Sandberg Hints At Facebook’s Payments Intentions

Facebook CEO Mark Zuckerberg’s plans for his social network are clear: “We’re making progress towards connecting the world,” he wrote in prepared remarks in the company’s fourth-quarters earnings release.

But what still isn’t clear for the second quarter in a row is how Zuckerberg is planning on monetizing the social network in terms of social commerce. It’s clear mobile and payments are on the mind of Facebook executives, but the synergy between the two has yet to be seen. In its Q4, Facebook ad revenue rose 53 percent to $3.85 billion, year over year, with payments and other fee revenues up just 7 percent to $257 million. Mobile monthly active users grew slowly for the quarter at a 6 percent growth rate, but was up 26 percent, year over year, to 1.18 billion users. Daily active users grew 64 percent, year over year. Mobile made up for 69 percent of ad revenue, just a slight hike from the previous two quarters. But what about its plans to leverage payments through its social messenger app?

Recently, Messenger Vice President David Marcus sat down for an interview with The Next Web and discussed potential paths that Facebook’s Messenger app could take in the near future, including monetizing the app as well as moving it to the desktop. As a former president of PayPal, Marcus’ addition to the Messenger app showed that the social media platform wanted to eventually get into payments. Last September, Facebook announced that its future “Buy” button will be developed by payment startup company Stripe, among other partnerships Facebook has made for mobile payment processing, including PayPal.

So what did Zuckerberg have to say about its payments plans during the fourth-quarter earnings call with analysts? Not much payments-specific talk, but his right hand executives — CFO David Wehner and COO Sheryl Sandberg — spoke directly about Facebook’s ability to ignite the e-commerce market through its mobile strategies.

“Q4 is a particularly important quarter and it’s particularly important for e-commerce,” said Sandberg. “When you think about Buy on Facebook it’s a small test in the U.S. that we started last quarter and it enabled people to buy on pages. To be clear — you’re not buying from Facebook, you’re buying directly from the merchants. And it’s really an SMB product to give them capability they haven’t had. We’ll see what happens in terms of where people convert — whether it’s on Facebook. But we think the opportunity to connect consumers with the product that they then purchase is a really big one. Where we play in that most directly is the time and attention consumers have as well as information to very relevant advertising, and we’re going to see a focus there.”

Wehner chimed in after to remind analysts that Facebook’s commerce strategy aligns with delivering its core mission in connecting millions of consumers to each other and enabling billions of people to share — whether it be photos, stories or even commerce opportunities. Facebook top executives all hit on the point that Facebook’s overall goal is to create value for business and enable commerce, both on a local, regional and global scale. That includes seeing where there’s opportunity in leveraging its other social media products, like Instagram, which has seen an uptick in businesses interested in using the app for advertising purposes.

“You have to recognize that we’re basically one large big business and we’re operating against capital deployment against delivering against objectives of that business, so that’s the bulk of spending that we do,” Wehner said about Facebook’s commerce strategy.

Speaking toward organic growth between customers and business and how Facebook can open up e-commerce channels for the social platform’s business users, Zuckerberg spoke about how What’s App and Facebook Messenger can be used over time to help Facebook create its commerce and payments strategy.

“What you see with What’s App and Messenger now is we’re still at the early end of that curve where the interaction is still primarily people to people, and businesses are starting to figure out in the case of What’s App much less than Messenger so far what the organic interaction is. But we’re going to have to go through a whole cycle of how that works before it really makes sense to monetizing them in a big way. I am a big fundamental believer that these are going to be big contributors to our businesses over time, but we just have to do it right.”

Facebook and Payments Talk in 2014

In Facebook’s Q3 earnings call, Zuckerberg laid out his company’s three, five and 10-year-plans, but said none of those plans involved Facebook launching its own payments engine. But that doesn’t mean Facebook wasn’t thinking about payments as part of its development plans. Zuckerberg told analysts in October that the massive social operation will partner with some existing payment player–and probably multiple players–to deliver a Facebook purchase experience.

“Payments in an important part of the online business ecosystem but we’ve traditionally thought of this as something we are going to partner with other companies on to enable great solutions rather than trying to compete and do it as a business ourselves,” Zuckerberg said. “And the reason why we’ve taken this approach is because it’s very important for all our online business, customers and partners, that there’s a good online payment system needing a good partner.”

Zuckerberg also made it clear then why payments is so important to how consumers interact with social network platforms like Facebook.

“People run ads to get customers and sell products and, at the end of that conversion, if there is a good payment system that is smooth, then people buy more things, which ultimately makes the ads and the whole online flow more valuable for the partners and therefore more revenue for our business as well,” he said. “We view the ads as a more profitable part of the business than payments.”

Third-quarter earnings for Facebook showed revenue from payments and other fees was $246 million, a 13-percent increase from the same quarter last year. Last year’s revenue from the same metric was $218 million, an increase of 24 percent from the year prior. These figures pale in comparison to the revenue from advertising, which was $1.8 billion, a 66-percent increase from the same quarter last year. Mobile advertising accounted for about 49 percent of that revenue. And when you talk ads, you talk payments. And Zuckerberg also hit on that.

“We realize the importance of the ad system over time and for our partners to be a payment system and that’s why we’re excited about partnering with credit card companies and PayPal and all the different folks in online payments to make their solutions as good as possible as well,” he said in the Q3 earnings call.

But that was still a bit of a shift away from what Zuckerberg indicated in the second-quarter earnings call, when the talk focused on the new Messenger App that changed the way its users could chat on Facebook via mobile. Zuckerberg indicated last summer that the app will also overlap with Facebook’s overall ambition to expand into payments. This follows the decision earlier in 2014 when David Marcus left his post as the president of PayPal to head up Messenger.

“The payments piece will be a part of what will help drive the overall success and help people share with each other and interact with businesses,” Zuckerberg said in the Q2 earnings call.
As mobile daily and monthly active users continued to surge in 2014, it’s no wonder Facebook may look to leverage its mobile user base to be part of the payments game. In first quarter alone, Facebook saw a 43 percent year-over-year increase to 609 million in daily active users (DAUs); monthly actives users (MAUs) rose 34 percent in that same time period to 1.01 billion. Mobile continued to jump each quarter, with DAUs growing 39 percent year-over-year in Q2, and MAUs increasing 31 percent in the same time period. By Q3, DAUs hit 703 million, a 39-percent increase from the year prior and MAUs hitting 1.12 billion, a 29-percent increase in the same time period. As indicated above, that figure continued to grow in Q4.
Whether it be mobile advertising or mobile payments, Zuckerberg and his team have recognized in some capacity in each quarter that they see value in payments and commerce in the social networking sphere. And once Facebook secures its next partner, there may be another mobile payments player in the space. But for now, they’re concentrated on enabling businesses to grow using its core network.