Facebook Backs Off Controversial Plan to Sell Ads in WhatsApp

Facebook Inc. FB -0.08% is backing away from efforts to sell ads in WhatsApp, in a retreat from a controversial plan that drove the creators of the popular messaging service to resign more than 18 months ago, according to people familiar with the matter.

WhatsApp in recent months disbanded a team that had been established to find the best ways to integrate ads into the service, according to people familiar with the matter. The team’s work was then deleted from WhatsApp’s code, the people said.

The shift marks a detour in the social-media giant’s quest to monetize WhatsApp, which it bought in a blockbuster $22 billion acquisition in 2014 that has yet to pay financial dividends despite the service being used by more than 1.5 billion people globally.

Created in 2009, WhatsApp made money initially from download fees and then a $0.99 annual subscription, but Facebook made the platform free after acquiring it. In 2018 Facebook unveiled plans to generate more revenue from the app that included selling ads.

A year ago, WhatsApp’s then-chief executive, Chris Daniels, called ads a “primary monetization mode” for the company. Facebook formally unveiled prototypes last May for ads in its Status feature, which allows ephemeral postings similar to Instagram’s Stories.

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Those efforts are now on ice. The company plans at some point to introduce ads to Status, but for now the focus is on building out money-making features allowing businesses to communicate with customers and better manage those interactions, said one person familiar with the matter.

A WhatsApp spokesman declined to comment.

Facebook’s push to sell ads in WhatsApp was a big factor in the decisions by Jan Koum and Brian Acton, who created the messaging service, to resign from the company, leaving on the table a combined $1.3 billion in deferred compensation, The Wall Street Journal previously reported.

In 2016, the two changed WhatsApp’s terms of service to explicitly forbid displaying ads in the app, and complicating any future efforts to do so, according to people familiar with the matter. The men saw their move as creating a potential public-relations problem that Facebook would have to deal with if it tried later to change users’ terms of service, those people said.
While Facebook and its platforms haven’t shied away from changing terms of service in the past, introducing ads on the platform as planned would have required a thorough and formal notification of users.

WhatsApp is among the quartet of popular Facebook services, along with Instagram, Messenger and the core Facebook platform, that attract a combined 2.8 billion monthly users. Though Facebook’s eponymous social network is its biggest moneymaker, analysts believe that product is growing more slowly than Instagram and WhatsApp.

The decision to focus WhatsApp on commercial interactions reflects the way the service is used by most of its users around the world. In the U.S. and many European countries, WhatsApp is used largely for interpersonal communication. But many users in developing nations-who are the majority of WhatsApp’s users-have also adapted the platform to commerce and customer service, and the company has sought to accommodate them.

In addition to helping businesses respond to simple customer-service requests, WhatsApp’s tools allow for sorting and responding automatically to customer service queries. They also let businesses display in-app product catalogs. Advertisers on Facebook and Instagram can choose to shuttle users who click or tap on ads in those platforms directly into chats in WhatsApp.
WhatsApp also has said it is testing projects related to payments in India, where the service is hugely popular.

Facebook and WhatsApp were strange bedfellows from the beginning. Messrs. Koum and Acton are known as privacy advocates and showed open disdain for the commercial applications of the service. In a 2012 blog post, they called ads “insults to your intelligence.”

Meanwhile, Facebook CEO Mark Zuckerberg became one of the world’s richest people largely by selling opportunities to advertise to those who came to the social network to connect with friends and family.

Advertising accounted for about 98% of Facebook’s revenue in the third quarter.

At the time of the WhatsApp deal, Mr. Zuckerberg said he agreed with Mr. Koum that ads weren’t a good fit for messaging services. After Facebook changed its position on the matter, the WhatsApp founders clashed with Mr. Zuckerberg and Chief Operating Officer Sheryl Sandberg, leading them to resign.

Facebook’s underlying business has remained healthy and a favorite of investors even as it continues to face sharp criticism for its handling of user privacy, misinformation and other matters. Over the past 12 months, Facebook shares are up more than 50%, almost doubling the gains of the S&P 500.

By Jeff Horwitz and Kirsten Grind