Facebook to Show Ads on Messenger to Bolster Revenue Growth

By Deepa Seetharaman Features Dow Jones Newswires

Facebook Inc. has spent years developing two of the world's most popular messaging apps. Now, with slowing revenue growth in its core service, it wants to cash in.

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Starting Tuesday, Facebook will show advertisements inside Messenger, the chat app that Facebook says is now used by 1.2 billion people every month. The ads will be shown between users' messages, similar to the way ads are sandwiched between posts in Facebook's news feed, the main scroll of pictures, videos and posts that greets everyone who uses the service.

Facebook plans to roll out the ads "slowly and carefully" to Messenger's users, said Stan Chudnovsky, Messenger's head of product, replicating the strategy followed by its photo-sharing app, Instagram, which started showing ads to users in 2013 and took a couple of years to implement more widely.

Facebook also has been studying ways to profit from WhatsApp, the company's other messaging app.

Facebook is trying to make money from Messenger as it braces for an expected slowdown in revenue growth from news feed, the primary source of Facebook's revenue today, starting in mid-2017. Executives have told investors that Facebook would no longer increase the number of ads shown to users in the news feed. The increases helped juice revenue in prior years, but risked turning off users by jamming too many ads in their feeds.

Facebook has positioned itself to keep driving growth beyond news feed, with its acquisition of Instagram in 2012 and with heavy investments in messaging. It spun out Messenger as a stand-alone app in 2011 and continued to develop it separately after buying WhatsApp in 2014 for $22 billion.

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"We believe that messaging, it's one of the few things that people actually do more than social networking," Facebook Chief Executive Mark Zuckerberg said that year.

Both Messenger and WhatsApp, which also claims 1.2 billion users, have been studying moneymaking strategies centered on connecting users to advertisers. Facebook has said two billion messages are sent between people and businesses every day over Messenger. Barclays Capital estimates that figure is about 2.5 billion for WhatsApp. But Messenger is more popular in affluent markets like the U.S. and Europe, while WhatsApp is more popular in developing countries that haven't yet been lucrative for Facebook.

Facebook could net an extra $11 billion in revenue from the two messaging apps by 2020, Barclays Capital estimates.

Facebook has been testing Messenger ads for six months in Australia and Thailand, Mr. Chudnovsky said. He said users were "very open" to ads that were useful and connected them to companies.

Advertisers can use Messenger ads in two ways: to drive traffic to their website or to open a messaging thread between the user and company. Facebook is urging advertisers to use Messenger ads to open a thread, where users can ask questions and seek advice about a potential purchase.

"On Messenger, these ads open up a conversation and end up being higher converting for the advertiser," Mr. Chudnovsky said.

Write to Deepa Seetharaman at Deepa.Seetharaman@wsj.com

(END) Dow Jones Newswires

July 11, 2017 12:53 ET (16:53 GMT)