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WhatsApp finally earns money by charging businesses for slow replies

Today WhatsApp launches its first revenue-generating enterprise product and the only way it currently makes money directly from its app. The WhatsApp Business API is launching to let businesses respond to messages from users for free for up to 24 hours, but will charge them a fixed rate by country per message sent after that.
Businesses will still only be able to message people who contacted them first, but the API will help them programatically send shipping confirmations, appointment reminders or event tickets. Clients also can use it to manually respond to customer service inquiries through their own tool or apps like Zendesk, MessageBird or Twilio. And small businesses that are one of the 3 million users of the WhatsApp For Business app can still use it to send late replies one-by-one for free.

After getting acquired by Facebook for $19 billion in 2014, it’s finally time for the 1.5 billion-user WhatsApp to pull its weight and contribute some revenue. If Facebook can pitch the WhatsApp Business API as a cheaper alternative to customer service call centers, the convenience of asynchronous chat could compel users to message companies instead of phoning.
Only charging for slow replies after 24 hours since a user’s last message is a genius way to create a growth feedback loop. If users get quick answers via WhatsApp, they’ll prefer it to other channels. Once businesses and their customers get addicted to it, WhatsApp could eventually charge for all replies or any that exceed a volume threshold, or cut down the free window. Meanwhile, businesses might be too optimistic about their response times and end up paying more often than they expect, especially when messages come in on weekends or holidays.

WhatsApp first announced it would eventually charge for enterprise service last September when it launched its free WhatsApp For Business app that now has 3 million users and remains free for all replies, even late ones.
Importantly, WhatsApp stresses that all messaging between users and businesses, even through the API, will be end-to-end encrypted. That contrasts with The Washington Post’s report that Facebook pushing to weaken encryption for WhatsApp For Business messages is partly what drove former CEO Jan Koum to quit WhatsApp and Facebook’s board in April. His co-founder, Brian Acton, had ditched Facebook back in September and donated $50 million to the foundation of encrypted messaging app Signal.

WhatsApp CEO Jan Koum quits Facebook due to privacy intrusions

Today WhatsApp is also formally launching its new display ads product worldwide. But don’t worry, they won’t be crammed into your chat inbox like with Facebook Messenger. Instead, businesses will be able to buy ads on Facebook’s News Feed that launch WhatsApp conversations with them… thereby allowing them to use the new Business API to reply. TechCrunch scooped that this was coming last September, when code in Facebook’s ad manager revealed the click-to-WhatsApp ads option and the company confirmed the ads were in testing. Facebook launched similar click-to-Messenger ads back in 2015.
Finally, WhatsApp also tells TechCrunch it’s planning to run ads in its 450 million daily user Snapchat Stories clone called Status. “WhatsApp does not currently run ads in Status though this represents a future goal for us, starting in 2019. We will move slowly and carefully and provide more details before we place any Ads in Status,” a spokesperson told us. Given WhatsApp Status is more than twice the size of Snapchat, it could earn a ton on ads between Stories, especially if it’s willing to make some unskippable.
Together, the ads and API will replace the $1 per year subscription fee WhatsApp used to charge in some countries but dropped in 2016. With Facebook’s own revenue decelerating, triggering a 20 percent, $120 billion market cap drop in its share price, it needs to show it has new ways to make money — now more than ever.

Facebook loses $120 billion in market cap after awful Q2 earnings

Why unskippable Stories ads could revive Facebook

WhatsApp finally earns money by charging businesses for slow replies

Why unskippable Stories ads could revive Facebook

Prepare for the invasion of the unskippables. If the Stories social media slideshow format is the future of mobile TV, it’s going to end up with commercials. Users won’t love them. And done wrong they could pester people away from spending so much time watching what friends do day-to-day. But there’s no way Facebook and its family of apps will keep letting us fast-forward past Stories ads just a split-second after they appear on our screens.
We’re on the cusp of the shift to Stories. Facebook estimates that across social media apps, sharing to Stories will surpass sharing through feeds some time in 2019. One big reason is they don’t take a ton of thought to create. Hold up your phone, shoot a photo or short video and you’ve instantly got immersive, eye-catching, full-screen content. And you never had to think.
Facebook CPO Chris Cox at F8 2018 charts the rise of Stories that will see the format surpass feed sharing in 2019
Unlike text, which requires pre-meditated reflection that can be daunting to some, Stories are point and shoot. They don’t even require a caption. Sure, if you’re witty or artistic you can embellish them with all sorts of commentary and creativity. They can be a way to project your inner monologue over the outside world. But the base level of effort necessary to make a Story is arguably less than sharing a status update. That’s helped Stories rocket to more than 1.3 billion daily users across Facebook’s apps and Snapchat.
The problem, at least for Facebook, is that monetizing the News Feed with status-style ads was a lot more straightforward. Those ads, which have fueled Facebook’s ascent to earning $13 billion in revenue and $5 billion in profit per quarter, were ostensibly old-school banners. Text, tiny photo and a link. Advertisers have grown accustomed to them over 20 years of practice. Even small businesses on a tight budget could make these ads. And it at least took users a second to scroll past them — just long enough to make them occasionally effective at implanting a brand or tempting a click.

Stories, and Stories ads, are fundamentally different. They require big, tantalizing photos at a minimum, or preferably stylish video that lasts five to 15 seconds. That’s a huge upward creative leap for advertisers to make, particularly small businesses that’ll have trouble shooting that polished content themselves. Rather than displaying a splayed out preview of a link, users typically have to swipe up or tap a smaller section of a Story ad to click through.
And Stories are inherently skippable. Users have learned to rapidly tap to progress slide by slide through friends’ Stories, especially when racing through those with too many posts or that come from more distant acquaintances. People are quick with the trigger finger the moment they’re bored, especially if it’s with an ad.

A new type of ad blindness has emerged. Instead of our eyes glazing over as we scroll past, we stare intensely searching for the slightest hint that something isn’t worth our time and should be skipped. A brand name, “sponsored” label, stilted product shot or anything that looks asocial leads us to instantly tap past.
This is why Facebook COO Sheryl Sandberg scared the hell out of investors on the brutal earnings call when she admitted about Stories that, “The question is, will this monetize at the same rate as News Feed? And we honestly don’t know.” It’s a radically new format advertisers will need time to adopt and perfect. Facebook had spent the past year warning that revenue growth would decelerate as it ran out of News Feed ad inventory, but it’d never stressed the danger as what it was: Stories. That contributed to its record-breaking $120 billion share price drop.

Facebook loses $120 billion in market cap after awful Q2 earnings

The shift from News Feed ads to Stories ads will be a bigger transition than desktop ads to mobile ads for Facebook. Feed ads looked and worked identically, it was just the screen around them changing. Stories ads are an entirely new beast.
Stories ads are a bigger shift than web to mobile
There is one familiar format Stories ads are reminiscent of: television commercials. Before the age of TiVo and DVRs, you had to sit through the commercials to get your next hit of content. I believe the same will eventually be true for Stories, to the tune of billions in revenue for Facebook.
Snapchat is cornered by Facebook’s competition and desperate to avoid missing revenue estimates again. So this week, it rolled out unskippable vertical video ads it actually calls “Commercials” to 100 more advertisers, and they’ll soon be self-serve for buyers. Snap first debuted them in May, though the six-second promos are still only inserted into its longer-form multi-minute premium Shows, not user-generated Stories. A Snap spokesperson said they couldn’t comment on future plans. But I’d expect its stance will inevitably change. Friends’ Stories are interesting enough to compel people to watch through entire ads, so the platform could make us watch.

Snapchat is desperate, and that’s why it’s already working on unskippable ads. If Facebook’s apps like Instagram and WhatsApp were locked in heated battle with Snapchat, I think we’d see more brinkmanship here. Each would hope the other would show unskippable ads first so it could try to steal their pissed-off users.
But Facebook has largely vanquished Snapchat, which has seen user growth sink significantly. Snapchat has 191 million daily users, but Facebook Stories has 150 million, Messenger Stories has 70 million, Instagram Stories has 400 million and WhatsApp Stories (called Status) leads with 450 million. Most people’s friends around the world aren’t posting to Snapchat Stories, so Facebook doesn’t risk pushing users there with overly aggressive ads, except perhaps amongst U.S. teens.
Instagram’s three-slide Stories carousel ads
That’s why I expect we’ll quickly see Facebook start to test unskippable Stories ads. They’ll likely be heavily capped at first, to maybe one to three per day per user. Facebook took a similar approach to slowly rolling out auto-play video News Feed ads back in 2014. And Facebook’s apps will probably only show them after a friend’s story before your next pal’s, in-between rather than as dreaded pre-rolls. Instagram already offers carousel Stories ads with up to three slides instead of one, so users have to tap three times to blow past them.
An Instagram spokesperson told me they had “no plans to share right now” about unskippable ads, and a Facebook spokesperson said “We don’t have any plans to test unskippable stories ads on Facebook or Instagram.” But plans can change. A Snap spokesperson noted that unlike a full 30-second TV spot, Snapchat’s Commercials are up to six seconds, which matches an emerging industry trend for mobile video ads. Budweiser recently made some six-second online ads that it also ran on TV, showing the format’s reuseability that could speed up adoption. For brand advertisers not seeking an on-the-spot purchase, they need time to leave an impression.
By making some Stories ads unskippable, Facebook’s apps could charge more while making them more impactful for advertisers. It would also reduce the creative pressure on businesses because they won’t be forced to make that first split-second so flashy so people don’t fast-forward. Employing unskippable ads could also create an incentive for people to pay for a hypothetical ad-free Facebook Premium subscription in the future.
If Facebook makes the Stories ad format work, it has a bright future that contrasts with the doomsday vibes conjured by its share price plummet. Facebook has more than 5X more (duplicated) Stories users across its apps than its nearest competitor Snapchat. The social giant sees libraries full of Stories created each day waiting to be monetized.

Stories are about to surpass feed sharing. Now what?

Why unskippable Stories ads could revive Facebook

The psychological impact of an $11 Facebook subscription

Would being asked to pay Facebook to remove ads make you appreciate their value or resent them even more? As Facebook considers offering an ad-free subscription option, there are deeper questions than how much money it could earn. Facebook has the opportunity to let us decide how we compensate it for social networking. But choice doesn’t always make people happy.
In February I explored the idea of how Facebook could disarm data privacy backlash and boost well-being by letting us pay a monthly subscription fee instead of selling our attention to advertisers. The big takeaways were:
Mark Zuckerberg insists that Facebook will remain free to everyone, including those who can’t afford a monthly fee, so subscriptions would be an opt-in alternative to ads rather than a replacement that forces everyone to pay
Partially decoupling the business model from maximizing your total time spent on Facebook could let it actually prioritize time well spent because it wouldn’t have to sacrifice ad revenue
The monthly subscription price would need to offset Facebook’s ad earnings. In the US & Canada Facebook earned $19.9 billion in 2017 from 239 million users. That means the average user there would have to pay $7 per month

How ad-free subscriptions could save Facebook

However, my analysis neglected some of the psychological fallout of telling people they only get to ditch ads if they can afford it, the loss of ubiquitous reach for advertisers, and the reality of which users would cough up the cash. Though on the other hand, I also neglected the epiphany a price tag could produce for users angry about targeted advertising.
What’s Best For Everyone
This conversation is relevant because Zuckerberg was asked twice by congress about Facebook potentially offering subscriptions. Zuckerberg endorsed the merits of ad-supported apps, but never ruled out letting users buy a premium version. “We don’t offer an option today for people to pay to not show ads” Zuckerberg said, later elaborating that “Overall, I think that the ads experience is going to be the best one. I think in general, people like not having to pay for a service. A lot of people can’t afford to pay for a service around the world, and this aligns with our mission the best.”
But that word ‘today’ gave a glimmer of hope that we might be able to pay in the future.
Facebook CEO and founder Mark Zuckerberg testifies during a US House Committee on Energy and Commerce hearing about Facebook on Capitol Hill in Washington, DC, April 11, 2018. (Photo: SAUL LOEB/AFP/Getty Images)
What would we be paying for beyond removing ads, though?. Facebook already lets users concerned about their privacy opt out of some ad targeting, just not seeing ads as a whole. Zuckerberg’s stumping for free Internet services make it seem unlikely that Facebook would build valuable features and reserve them for subscribers
Spotify only lets paid users play any song they want on-demand, while ad-supported users are stuck on shuffle. LinkedIn only lets paid users message anyone they want and appear as a ‘featured applicant’ to hirers, while ad-supported users can only message their connections. Netflix only lets paid users…use it at all.
But Facebook views social networking as a human right, and would likely want to give all users any extra features it developed like News Feed filters to weed out politics or baby pics. Facebook also probably wouldn’t sell features that break privacy like how LinkedIn subscribers can see who visited their profiles. In fact, I wouldn’t bet on Facebook offering any significant premium-only features beyond removing ads. That could make it a tough sell.
Meanwhile, advertisers trying to reach every member of a demographic might not want a way for people to pay to opt-out of ads. If they’re trying to promote a new movie, a restaurant chain, or an election campaign, they’d want as strong of penetration amongst their target audience as they can get. A subscription model punches holes in the ubiquity of Facebook ads that drive businesses to the app.
Resentment Vs Appreciation
But the biggest issue is that Facebook is just really good at monetizing with ads. For never charging users, it earns a ton of money. $40 billion in 2017. Convincing people to pay more with their wallets than their eyeballs may be difficult. And the ones who want to pay are probably worth much more than the average.

Let’s look at the US & Canada market where Facebook earns the most per user because they’re wealthier and have more disposable income than people in other parts of the world, and therefore command higher ad rates. On average US and Canada users earn Facebook $7 per month from ads. But those willing and able to pay are probably richer than the average user, so luxury businesses pay more to advertise to them, and probably spend more time browsing Facebook than the average user, so they see more of those ads.
Brace for sticker shock, because for Facebook to offset the ad revenue of these rich hardcore users, it might have to charge more like $11 to $14 per month.
With no bonus features, that price for something they can get for free could seem way too high. Many who could afford it still wouldn’t justify it, regardless of how much time they spend on Facebook compared to other media subscriptions they shell out for. Those who truly can’t afford it might suddenly feel more resentment towards the Facebook ads they’ve been scrolling past unperturbed for years. Each one would be a reminder that they don’t have the cash to escape Facebook’s data mines.

But perhaps it’s just as likely that people would feel the exact opposite — that having to see those ads really isn’t so bad when faced with the alternative of a steep subscription price.
People often don’t see worth in what they get for free. Being confronted with a price tag could make them more cognizant of the value exchange they’re voluntarily entering. Social networking costs money to operate, and they have to pay somehow. Seeing ads keeps Facebook’s lights on, its labs full of future products, and its investors happy.
That’s why it might not matter if Facebook can only get 4 percent, or 1 percent, or 0.1 percent of users to pay. It could be worth it for Facebook to build out a subscription option to empower users with a sense of choice and provide perspective on the value they already receive for free.
For more big news about Facebook, check out our recent coverage:

Facebook shouldn’t block you from finding friends on competitors

Zuckerberg’s boring testimony is a big win for Facebook

Highlights and audio from Zuckerberg’s emotional Q&A on scandals

The psychological impact of an $11 Facebook subscription

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Facebook downplays test banishing all Pages to buried Explore Feed

Facebook ‘3D posts’ let you play with VR objects in News Feed

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Facebook ‘3D posts’ let you play with VR objects in News Feed