The Norman Transcript

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June 13, 2014

Facebook places multiple bets to win messaging wars

SAN FRANCISCO — Facebook is adopting a multifront strategy to woo fickle smartphone users who crave a variety of ways to send messages to friends.

The social network has made two big moves in messaging in just the past five months. In February, Facebook agreed to buy startup WhatsApp for $19 billion. This week, it followed up by recruiting eBay's PayPal President David Marcus to run its other messaging efforts including Messenger, which Facebook started requiring people to use for messaging in April.

In an age when e-mail is losing its cachet, especially among the young, Messenger and WhatsApp provide Facebook with different ways into messaging. WhatsApp, which is more popular in Europe and Asia, looks spare and will remain simple, its founders have said. By contrast, Messenger, which has virtual stickers of smiling pandas and other features, may keep expanding on what it offers. Marcus will have the freedom to experiment and try different things with Messenger to differentiate the app, said a person familiar with the matter, who asked not to be identified because the plans are private.

The two apps show how it takes more than one strategy to win in the mobile-messaging market. With twin apps, Facebook can set itself apart from competing programs including Tencent Holdings' WeChat and Naver's Line, which are also making a land grab for consumers and messaging revenue. The services have attracted more than 1 billion users in less than five years, according to a presentation from venture capital firm Kleiner Perkins Caufield & Byers last month.

"It seems like Facebook is going to have two very different approaches," said Scott Kessler, an analyst at S&P Capital IQ. "Facebook acquired WhatsApp because they're successful and should continue doing what they're doing. For Messenger, there's a lot of opportunity for experimentation and for new ways of monetization."

Facebook is opening new fronts in mobile messaging after playing catch-up to the rise of the apps, which have threatened to snatch consumer attention away from the social network. Marcus, who will report to Chief Executive Officer Mark Zuckerberg and Javier Olivan, has a mandate to eventually find a business model for Messenger, said the person familiar with the matter. Messenger doesn't make any revenue.

Zuckerberg has said he sees Facebook growing by catering to different-sized groups through various forms of communication. Facebook is working on new experimental apps to bolster that vision, including Slingshot, an application for sharing disappearing moments with groups.

 A Facebook representative declined to comment.

Marcus will have a wealth of ideas from rivals to study for how to grow users and make money off Messenger. In Korea, KakaoTalk distributes and makes money off games in its messaging app. The games have the benefits of piquing user interest and generating revenue. Cumulative sales from gaming have surpassed $1 billion, split between publishers and Kakao, the company said last month.

In China, Tencent's WeChat lets users choose and pay for stickers -- like a bear with roses -- that they can send to one another through the app. People can also use WeChat to pay for goods with their phones and hail taxis.

TangoMe Inc., which was valued earlier this year at more than $1 billion in a funding round led by Alibaba Group Holding Ltd., said this week that it is increasing its utility by letting users distribute music, videos and articles to others on its messaging platform. Brands can create a channel on Tango for free and the app will share revenue from ads that are clicked on within a channel.

"This is part of a larger underlying trend of messaging services expanding beyond communication services, and help the best things get distributed," Tango co-founder Eric Setton said in an interview. Tango made the deals with media companies because they were looking to go where their audience was going - - to the apps that have increasingly taken the place of SMS messaging, he said.

All of this contrasts with WhatsApp, which has no stickers, taxi-hailing capability or advertising. The app, with more than half a billion members worldwide, charges $1 a year for usage after the first year, and has kept its no-frills service. It follows a motto of no ads, no games and no gimmicks.

Facebook's Zuckerberg and Chief Operating Officer Sheryl Sandberg have told WhatsApp's founders to just focus on growth and engagement, co-founder Brian Acton said at a technology incubator event last week.

It was "music to our ears," said Acton.



 

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