Commentary
What Does WhatsApp's Success Say About Advertising?
- by Ari Rosenberg , Op-Ed Contributor, February 20, 2014
The WhatsApp founders came from a culture (at Yahoo) where engineer work was dedicated not to making the user experience better -- but instead, making ads more sellable by collecting more data. They left Yahoo and started WhatsApp with the condition that ads will never appear and no data will be collected.
Brian Acton and Jan Koum, the two founders who found a way for people to text-message without paying carriers text-messaging fees, have lived up to this promise to their users. In exchange for this ad-free “content experience,” users pay an annual fee to WhatsApp of 99 cents a year. WhatsApp currently has 400 million users who could not be happier with these two guys.
I am not a user (yet), but am incredibly amused by the juxtaposition between their ad-free success and what “we” say on sales calls and at industry conferences, about the value created for users by deflowering their personal data to provide useful and targeted ad messages.
WhatsApp’s success (it was just bought by Facebook for a cool $19 billion) says, “We’re kidding ourselves.”
WhatsApp’s success says, “We’re lying to our clients.”
WhatsApp’s success says what no one in our industry wants to hear: “Consumers don’t want to see ads, especially when they are looking at a mini computer they hold in their hands.”
The digital ad world will say, “Reading and responding to professionally published content is different than reading and responding to text messages.” The digital ad world thinks that users checking the weather, sports scores, playing games or reading social media don’t mind ads, especially if they are relevant. The digital ad world believes “consumers understand” that for this content to be free, they have to put up with ads.
WhatsApp’s success calls “bullshit.”
First off, is text-message content that much different from published-site content? Yes, it’s user-generated, but with much higher engagement rates. Second, isn’t reading and responding to “content” the story publishers tell advertisers about the experience users are having with their published sites? So even if we have to stretch a little to see this, user-generated text-message content and site-published content are both “content,” and currently 400 million people are all saying the same thing: not having ads interfere with a valuable content experience is worth paying for.
This is not a question about whether consumers will continue to tolerate digital advertising. I think the success of WhatsApp says consumers have drawn a line when it comes to tolerating ads in the palms of their hands.
Let’s look at online ads that appear on desktops (and laptops) for an honest moment. Beyond the occasional exception like the home-page buyout that ran on Politico.com yesterday promoting “House of Cards” -- which looked absolutely perfect -- desktop online display ads are often awful. Whether it’s the creative, the intrusiveness, or the abundance of them crammed onto one page, these display ads are not welcomed by consumers, despite precision targeting. But they are tolerated. Why? Because desktops computers remind consumers of their televisions and deliver an experience that often mimics reading a magazine, and both prior media experiences have trained consumers to accept ads.
When it comes to the mini computers that fit in our hands and are carried everywhere we go -- well, that’s where tolerating ads may come to an end. Those 400 million WhatsApp users are saying there is no room in our pockets for ads, and if you can deliver an ad-free mobile content service we value, we will reach into our pockets and pay.
Lost in the invariable hype this deal will generate is a message publishers should not ignore. Mobile ad growth is going to hit a cliff because consumers will not tolerate these ads -- and instead, will jump to ad-free pastures. Publishers should stop convincing themselves about the value they provide to their users by serving up relevant and targeted advertising on mobile devices. Instead, they should figure out how to provide an ad-free mobile content service so valuable, consumers will pay for it. A buck a year can add up pretty quickly.
Success should never be defined by a sales price. The rationale for the purchase is invisible to all of us. I know, however, that a 99 cent annual income from 400 million users ain't a bad start, but so far there is zero proof that any of these folks will convert when their free year is up (this is direct marketing 101). Even if 100% convert and even if they all stay when fees get raised in year 2 and beyond, it will still take Facebook longer to pay off this investment than I have years to live. Not an especially good deal. They may, however, have different agendas. I hope so.
The problem with your analysis is that you consider this a content play when its a data and communication play. If I'm making a phone call or texting someone the context is poor for advertising, because the last thing I want is disruption of real-time communication. In the emerging markets where WhatsApp is strongest the costs for data are significant and this is a way to by pass telco data plans. Whether FB gets their money out of this they've bought themselves significant reach with an engaged user base (70% active users) and they can theoretically utilize this new data source for indirectly for advertising purposes in addition to the subscriptions. While many mobile ad experiences are questionable, you make a significant reach between mobile ads falling off a cliff and the user experience of WhatsApp.
If I am following the writer's point here, then surely Facebook should stop serving ads and start charging users to use the service? At the base level Facebook is a service for sharing information with other people, just like WhatsApp. Not sure that's in Zuckerberg's plan though...
You make a valid point that publishers have a duty to ensure the ads they serve are a) not overly intrusive to the user experience b) as relevant and useful as possible. After all, this will make response rates better for advertisers.
@Aaron
I like your insight and in my analysis I am asking you to stretch your definition of content to encompass "text communication" -- I get it's a stretch.
@ Nathan
My point is this -- users will tolerate ads on other platforms like print, tv, radio, and desktops but my sense here based on the success of WhatsApp is that users will not tolerate display ads on mobile experiences -- even beyond personal communication content like text messages -- if publishers/services offer ad free experiences for mobile content users will grab hold -- pop up ads are actually popping up on mobil content and that's a signal "we" are trying to take what doesn't work in display online and force it onto mobil and users will revolt -- watch you'll see
Geez...as I look around the world and the strife & tumult that MOST people are dealing with daily...Ukraine, Syria..etc..It's seems arrogantly American that some in our country can no longer "tolerate" advertising within their mobile devices ? Really..? How intolerable is it ? Without the advertising industry...Many more people would be out of work...many more would suffer ( reduced sales and profits etc). Need to wake up and stop this ridiculous line of reasoning. As citizens of the world...I am sure that those people suffering around the world...who have to "tolerate" a sub-human existence...would change places with any of us whose life has been impacted so severely by the insertion of ad messages via a mobile messaging platform. Wake up and check your arrogance at the door. If FB can't figure out how to monetize this $19B purchase...alot more folks will be hitting the pavement.
@ Al DiGuido, thanks for the dose of reality on this discussion and I recognize you are a heavy weight in this ad space so I appreciate your time and attention but respectfully let me push you back a bit -- this isn't about tolerating ads as an inconvenience to what you point out as exceptional lives we get to live here in comparison to what people are experiencing around the world-- this is a bigger point about "choices" consumers can make -- as an industry we work under the assumption that we are helping consumers by running relevant ads -- and WhatsApp proves is that our notions are ill conceived -- ads are not welcome and given the choice consumers will choose an ad free experience because we have taken their attention for granted by stealing data, running intrusive ads, and generally making their content experience worse not better -- that's the bigger point here.
Ari...thanks for your note. As someone who has been in the ad business for most of my career...I have heard this same drumbeat many times..Consumers don't want ads in their newspapers, magazines, websites, along the roads of their highways, in their subway cars...there is too much direct mail.stop putting ads on taxi cabs...above urinals..etc..too many ads on television...Advertising by its very nature IS intrusive. It's ONE of the ways that we find out about new products and services. If you are saying that "MOST" consumers would rather live life without advertising in their lives...I am not buying it...With all due respect this is an "old lament" by folks who are just plain anti advertising.. Should advertisers be respectful of data and consumer preferences..? YES. Folks who want to read content without ads read books. Add up all of the folks who choose to intersect with content and advertising on a daily basis thru magazines, tv, taxi's etc. and compare that to the SMALL minority who believes in a world without ads...and the multiples are as crazy as the FB valuation of Whatsapp. Let's not take this purchase by FB as some sort of leading indicator for the demise of "intrusive advertising" Without advertising....much of the great content providers in our world would be OUT OF BUSINESS. You see consumers who don't want ads aren't REALLY interested in paying the Premium required for that companies that provide that experience enough revenue to sustain themselves...much make a profit. Last time I checked...FB is a public company whose shareholders are banking that the company continues to make money each quarter.
Ari, while I agree with your overall point that users don't want ads, they simply tolerate them, I don't think the ad free experience - while valued by users - is what makes WhatsApp the success it is. The app went viral because of the simple method of user signup (simply tell the app your phone number, no other registration mechanism needed). The simplicity of this process made it very easy to convince users to at least try it once and send/read a message or two.
The user experience without ads is no doubt a good one, and helps keeps users using WhatsApp, but they *aren't* doing so primarily because it's an ad-free app. It just helps. The entire UX of the app is great and having no ads is simply a facet of that great experience.
@ Al Diguido -- "Uncle" -- great points thanks for sharing them.
@ Aidan -- fantastic point -- I wrote this with a blind spot as a non user -- and I love love love your point that ease of registration was such a key to their success -- thanks for pointing that out.
I still sense that mobile is gonna be different than prior media...we shall see -- thanks guys -- I don't need to be right and I love the insight you both have shared to this conversation
What a classic example of Marketing/Media Myopia. Has anybody taken a moment to observe the plight of network television. Shrinking audiences. Diminishing profits. Growing production expenses. Anybody who believes that the audience for advertising supported media accepts, embraces or appreciates advertising is living in a dream world that is becoming less and less sustainable. The audience ignores the advertising. they don't tolerate it. Advertising no longer exists for them. Ask Coca-Cola executives about the diminishing value of brand advertising. they ran a Super Bowl spot that celebrated diversity and blew up with the lunatic fringe, but when several polling organizations tried to track general response to the spot the vast majority of respondents said they didn't notice it. And that's the Super Bowl where 30 seconds costs $4mill a pop. Advertising is irrelevant to a growing percentage of Americans. This artical is a wake-up call to an industry that has been talking to itself for far too long. Thank you Mr. Rosenberg for noticing the Emperor has no clothes. Not only in emerging mobile media, but in every other form of media serving our Nation. The art of persuasion is a lost craft in our industry. And all the puffery and bluster of so-called "industry experts" will not bring it back.
Pardon my typos. I live in LA.
The author's logic is faulty I'm afraid. Saying: "Those 400 million WhatsApp users are saying there is no room in our pockets for ads, and if you can deliver an ad-free mobile content service we value, we will reach into our pockets and pay." First, most of those consumers were paying already --much more in fact through their carrier's per text pricing plans. And second, the first year is completely free with Whats App. After that, its $1.00 a year. I get the premise but I'm afraid the example is not a fit. These consumers were seeking a cheaper/free option and in WhatsApp they found it.
@ Harry Webber -- you said it clearer than I wrote it -- typos and all (why don't these boards have en "edit" button after you post so we can clean up our merstakes :)
@ Kate Berg -- don't be afraid to say it -- you make a valid point that I absolutely missed -- the ad free experience is a complement to the primary reason of no SMS fees that you pointed that are responsible for this growth -- but the ad free experience was like a nice dessert that keeps users coming back -- just think if it was the opposite and the FREE texting turned into a blizzard of ad related hoops users had to jump through -- growth would have stalled.
Thank you Kate Berg -- you helped me understand my own column even better :)
With respect to the learned contributors here, the issue is ads on a smartphone, not ads in general. Those who think users will tolerate ads-as-usual on such personal devices had better think again. It's a very different animal.
Hey, fellow marketers: see it through the consumer's experience. Those of us who use WhatsApp enjoy its unlimited free 1 year of texts worldwide, and its 2nd year of unlimited worldwide texts for $1. If you text internationally, it's terrific, especially compared to AT&T. That's the key benefit. As for ads, with respect to Al, even as a marketer, I don't have to tolerate ads to keep people employed in advertising. Re: FB's goals: as Jerry says, it may not be what we can see about the numbers. But surely they want the data.
@ Terry Heaton -- your comment captured exactly what I was trying to say w/ this column so thank you -- what "we" put up with the desktop display ads will not be tolerated with smart phones -- just watch
@ Marjorie -- thank you for weighing in with more specifics as an actual user of WhatsApp and for taking the time to digest these comments and offer even more clarity on the topic -- nice going and I agree w/ your assesment