This post does not address whether Facebook’s purchase of WhatsApp is a good one, though my opinion will be evident to the reader. There have been many articles written about that acquisition.
I would like to take a different viewpoint: What does the transaction mean for ecommerce merchants? As merchants plan strategically and use a SWOT analysis — Strengths, Weaknesses, Opportunities, Threats — we evaluate our business environment. We also explore trends.
Facebook spending $19 billion on a company with about $20 million in sales and approximately 50 employees (mostly engineers from Ukraine) seems significant. To illustrate how large $19 billion is, see the list below of notable companies that have a market capitalization of less than $19 billion.
- Akamai Technologies: $11.05 billion.
- American Airlines Group: $12.14 billion.
- Chipotle Mexican Grill: $17 billion.
Facebook’s management reportedly believes it is getting stale, old, and irrelevant. But Facebook is seemingly on top of the world. It’s almost crazy to think that the company would feel stale, or be viewed that way. However, that is the fact of such a dynamic industry. It is worth noting that this cuts both ways. If Facebook just bought itself out of irrelevancy, then when will WhatsApp be irrelevant?
WhatsApp says it has 450 million monthly active users, and it is growing by one million users per month. Those are impressive numbers. However, how long is this growth rate going to hold? What is the conversion rate of free-to-paying customers? How will the business model change and what will be the impact? Consumers seemingly have a hard time paying less than a cup of coffee at Starbucks once a year for social media access.
Facebook bought WhatsApp because presumably it noticed a threatening trend with teenagers that left the Facebook conversation and moved to WhatsApp-type apps. This, then, is possibly a acquisition out-of-fear by Facebook, and is an extension of Facebook’s goal to be the biggest social organization in the world.
What does this mean for ecommerce merchants? Consider the following three trends.
- The rise of mobile continues. Facebook has not been successful with its mobile chat apps and therefore, the company decides to invest in the leader of that sector. The rise of mobile has lived up to the hype. Should retailers consider building a WhatsApp presence? Will we have the ability to build WhatsApp groups where we can directly communicate with our customers?
- Facebook may change its business model . WhatsApp introduces a new business model that Facebook may adopt in one form or another. WhatsApp is charging $1 per user per year while Facebook does not charge its users. Potentially Facebook may be looking for a new way to monetize its user base. I’m not suggesting that it will charge for user access. But it may charge for certain services, perhaps a certain charge for companies (not individuals) to use the platform. For example, for a brand with over 1,000 likes Facebook could introduce a $9.95 per month fee; for a company with over 5,000 likes it may charge $19.95 per month, and so forth. This will provide Facebook with a new revenue stream.
- Facebook wants the data. The last and perhaps most important point is the insatiable appetite Facebook has for information. What will it eventually do with all this data? Will online retailers have access to the data to improve targeting and segmentation in our marketing efforts? What will be the impact on our customers and privacy laws?
I’m clearly speculating about certain impacts and potential trends that could affect online merchants. Only time will tell if Facebook’s move was a good decision. Regardless, the WhatsApp purchase may symbolize the enormous bubble about to burst in the Silicon Valley. We can all be proud, as online retailers, that we drive cash and true economic value to the Internet. If it weren’t for us (and our customers), giants like Google, Twitter, and Facebook would, arguably, not exist.
What is your take on social media and its effect on your ecommerce business? Do you see social media as an opportunity? Or is it a threat to your business? I’d love to get your take.