Now the CEO of the world's largest social network has a messaging monetization problem — and he paid $16 billion for the privilege of taking on this new head-scratcher.
The latest challenge comes in the form of WhatsApp, the fast growing mobile messaging service Facebook is acquiring, with founders who hate advertising and seemingly most other existing ways of making money from consumer Internet services.
"Advertising has us chasing cars and clothes, working jobs we hate so we can buy s**t we don't need," WhatsApp CEO and co-founder Jan Koum wrote on Twitter in August 2011, quoting Tyler Durden, the main character from the movie Fight Club.
In June 2012, Koum posted a blog on why WhatsApp does not sell ads.
"These days companies know literally everything about you, your friends, your interests, and they use it all to sell ads," he wrote, in what is an accurate summary of Facebook's current business model that is so loved by Wall Street.
"Advertising isn't just the disruption of aesthetics, the insults to your intelligence and the interruption of your train of thought," added Kuom, a future member of Facebook's board of directors, with a say on how the social networking company will be run. "Remember, when advertising is involved you the user are the product."
Ads are not the right way to monetize messaging, Zuckerberg told analysts during a conference call about the WhatsApp acquisition.
That has Wall Street worried that Facebook agreed to pay a huge price and give away about 8% of the itself for a business with few ways of making lots of money anytime soon.
"While we see strategic merit, the acquisition is difficult to justify on metrics we use to value Facebook," Brian Wieser, an analyst at Pivotal Research Group, who downgraded Facebook shares soon after the WhatsApp deal was announced.
Facebook is paying $19 billion for WhatsApp, including $4 billion ! of new stock awards for the start-up's founders and employees.
To justify that price, WhatsApp would need to generate around $1 billion in annual cash flow by 2018, Wieser estimated.
"Few data-points to support such an assumption were provided by the company, as evidently few are available," the analyst added. "As management indicated, it expects WhatsApp to focus on product and users rather than monetization, anyways."
Ken Sena, an analyst at Evercore, downgraded Facebook to equal-weight from overweight on Thursday, saying there is a question mark over the best way to make money from mobile messaging services like WhatsApp.
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