They say the best defense is a good offense. This certainly holds true for Facebook. The acquisitions of Whatsapp and Instagram were bold offensive moves meant to disrupt Google and establish Facebook as the most dominant platform in the mobile app ecosystem. The decision to embrace a constellation strategy and make Messenger a standalone app also contributed to Facebook's offensive stance. Good offense has afforded Facebook a strong defensive strategy against competitors for the future of social in a mobile-centric world.
Shareholders are taking notice, as Facebook's stock sentiment is very favorable. Facebook's shares are up 5 percent since the company reported 2014 Q4 earnings and 31 percent in the past 12 months. Analysts predict record revenue of $3.56 billion, up 42 percent from the year-ago quarter and EPS of $0.40, up 18 percent from the year-ago quarter.
What should further please shareholders is that Facebook isn't letting up. Facebook understands that revenue and profit diversification are essential in a software-first world. Google is currently challenged by their dependence on desktop search and plagued by their inability turn its portfolio's stars, specifically YouTube and Android, into profitable monopolies. On the other hand, Facebook has three moats and is taking serious action (which we'll discuss shortly) to evolve them into the stars of its portfolio. The revenue generating potential of these initiatives is also promising.
— Applico (@Applico) May 5, 2015
Facebook's product roadmap shows more promise than Google's botched plans to evolve their stars (Android and YouTube) into monopolies.
Whatsapp to Disrupt Skype
Whatsapp will hit 1B MAUs in 2015 at their current rate of growth. If they continue charging $1/ year, their business will be worth 50 percent of Skype's $2B+ annual business. Whatsapp's revenue growth will accelerate as they roll out voice calling to other mobile OS besides Android and charge for call credits like Skype. Will Whatsapp introduce Whatsapp for Business to capitalize on the growth of messaging apps in the B2B space (Slack, HipChat, etc.)? Can Facebook leverage Whatsapp's global reach in remote, mobile-first areas where Facebook isn't the leading social network? Whatsapp's user growth story has been nothing short of stellar and their revenue growth story is looking just as bright with these options at their disposal.
Messenger Has Several Revenue Generating Options
Facebook opening Messenger to app developers will prevent its users from wandering too far away from Facebook. Google missed the trend of its users migrating from search into apps and is now fighting to protect its search cash cow. But Facebook is one step ahead. It's developing a strong value proposition for developers, the same group that created this problem for Google in the first place.
Developers want access to Facebook's users. Messenger offers the potential to scale your audience quickly using Facebook's 1B+ MAUs. The value proposition gets even stronger when you add the ability for developers to create individualized apps by tapping into Facebook's data. Of course, Facebook will also use the data generated from its users' engagement with these apps to improve its own product. Win-win.
Messenger's potential revenue streams include fees for app installs, charging a percentage of money transfers as Messenger adds P2P payment capabilities, and e-commerce. The roadmap for Messenger is both offensive and defensive, as it protects Facebook's access to its existing users while also opening up new monetization channels.
Instagram Adds to Facebook's Leadership in Identity Platforms
Instagram is starting to monetize through sponsored posts and e-commerce. Another interesting development is that Instagram is now integrated into Tinder. Facebook is taking measures to ensure that both your Facebook and Instagram profiles can serve as your digital identity. We predict that Facebook will soon know more about you than Google because Facebook is the world's most dominant identity platform. It understands who your friends are, your likes and interest, your check-ins, and who you tend to communicate. Compare this to Google's extensive but less social-specific data. Access to this social data is a huge lure for marketers and developers alike, both of which have the potential to be two very profitable client bases for Facebook.
The Rise of the First Facebook-Native Media Publication
A majority of referral traffic to major publication sites is driven by the Facebook network. Facebook even recently announced that it could directly host NYT news sites' content on the Facebook platform. This is a major move not because these legacy publications will eventually migrate their entire operations to Facebook (they're unlikely to do so since they would lose access to their users' data), but because the first Facebook-native content powerhouse could eventually be born. This company would be the first major content player to bypass owning its own website and run its entire infrastructure on Facebook. This model could end up disrupting properties like NYT and BuzzFeed alike.
All of these initiatives place Facebook on the offensive. It is well positioned to overtake Google in the near future as the dominant Internet company, both in terms of scale and revenue. The acquisition of Whatsapp and Instagram were perceived as defensive moves when the news first broke, but perception is quickly changing. Facebook is on the offensive now. Its moats will soon be stars, and it's got new moats like its publishing platform on this way. For Facebook's shareholders, this is excellent news.