Mark Zuckerberg: Advertising is Not the Way to Monetize Messaging Systems

Instagram was Facebook's blockbuster deal back in April 2012 when the company announced that it was acquiring the photo sharing network for $1 billion, a deal that ultimately closed at $715 million in Q3 2012. The discrepancy in price was due to Facebook's falling stock price at that time and the fact that over 60 percent of the acquisition was paid in shares. Instagram slowly rolled out its revenue strategy through implementing in-stream ads in late 2013. With this WhatsApp deal, some fear that it will also follow the advertising path.

In acquiring WhatsApp, Facebook will pay $15 billion in stock, $3 billion of which will be deferred until 2018 as restricted stock units, leaving $12 billion worth of shares to be given at the close of the deal. There will also be $4 billion in cash, totaling $19 billion in full acquisition value. Learning from the Instagram deal, the final value of WhatsApp may change depending on how Facebook's stock performs on Wall Street. Facebook and WhatsApp expect the deal to be completed later this year.

No ads for messaging apps A billion dollar deal was a blockbuster just two years ago. Today, it seems like a blip, although WhatsApp has all the numbers to back that up, except maybe revenue. The company remains reluctant to share its split between paying and non-paying users, declining to reveal the numbers when asked during the conference call earlier today at Facebook.

Facebook has been working to shift its business to focus on the mobile experience for the past couple of years. Among its 1.2 billion monthly active users, as of January 2014 it has on mobile, 945 million monthly active users and 556 million daily actives. Mobile also contributed to $1.37 billion to Facebook's $2.59 billion advertising revenue.

Facebook is no doubt a mobile advertising company at this point and this fact makes the acquisition of WhatsApp all the more interesting and perhaps curious. WhatsApp has always been anti advertising. The company back in 2012 made a strongly worded statement against ad-funded business models and during today's announcement, CEO Jan Koum reiterated that stance, saying that "And you can still count on absolutely no ads interrupting your communication".

Instagram began as a no-ad service but since the Facebook acquisition, it has started serving advertising within the app's primary photo stream, at least in the US anyway. Business Insider's profile on Kevin Systrom is worth reading on this subject (no it's not full of slides).

Tumblr co-founder and CEO David Karp was also a staunch critic of ad-suppoted business models but he eventually relented and allowed advertising to run on Tumblr even before the acquisition by Yahoo last year.

Will Jan Koum and Brian Acton succumb to the lure of advertising ? It's certainly not inevitable but Facebook CEO Mark Zuckerberg said during the conference call today that "I don’t personally think ads are the right way to monetize messaging systems". Zuck said that Facebook will allow WhatsApp to operate on its own as it has always been before the acquisition.

[header image from Shutterstock]