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Facebook Messenger: The Path to Monetization

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Facebook Messenger: The Path to Monetization

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A high level overview of the opportunities and considerations Facebook is encountering as it begins to monetize its Messenger platform . Messenger may be growing faster and has a larger user base(800M vs. WeChat's 659M), but WeChat has written the playbook on how to engage and monetize (~$7 ARPU) its primarily Chinese and Asian-based users by leveraging exclusive gaming and content deals, as well as innovative payment offerings. Facebook has already mentioned that they will focus on travel, but there is a much bigger opportunity from both a monetization and engagement perspective...

A high level overview of the opportunities and considerations Facebook is encountering as it begins to monetize its Messenger platform . Messenger may be growing faster and has a larger user base(800M vs. WeChat's 659M), but WeChat has written the playbook on how to engage and monetize (~$7 ARPU) its primarily Chinese and Asian-based users by leveraging exclusive gaming and content deals, as well as innovative payment offerings. Facebook has already mentioned that they will focus on travel, but there is a much bigger opportunity from both a monetization and engagement perspective...

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Facebook Messenger: The Path to Monetization

  1. 1. Facebook Messenger: the Path to Monetization By Alan Alden Series-A Partners www.series-a.com
  2. 2. Page 2 PRODUCED BY ALAN ALDEN I SERIES-A PARTNERS Messaging: The Fastest Growing Platform 1.4 Billion Current Users 2.5 Billion 2018 PROJECTED ADDITIONAL USERS BY GEOGRPAHY 579 265 244 73 45 Africa and Middle East Asia - Pacific North America Europe Latin America Million Users Million Users Million Users Million Users Million Users OPPORTUNITY 1.1 Billion Additional Users
  3. 3. Page 3 PRODUCED BY ALAN ALDEN I SERIES-A PARTNERS The Two Horse Messaging Race 0 150 300 450 600 750 900 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 800+ million users 659 million users 212 million users Messenger vs. WeChat* Line (Japan) WeChat / Weixin (China) FB Messenger (US) *WeChat, which is owned by Tencent, is called Weixin in Chinese
  4. 4. Page 4 PRODUCED BY ALAN ALDEN I SERIES-A PARTNERS The Messaging Holy Grail Increased Engagement Balanced Ecosystem Reduced Friction The Move from Application to Platform
  5. 5. Page 5 PRODUCED BY ALAN ALDEN I SERIES-A PARTNERS How to Reduce B2C Friction?  Provide a Deeply Integrated Payments Offering ̶ Capturing Credit Cards is Key ̶ WeChat and QQ have more than 200 million credit cards on their platforms ̶ Ability to capture loyalty and other cards enables companies to quickly delineate user and provides FB with better ad targeting  Integrate Commercial Customers into the Platform ̶ Facebook has more than 50 million active SMB Pages ̶ WeChat has more than 10 million “Official Accounts” within the WeChat app ̶ Creates own ecosystem and “browser” type effect, keeping users within the platform  Ease of Communication is Always Key ̶ Messenger’s Threads Concept is a great start ̶ M and other forms of AI will increase the personalization throughout process
  6. 6. Page 6 PRODUCED BY ALAN ALDEN I SERIES-A PARTNERS Monetization… FB’s Greenfield Opportunity Facebook Global ARPU Q4 2014 Q4 2015 $2.81 $3.73 Payments $0.19 Payments $0.13 $3.60 Advertising $2.62 Advertising WeChat KaKao Talk Line ~$7.00 $4.24 $3.16 Asian Messaging Platforms Have Proven the Potential of Monetization Competitor’s ARPU
  7. 7. Page 7 PRODUCED BY ALAN ALDEN I SERIES-A PARTNERS Monetization… WeChat’s Monetization How Is WeChat (aka Weixin in China) Monetizing Users Key Demographics  90% Users-18-36 Years Old  1.8:1 Male / Female Ratio  659M MAUs  1.1B+ Registered Users  100M Users Outside of China Key Points  Gaming is largest driver of revenue  54% of Tencent’s revenues  Parent co, Tencent, is now the biggest gaming publisher in the world  $1.76B – Estimated influence on lifestyle spending  50% of Users who use Taxi booking feature spend an avg of $16/ month  20% of users spend $30 or more a month on Official Account Services  200M Users are set up for payments WeChat ~$7.00 E-Commerce Services ~20% Gaming ~55%+ Revs Advertising ~15% Other ~10%
  8. 8. Page 8 PRODUCED BY ALAN ALDEN I SERIES-A PARTNERS The Model: WeChat Platform / Ecosystem Gaming Content  More than 10 million “official accounts” on the WeChat platform  Many businesses launch on WeChat before launching their own standalone apps  Has created an “app within an app” ecosystem Businesses Payments  More than 200 million cards linked to the WeChat and QQ platforms  Linked to many city services providers for bill payment  Users forced to provide payment details to interact with certain groups or businesses  More than 50% of WeChat’s current revenues  Largest portion of value-added services (VAS) revenue coming from gaming  Parent company, Tencent, is largest game publisher in the world, and owns stakes in Riot, Epic Games, Glu, as well as a 10% stake in Activision Blizzard  WeChat / Tencent have gained exclusive streaming rights to sports and entertainment content providers, including: the NBA, FOX Sports, 21st Century Fox, HBO, National Geographic, Warner Music Group, and more  Aggressively going into emerging markets outside of China and creating exclusive content deals with local entertainers
  9. 9. Page 9 WeChat Emerging Markets Case Study: Content Acquisition in South Africa PRODUCED BY ALAN ALDEN I SERIES-A PARTNERS
  10. 10. Page 10 PRODUCED BY ALAN ALDEN I SERIES-A PARTNERS Cliffcentral.com WeChat Gambles on Gareth Cliff, South Africa’s Howard Stern On May 1, 2014, Gareth Cliff, the most popular media personality in South Africa left terrestrial radio to launch his own online station, CliffCentral.com with the help of WeChat and mobile provider MTN  Key Considerations To Success of Partnership: ̶ Current media consumption habits • Will customer acquisition be “evangelical sale” to gain new listeners to a new platform ̶ Cost of streaming data for listeners/users outside of MTN • Customers, especially younger ones in emerging markets, are very price sensitive • Which carrier is the best partner: evaluation customer segmentation/ breakdown ̶ Offline and online promotions and advertising • What kind of resources will be required to market the new platform • FB would have a distinct advantage here by leveraging previously “likes” and similar interests for targeting
  11. 11. Page 11 PRODUCED BY ALAN ALDEN I SERIES-A PARTNERS Monetization… Messenger’s Opportunities Payments 3rd Party Content App Store Advertising Identity Management Gaming Travel B2B Services (Facebook for Business)
  12. 12. Page 12 PRODUCED BY ALAN ALDEN I SERIES-A PARTNERS FB’s First Steps: Business On Messenger Provides a platform for businesses and customers to communicate directly with each other on mobile devices  Provides real-time multi-media updates and push notifications ̶ Confirmations, customer service enquiries, etc  Enables businesses to provide highly personalized deals, offerings and services, creating increased affinity  Combined with new AI-based personal assistant,“M”, will lead to new levels of customer service offerings and efficiencies
  13. 13. Page 13 PRODUCED BY ALAN ALDEN I SERIES-A PARTNERS Monetization / Partnership Considerations  Geography  Age Group  Frequency of Engagement / Usage / UX Impact  Size of Opportunity  Margins  Impact on Existing FB Clients
  14. 14. Page 14 Vertical Analysis: Travel and Leisure PRODUCED BY ALAN ALDEN I SERIES-A PARTNERS
  15. 15. Page 15 PRODUCED BY ALAN ALDEN I SERIES-A PARTNERS Messenger’s Opportunity to Unify Travel  Average user visits 38 unrelated websites during the 45 day period leading up to a trip searching for information and best prices*  Online Travel is a $500 Billion industry growing 10%+ a year  Mobile’s % of total bookings is expected to grow from 15% to 35% of all bookings in 2018 Global Travel-Related Spend is $3.6 Trillion! * Source: Expedia Research
  16. 16. Page 16 PRODUCED BY ALAN ALDEN I SERIES-A PARTNERS FB Travel & Leisure Partner Considerations  Popularity of activity within age group/ geography  Availability to work with distributors or incumbent providers  How often do users engage in activity  Current engagement on FB  In order to capture the margin, FB must be the Merchant of Record 1% 10% 12% 20% 20% 23% 25% Flights Cars Sports Concerts Tours Shows Hotel Margins By Category
  17. 17. Page 17 There Is An Even Bigger Opportunity… and Facebook Has All of the Pieces in Place… PRODUCED BY ALAN ALDEN I SERIES-A PARTNERS
  18. 18. Page 18 PRODUCED BY ALAN ALDEN I SERIES-A PARTNERS The In-Destination Opportunity Flights $425B Auto $350B Lodging $580B In-Destination Spend $2,200B Food $800B Local Activities $350B Local Transit $600B Travel Retail $350B  Local information is essential because nearly 80% of US travel is by car  < 1% of destination travel spending is booked by OTAs (because it is not “planned”)  Even when available online, less than 5% of local activity is booked online in advance  Local service providers are extremely fragmented, little publication of offers online, little use of international standards for ease of distribution, and few global players Source: USTravel.org, WTTC, IATA, Odigeo
  19. 19. Page 19 PRODUCED BY ALAN ALDEN I SERIES-A PARTNERS FB “In Destination”: Pieces Are In Place What Facebook Already Has  50 Million SMB Pages  123 Million events created in 2015  500 Million people use Events  Facebook Places API and Directory Book Your Favorite Workout Class …and Uber to it! Powered with the MINDBODY API
  20. 20. Page 20 PRODUCED BY ALAN ALDEN I SERIES-A PARTNERS Leverage FB Affinity to Target Prospects  Customer Engagement Already Established  Firms Typically More Digitally Savvy  Can Try More Innovative Offerings  Less Evangelical Sale = Shorter Cycle
  21. 21. Page 21 Thank You Contact Information: Alan Alden alan@series-a.com PRODUCED BY ALAN ALDEN I SERIES-A PARTNERS

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