Facebook’s opportunity with an expanded Messenger app

Posted on March 23, 2015 by Eric Benjamin Seufert

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Speculation abounded last week about announcements that Facebook may make at its upcoming f8 conference regarding changes to its Messenger app. The general consensus around Messenger is that Facebook will allow third-party developers to integrate external content into the app, creating a “platform” of sorts (although it seems unlikely that Messenger will become an open development platform, in the purest sense of the word).

This seems like a fair assumption, given that Facebook recently introduced peer-to-peer payments functionality within Messenger that requires users to provide their credit card numbers. This was a logical development following the hire of former PayPal president David Marcus in June 2014, and it could allow Messenger to become a commercial interface for a range of products. Given the size of Facebook Messenger — Facebook revealed that the app had 500MM MAUs in November 2014 — payments and commerce on Messenger alone could represent a significant source of new revenue for Facebook.

But how broad might Facebook cast its ambitions with Messenger –will it follow in the footsteps of Asian OTT messaging services like KakaoTalk, WeChat, and Line in integrating game distribution portals?

Perhaps, but that doesn’t appear to be the biggest opportunity for Facebook in expanding Messenger beyond its current set of functionality (which includes text, voice, and video messaging as well as sticker distribution and now peer-to-peer payments). Rather, Facebook may take on Snapchat — specifically, its Discover feature — in creating advertising opportunities for brands through content channels offered on Messenger.

Some recent cues from Facebook point to this. The company acquired LiveRail, a video advertising company, in July 2014 to improve its targeting capabilities for ad serving, and it was recently reported that the LiveRail team might be building out cross-device ad serving infrastructure to target Facebook users across multiple devices. This would create an interesting opportunity for brands to advertise with Facebook: not only could they reach users on desktop and mobile with Facebook’s premium video ad product but also potentially in a new, native video ad placement in Messenger similar Snapchat Discover, which is commanding $100 CPMs from advertisers.

Why is this important? Because brand advertising on mobile has the potential to dwarf the money spent across the app economy on the most popular mobile app install ad formats, which are (slowly) being displaced by native / contextual ad formats, anyway.

A brand advertising push is, on the surface, more consistent with Facebook’s strategy for Messenger over the past few months than a games distribution effort (which isn’t to say that Facebook won’t try to distribute games through Messenger in addition to offering premium advertising formats). In forcing the download of a stand-alone Messenger app starting in April 2014, Facebook created a second nearly permanent presence on the Top Downloaded charts on both Google Play and the App Store.

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It makes more sense for the company to leverage that free visibility into advertising revenue via more lucrative, brand-focused video formats than to use Messenger to compete with its Audience Network for mobile app install ad revenue, especially in light of the company’s recent focus on video formats and Snapchat’s success with its branded content channels.