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Facebook's Business Model for Messenger: How Will It Make Money?
Posted April 21, 2017
Facebook's Business Model for Messenger: How Will It Make Money?
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By Kurt Wagner. Updated April 21, 2017 9:22AM

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When Facebook hired David Marcus, the former president of PayPal, to run Facebook Messenger back in 2014, some assumed the company would start to build Messenger's business model around payments and commerce.

Other messaging apps like Line (primarily in Japan) and WeChat (primarily in China) were already building fast-growing businesses around commerce and payments, and the thinking was that payments would offer a second revenue stream alongside Facebook's advertising business. Plus, Facebook had Marcus - a payments guy - running the show. Prior to running PayPal, Marcus had founded Zong, which processed payments for social games and apps on platforms like ... Facebook's.

That hasn't really happened, though.

It's been more than two years since Marcus took the helm, and payments and commerce have indeed become part of Messenger. They're just not the part that's immediately responsible for making money. It turns out that Messenger plans to make money the same way Facebook and Instagram do: With advertising.

"We're not going to take cuts of payments," Marcus said in a recent interview with Recode. "The one thing we traditionally do, and is a decent business for us, is advertising. So we'll continue focusing on that."

Messenger's advertising efforts are relatively new; it offers just two types of ads. Last fall, Messenger launched News Feed ads that direct people back to the messaging app; then in January it started putting ads inside the Messenger inbox. That, for now, is the way the company plans to make money off its billion-plus monthly users.

That's not to say Messenger is ignoring payments. It does let users send each other money through the app, and today it's rolling out group payments for the first time. It's also made early attempts to get users shopping through Messenger, which was a huge focus for Facebook when it launched a bot platform for the app last spring.

So Marcus does want you using Messenger to make payments, he just doesn't want to take a cut from those transactions. (Not today, at least.)

"Advertising is great. It's a fantastic business," Marcus continued. "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."

Payments haven't been a great business model for social media companies in the past. Facebook has tried numerous times without much luck to get commerce going inside its app. Twitter shut down its commerce efforts entirely, Snapchat's Snapcash product has been all but forgotten, and Pinterest is taking the same approach as Messenger, looking to advertising for revenue instead of payments.

Messenger's decision to push into advertising also means that Facebook's payments business will continue to shrink. Facebook generated $753 million from payments last year - mostly from purchases related to desktop games - representing less than 3 percent of its total revenue. Facebook's payments business last year declined 11 percent from 2015, and was down almost 23 percent from 2014.

Facebook's advertising business -- which grew 57 percent in 2016 to almost $27 billion -- is making up for it, and then some.

© 2017 Re/Code syndicated under contract with NewsEdge/Acquire Media. All rights reserved.

Image credit: iStock.

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