facebook hired David Marcus, the former President of PayPal, speculations seemed vindicated.
Before running the show at PayPal, Marcus had also founded Zong, which processed payments for social games and apps on platforms like that of Facebook’s.
So the expectation, of course, was that he would bring Facebook around, restructure their Messenger in a manner so as to make commerce and payments central to the model.

The underlying belief was that the level of engagement that we see on messenger services of the kind, combined with access to your address book – and eventually your bank account or credit card – could be the gateway to simple, frictionless mobile payments and commerce.

Even though the idea seems far fetched, when you think of it, it really isn’t so.

There are a few successful examples of this: The first and the easiest example is that of Japan’s Line, which is generating money from social gaming and virtual sticker purchases. Then we have WeChat, which, in China, has launched its in-app payments service. Another potential space for a mobile payments interface was through emails, where Square is exploring with its Square Cash.

Quite interesting an example is that of Apple’s App Store supporting iMessage.
iMessage, a free messenger service, quite like Facebook’s own Messenger, and Whatsapp, now has its own app store. It came at a time when the original iOS App Store had become cluttered with out-of-date and abandoned applications – not only giving Apple users a breath of fresh air, but also giving Apple the potential to generate revenue through a space which would otherwise continue to be a free of cost service.

Instead of looking for standalone apps, that stay on homescreens, where they are often forgotten, people generally look for add-ons that enhance their mobile messaging experience. This is precisely the potential that Apple dug into when they launched their iMessage App Store, and this is precisely the potential that Facebook’s Messenger can dig in to. Generally, this has included everything from custom keyboards to apps that make your conversation an enhanced experience by adding flavor and humor to your messages, like apps for sharing GIFs, emoji, stickers, and more.
While all of these are fun add-ons, they are also a revenue generating space, because most of these are paid features.

With Facebook, even more add-on potential existed with bigger things. How about being able to shop through Facebook Messenger?
When Facebook had added its Buy Button to pages, the speculation was that something similar would come to the Messenger as well. What this would have done then is to convert Messenger into a platform to build on commerce, not necessarily through retail, because Facebook planned on being the middle man and only linking users to sources (not being a source itself).

Well, speculations existed manifold, but the truth of the matter is that Facebook has not taken any of these steps yet, and nor do they seem to be keen on taking these steps anytime in the near future.

Facebook is working cautiously – and that makes sense – given how many times Payments has proven to be a lacklustre business model for social media companies.

In the past, Twitter had tried it, to not much uptake, finally they shut down their commerce efforts entirely,
SnapChat’s SnapCash already sounds way to foreign, and Pinterest, another social media platform with huge a commercial potential, is taking the same approach as Messenger – sticking closer to advertising rather than becoming a sales platform.

Commerce has become a better-integrated part of Facebook since Marcus took over, yes, but it has also become more and more clear that Facebook might be depending only on what it knows best – concentrating on advertising as a source for revenue. While Facebook is working on expanding on more options, more add-ons, but these don’t seem to be with the goal of being nurtured into primary revenue sources, at least for now.

This stand became clear when Marcus, in a recent interview said “We’re not going to take cuts of payments. The one thing we traditionally do, and is a decent business for us, is advertising. So we’ll continue focusing on that”.

While Facebook’s advertising features are not new, Messenger is a relatively new space for ads. For now, they offer two types of ads, First you have the News Feed ads that direct people back to the messaging app, and then you have the ads that are put inside the Messenger inbox. Those are the two things that Facebook is sticking to, for now, for revenue.

Their decision to push more into advertising also means that their payments business won’t receive as much attention. Facebook generated USD 753 million from payments last year – mostly from purchases related to desktop games – representing less than 3% of its total revenue. Altogether, their payments business is on a decline; 11% from 2015, and almost 23% from 2014.
On the other hand, their advertising business, which grew 57% in 2016 to almost USD 27 billion, is not only doing too well for itself, yet it is actually keeping the ship afloat at this time.

All of that said, we are not saying that Facebook is not working with commerce and payments based add-ons.
Advertising is great. It’s a fantastic business”, Marcus said. “You [still] need to enable payments and all that kind of stuff to remove friction from the experience when someone wants to buy something. If you do that, then the value of that conversation for the business increases”.