Facebook Inc (NASDAQ:FB) faced a lot of flak when it acquired WhatsApp for $19 billion. And going by the $1 it charges annually for the app, a lot of that criticism seems to be valid. The return on the billions it invested is abysmal; but all that could change if Facebook can find an effective way to monetize the app.
One way to do that is to replicate what Microsoft is doing with Skype. Microsoft Corporation (NASDAQ:MSFT) charges fees for every Skype call or text made to mobile or landline phones. And by doing so, it earns close to $2 billion a year in revenues from its 300 million users. WhatsApp currently has 800 million monthly active users; and if we extrapolate the Skype monetization strategy, that could translate to roughly $5 billion a year.
However right now, Facebook Inc (NASDAQ:FB) seems focussed on growing its WhatsApp user base over pushing through a plan to monetize the app. WhatsApp added close to 200 million new users in the last 8 months, and if that trend continues, it could hit the 1 billion-mark by Q1 2016.
Ads could also work; provided Facebook Inc (NASDAQ:FB) does not over do it. Consumers are more or less used to encountering ads on sites, so if done properly, this could be an effective options. One way to do that could be use the first message at the top of the WhatsApp screen for ads; very similar to ones we have on Yahoomail. Or, WhatsApp could place ads in between messages, just like they appear in Facebook’s news feeds.
WhatsApp could also simultaneously charge fees and place ads for certain services, which in turn would provide multiple streams of revenue. But that’s a long shot, considering that Facebook Inc (NASDAQ:FB) wouldn’t want to create a negative perception by bringing about too many changes at once.
Although it is not clear how and when Facebook Inc (NASDAQ:FB) plans on monetizing WhatsApp, it cannot sit forever on the app without earning some money from it. My best guess would be anytime within the next 2 years. So what does that mean for investors? WhatsApp has the potential to provide a strong kicker to Facebook’s revenue.
Analysts may have panned Facebook Inc (NASDAQ:FB) for making the WhatsApp bet, but in the long-run, it certainly will prove to be a wise investment. And when that does, expect Facebook’s stock to move significantly higher from the current levels.