We believe Facebook (NASDAQ:FB) is transforming Messenger into a consolidated commerce request marketplace. Messenger CEO David Marcus' recent blog post confirms that Facebook is thinking along these lines.
"At Messenger, we're thinking about how we can help you interact with businesses or services to buy items, order rides, purchase airline tickets, and talk to customer service in truly frictionless and delightful ways."
We recently wrote on why we felt Facebook had the potential to launch a Yelp (NYSE:YELP) substitute. We believe launching this Yelp-substitute and transforming Messenger into a consolidated commerce marketplace are two disruptive moves within a greater plan of making Facebook's multiple-app ecosystem a one-stop-shop destination for all parts of the commerce process.
Consolidation Makes Sense
We believe 2016 will be a transformative year for Messenger, and further believe that we are no more than a year away from Messenger users being able to order everything from a pizza to a pair of jeans through Messenger.
We will first discuss why consolidating all commerce requests on a single platform is logical and a worthwhile initiative for Facebook.
Chris Messina, independent product designer and former user experience designer at Google (NASDAQ:GOOG) (NASDAQ:GOOGL), says that one of the truisms in the smartphone industry is that a lot of people buy smartphones but don't download that many apps. He says app engagement is a very difficult thing to achieve and, more importantly, retain. This is why applications flood users with push notifications, constantly reminding the user to engage with the application. The problem therein is that users view the overt usage of push notifications as intrusive, and end up deleting the app.
This is more commonly known as the app enigma. People love smartphone applications, but don't download new ones. Around 65% of smartphone users do not download a new app every month. As makes sense, data suggests that consumers load up on a few favorite apps when they first get their smartphone and then just stick to those apps. According to Julie Ask, principal analyst at Forrester, an average phone user spends 84% of his or her time in just five apps. Those five apps are most normally dominated by social media and messaging apps, so this is problematic for commerce brands trying to build an app presence. Ask adds:
"Brands are realizing that people just aren't spending time in their apps so the companies are trying to engage you in places like Facebook because they know you spend a lot of time there."
(Source: Wall Street Journal Technology)
If you stop and think about this very simply, it makes complete sense that the user only wants a few apps. It is not ideal to have multiple apps for multiple different things. Multiple different apps mean multiple different app interfaces to learn, multiple different app notifications to filter through, and multiple different programs eating up memory. This creates an unattractive cluttering effect. Foldering helps the problem of visual cluttering, but doesn't appease much of the information cluttering.
Moreover, there exists the issue that some apps do not run in the background. YouTube is one such app. If you close an app like YouTube to respond to a text, YouTube stops running. Even if the app runs in the background, multiple apps still create the inconvenience of switching between apps. Depending on the app and time between apps, it can take awhile to load different apps. This is a notable inconvenience. The more apps to switch between, the bigger the inconvenience.
For these reasons, we believe consolidation in the app space makes sense. Fewer apps that do more individually is ideal for the user. The user is required to learn fewer interfaces, has less visual and information cluttering, and is able to perform multiple tasks without the inconvenience of switching applications. All of the user's data is also stored in one central location as opposed to being scattered across several different databases, and the user will limit the amount of times they have to login.
As it relates to commerce, consolidation makes even more sense because of the elevated cluttering currently in the space. The market for commerce is especially confusing and inconvenient for consumers. Some commerce giants are fully omni-channel with an app presence, others are quasi-omni-channel with only an online presence but no app presence, while some new ones are online-only or app-only. Some commerce players are grouped into quasi-consolidated apps like GrubHub (NYSE:GRUB), but others have their own application. Overall, what this creates is an augmented sense of cluttering. Consumers are left asking themselves: what is the best way to order from this restaurant or retailer?
Consolidation here will prevail because it will attempt to universally answer that question for all retailers and restaurants. It creates convenience and simplicity by funneling all commerce requests through a single platform. As David Marcus put succinctly in his blog post:
It is so much easier to do everything in one place that has the context of your last interactions, as well as your identity (no need to ever login), rather than downloading apps that you'll never use again and jumping around from one app to another
Conversational Commerce Makes Sense
The question then becomes why should that platform be conversational in nature?
Firstly, people spend a lot of time texting and instant messaging, so smartphone users are likely most accustomed to a conversation thread. In other words, the learning curve for conversation platforms isn't steep at all. Making a consolidated commerce platform conversational in nature will further cater to the convenience of the user.
Secondly, a conversation thread keeps track of prior interactions. The user can reference their transaction history with a company in the same way they would reference a conversation with a friend. A conversation thread creates natural filters in this sense.
Thirdly, it fits with the shift to mobile shopping. Mobile shopping soared 59% this Holiday season, and this shift to mobile-centric shopping is likely just beginning. Making a consolidated commerce platform conversational in nature will fit in with a natural trend of people shopping on their phones, and merge this trend with the fact that the user is comfortable with conversation threads.
Messenger Is More Leveraged Than Other IM Applications
We believe Messenger is more leveraged than other IM applications to transform into a commerce marketplace.
Messenger's leverage over other IM applications is largely size-related. Facebook already has 1/7 of the world on it on a daily basis, and 800m people using Messenger. When discussing consolidation of services and applications, it seems a natural and logical step to make the largest and most popular platform available the marketplace for that consolidation. Messenger is the dominant platform in the IM space. A recent US survey found that 51% of its respondents used Messenger, while only 14% of respondents used the second most popular IM platform, WhatsApp.
Messenger is further leveraged by being Facebook's IM tool. Facebook already has a diverse network of businesses on its platform, so it is a natural step for these businesses to use Messenger as a consumer communication tool for both orders and queries.
The Disappearance of the Phone Number
Messenger, though, does not have size leverage over traditional SMS or phone-to-phone texting. As of 2012, more than 4 billion people had access to SMS capability (based on the number of phones in the world). Three years later, Facebook's daily population is still only 25% of that figure.
We think, though, the bigger trend at play here, especially among Millennials, is the disappearance of the phone number. David Marcus emphasized this in his blog-post.
We believe we are approaching an era of communication dominated by Messenger wherein phone numbers have become mostly obsolete.
The prevailing argument backing this thesis is that as Wi-Fi becomes increasingly available everywhere and Messenger grows in size, SMS and phone numbers are becoming increasingly irrelevant. As David Marcus pointed out in his blog post, the disappearance of the phone number is a secular trend. According to Marcus, it is simply an out-with-the-old, in-with-the-new shift that makes sense as our smartphones become more capable machines than just phone-to-phone communication devices. He says:
First let's set some context. Think about it... SMS and texting came to the fore in the time of flip phones. Now, many of us can do so much more on our phones; we went from just making phone calls and sending basic text-only messages to having computers in our pockets. And just like the flip phone is disappearing, old communication styles are disappearing too. With Messenger, we offer all the things that made texting so popular, but also so much more. Yes, you can send text messages, but you can also send stickers, photos, videos, voice clips, GIFs, your location, and money to people. You can make video and voice calls while at the same time not needing to know someone's phone number. You don't need to have a Facebook account to use Messenger anymore, and it's also a cross platform experience - so you can pick up where you left off whether you're on a desktop computer, a tablet, or your phone.
We would like to add to Marcus' statement by arguing that the increasing availability of Wi-Fi will accentuate the phone number's gradual disappearance. Not only is complimentary Wi-Fi becoming a popular and common in-store option, but Wi-Fi is also becoming an in-transit option as well. With Wi-Fi at home, Wi-Fi in the car, and Wi-Fi at the store, the argument to save money by using Messenger instead of texting becomes compelling. Verizon (NYSE:VZ) charges $0.25 per text if you don't have a texting plan, and if you use mostly Messenger, that total texting cost could be quite low. Wi-Fi availability also means that you don't need a large data plan to support heavy Messenger use in various locations. The percent of a user's day spent being connected to Wi-Fi will grow consistently over the next several years.
Messenger also lends itself more appropriately than SMS to international conversations. Phoning and texting someone internationally gets complicated depending on your carrier, but Messenger universally allows for international communication. Messenger, unlike SMS, is predominantly geographically indifferent. Being able to contact someone without having their phone number is also a benefit of Messenger.
In sum, we believe Messenger is a far more convenient, simple, cost-effective, and intuitive messaging system than traditional SMS. We expect the phone number to gradually disappear over the next few years, and likewise expect Messenger to replace traditional SMS as the most popular and common form of "text communication".
Uber Is The First - Others Will Follow Suit
The transformation of Messenger into a conversational commerce platform has already begun.
It is already possible to order a Uber using Messenger, and Facebook has managed to make the process quite simple and intuitive. You simply create a new message, type in Uber to the recipient bar, and click on the car icon below the message bar. You sign in to Uber, and then are ready to order a Uber from Messenger. When ordering the Uber, the interface is very similar to the Uber-app interface. You use GPS to set your location, select the type of Uber you want, and enter the destination.
Uber is the first of what we expect many businesses to join the Messenger commerce platform this year. Facebook recently announced that it has more than 50 million active business pages that collectively receive 2.5 billion comments each month. We expect almost all of these 50 million active businesses to create some sort of chat feature with Messenger in the next 1-2 years so that the customer can either order goods or query management through Messenger. The thing about consolidation is that its beneficially cyclical. The more businesses join, the more users make use of the commerce platform. The more users make use of the commerce platform, the more businesses will be compelled to join.
We would also imagine Messenger would implement a separated filing feature, where personal conversations are filed separately from business conversations. This would alleviate some of the cluttering that could occur as a result of mixing personal conversations with business ones.
A Greater Marketplace For Discovery
We believe Facebook is creating a marketplace where you can discover, order, and review services/products all in one multiple-app-integrated ecosystem (Facebook + Messenger). The meshing of Places and Services will serve as the discovery/review side of the platform (the Yelp substitute), while Messenger will serve as the commerce side of the platform.
This would make Facebook a one-stop-shop destination for all parts of the commerce process.
Facebook is creating a new world of commerce. Uber was the first company to join this movement, and other services will follow suit in domino fashion. The result will be that in the not-too-distant future, Messenger will be the consolidated communication platform connecting merchants and consumers.
This is part of a much bigger move to turn the Facebook multiple-app ecosystem (Facebook + Messenger) into the app-world's version of a comprehensive one-stop-shop for all parts of the commerce process.
We are long Facebook because we think the company is just at the seed-stages of realizing the full monetary potential of its billion DAU user pool. We see 2016 as the year Messenger transforms into a commerce marketplace, and view this as a significant step for Facebook.
Disclosure: I am/we are long FB.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.