Rise of WhatsApp Could Slow Facebook's Quest for Mobile Growth

Little Known in the U.S., Chat App Has Largely Usurped SMS Around the World

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As Facebook strives to keep engagement high in the face of mounting evidence that teenager interest is cooling, it's vying against a field of messaging apps that are sucking up mobile users' time and attention.

Chief among them? WhatsApp. Though still unknown to most Americans, the cross-platform chat application, which replicates the text experience through push notifications, has built up a massive global following. It claims to have eclipsed Twitter's 200 million monthly active users, dominating markets such as Brazil, India, the Netherlands, Spain, Germany and Italy.

WhatsApp isn't claiming to be a social network and offers a very different experience than Facebook with its simple user interface and its decision to eschew advertising in no uncertain terms. As the company wrote in a blog post a year ago: "Advertising isn't just the disruption of aesthetics, the insults to your intelligence and the interruption to your train of thought ... when advertising is involved, you the user are the product." WhatsApp did not respond to a request for comment.

WhatsApp generates revenue by charging users—99¢ for iOS users to install it and a 99¢ annual charge for users of other platforms, with the first year free.

Given how much time smartphone users spend texting (20% of their total, according to Experian Marketing Services), it's little wonder Facebook invested in Home. The Android app lets the social network show users' Facebook content on their home and lock screens and alerts them to messages from their friends with "chat heads" that pop on their screen no matter what they're doing with their device.

Facebook declined to comment on competitive pressure from WhatsApp. But it's been busy bulking up on other features that WhatsApp doesn't have. And if Facebook can make its Messenger app as ubiquitous in the U.S. as WhatsApp is in places like Spain, there are lots of potential positives for Facebook's ad business

"Messaging is one of the most engaged things we do on our phone. It's not gaming, it's not passive browsing," said Altimeter Group analyst Chris Silva. "There's also a great deal in those conversations that would be helpful for contextual advertising, and Facebook would love to get in on that."

WhatsApp is dominant in a cross section of markets like Mexico, Argentina, India and the Netherlands (where one mobile carrier sought in vain to charge its users extra to make up for lost revenue from texting). But it's not the only game in town.

According to mobile intelligence service Onavo Insights, 94% of South Korean iPhone owners are monthly users of KakaoTalk, 69% of Japanese owners use Line and 79% of Chinese owners are on WeChat.

SMS still reigns supreme in the U.S., however, and Facebook isn't the only tech giant eyeing an opportunity. Google introduced a cross-platform Hangouts app at its I/O developer conference last month.

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