WhatsApp's Quiet Move Into Social Networking, And Why Facebook Should Worry

| About: Facebook (FB)

The group messaging application WhatsApp is spreading, in the U.S. and even more outside of the U.S. WhatsApp (usually pronounced "what's up") lets people chat, in groups of up to 50 people. It also supports sending pictures, videos and sound recordings. When used between two people, it's very similar to SMS, but its real advantage is in groups, where everybody in the group sees the messages, replies and attachments as they're sent.

There are a number of reasons for WhatsApp's success. Its user interface is incredibly easy to use, and pictures and videos can be taken and sent more easily than in most other apps.

If you read news coverage of WhatsApp, you'll see it discussed as a "group messaging" application, competing with SMS messaging ("texting") and with other messaging applications including Skype, Viber and others. But taking a closer look at WhatsApp's success, especially among teens, a different picture emerges.

Bottom line: Teens and young adults are increasingly using WhatsApp not only for traditional messaging, but also for the more general and long-term "staying in touch," including sharing status updates and pictures, that has traditionally been the heart and soul of social networking on Facebook (NASDAQ:FB).

High school classes have created a WhatsApp group for the whole class, not for serious messages that everyone needs to see, but for sharing status updates and pictures. Their parents are happy, because using WhatsApp avoids a lot of the personal safety concerns of sharing personal details on Facebook. The significance is that this group is not used only for messages that members of the group need to see, but also (maybe primarily) for status updates and shared pictures.

This is not an isolated example. More and more groups use WhatsApp as a closed-group social network, replacing what a few years ago would have been a mailing list and more recently would have been a Facebook group. These groups range from graduating classes staying in touch to extended families sharing pictures of children. Some of these groups are motivated by privacy concerns, some by the ease of use of the WhatsApp application, and some for other reasons, but the bottom line is a shift of social networking to WhatsApp.

Both Facebook and Google (NASDAQ:GOOG) and others, have recently put more work into their mobile applications for group messaging. Facebook has released a standalone app called Facebook Messenger, with a novel interface for keeping active conversations on the screen. Google has released a standalone app for Google Hangouts, integrating Google Talk and Gmail chat. Skype and others have strengthened their group messaging. But none have made it as easy and intuitive as WhatsApp to create and maintain ongoing discussion groups, and to share messages, pictures, videos and audio messages.

Interestingly, the idea of closed-group social networking was one of the key advantages of Google Plus's "circles," introduced by Google a few years ago. But Google Plus has been slow in spreading among the mass market, and most Google Plus use appears to be for wide distribution (and generating online discussion) and not closed circles. Facebook supports sharing among groups, but the feature is not central enough or easy enough for many people to know about and use.

WhatsApp's success appears to signal a shift in social networking, from networking with big and open social networks to networking with closed groups. These groups are different from traditional message groups -- the groups last longer, they have names, and people enter and leave more dynamically.

Closed-group social networking will presumably be a small part of the overall social networking arena, most of which wants broader and more open distribution of updates and media. But as WhatsApp spreads in popularity, and other group messaging apps bridge into closed-group social networking, this segment of social networking will become significant.

The biggest challenge for Facebook, Google and others is to match WhatsApp's ease of use, both for easy sharing of messages and media, and for creating and maintaining closed groups for social networking. This won't be easy -- Facebook's app tries to support many more features than WhatsApp's, making it inherently more complicated. But there is no reason that Facebook's dedicated Messenger app, or Google's dedicated Hangouts app, can't be as easy to use as WhatsApp's. Facebook and Google need to put as much work into their messaging apps as they are into their more general social networking apps.

Of course, Facebook and WhatsApp are not an either-or proposition. Each will continue to have advantages for different uses. But WhatsApp should clearly be giving Facebook something to think about and react to.

What's next for WhatsApp? Officially, the company says that it will earn revenue by charging users a dollar to use the app. But users have been reluctant to pay for mobile apps, and WhatsApp must be worried that enforcing such a fee would put a dent into its huge user base. Of course, WhatsApp could also add advertising or other classical revenue streams, and sustain its own business much as Twitter is trying to do, but this would require a change in corporate philosophy. I predict that WhatsApp, if it remains independent, will at some point require users to choose between one of these two.

Many have speculated that Facebook or Google will acquire WhatsApp. It's certainly the case that WhatsApp's growth in market penetration makes it a likely acquisition target. But its model so far is not advertising-centric, and its orientation around phone numbers instead of e-mail addresses and passwords may make it a challenge to fit into broader frameworks.

As pure speculation, it's interesting to consider companies that are not in the social networking or messaging markets that might be a good fit for WhatsApp's phone-based system. Might PayPal (NASDAQ:EBAY) or another online payment company be interested in facilitating easy phone-to-phone money transfers between young WhatsApp users? How about entertainment or mobile commerce companies? What other companies could leverage WhatsApp's mobile user base and fit its approach of easily carrying out quick communication and actions?

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

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