The trillion dollar question for Facebook (FB) CEO Mark Zuckerberg has been how best to monetize the global reach of his social networking giant. He might well have found the answer this week by luring serial entrepreneur David Marcus away from his job as president of eBay’s (EBAY) PayPal to head up FB’s mobile-focused Messenger unit.
Why is this a great match for investors? Both Zuckerberg and Marcus know two things: First, if FB is going to monetize its social media empire, selling ads alone can’t get it done. Second, mobile payments are fast becoming the next game changer — and FB must be locked and loaded in a market where wireless carriers, financial services and rivals like Google (GOOG) and PayPal are jockeying for position.
Last year, IT research company Gartner estimated that worldwide mobile payment transactions would reach $235.4 billion in 2013, up 44% from 2012. The analysts estimate 35% annual growth; by 2017, the value of global mobile payments will hit $721 billion. That’s money FB can’t afford to leave on the table — and probably one huge reason Zuckerberg tapped Marcus to lead Messenger, an instant messaging service that lets FB users chat.
Although mobile payments is still a young market, David Marcus has had a passion for monetizing mobility since he launched his second startup, the mobile media monetization company Echovox. In 2008, Marcus spun out the Zong mobile payments platform, which enabled mobile subscribers to pay for digital products like games by direct billing to their wireless accounts. Marcus came along when PayPal acquired Zong for $240 million three years later and was promoted to PayPal’s president in 2012 when Scott Thompson jumped ship to head Yahoo (YHOO).
David Marcus made a huge mark on PayPal during his relatively short tenure. Highlights include hiring more entrepreneurs, rebooting the culture to be more agile and innovative as well as launching PayPal Here, a mobile payment app that allows small merchants to process card, check or cash payments easily and securely. Still, a company of 14,000 people is seldom an entrepreneur’s dream job.
“Going from managing a few hundred people at best in my entrepreneurial career, I suddenly found myself leading 14,000,” David Marcus wrote in a Facebook post announcing his departure. After a tough first year, Marcus made the adjustment and delivered strong progress with PayPal’s culture, technology, product, marketing and sales.
But like most entrepreneurs, Marcus wanted more. “I realized that my role was becoming a real management one, vs. my passion of building products that hopefully matter to a lot of people,” he wrote. “So after much deliberation, I decided now is the right time for me to move on to something that is closer to what I love to do every day.”
The move also is good for Facebook in general and Facebook stock in particular. First, it immediately fits with Facebook’s $19 billion acquisition of WhatsApp, which allows nearly 500 million monthly users to send mobile messages over the Internet rather than via phone carriers’ SMS protocol. Add in Messenger’s 100 million users and the combined customer base is primed for additional growth — including mobile payments.
In April, FB announced it was terminating browser access to Messenger. Users must now install the app on mobile devices to keep sending and receiving messages. Although FB has done a great job of driving mobile ad revenue, Zuckerberg has been direct in his views that ads are not the best way to monetize messaging.
While joining Facebook didn’t seem like the obvious choice, Zuckerberg came calling. “At first, I didn’t know whether another big company gig was a good thing for me, but Mark’s enthusiasm, and the unparalleled reach and consumer engagement of the Facebook platform ultimately won me over,” Marcus said.
David Marcus was gracious to PayPal in his goodbye post, but make no mistake, he’s ready to take the battle to the next level. “I’m excited to go to Facebook to lead Messaging Products,” he wrote. “And I’m looking forward to getting my hands dirty again attempting to build something new and meaningful at scale.”
Bottom Line: David Marcus’ move makes perfect sense for Facebook and should boost Faceboook stock over the long term. With Marcus’ deep expertise in the burgeoning mobile payments space, count on him to leverage Messenger’s global mobile reach by adding money to the popular chat platform. In addition to the explosive growth in mobile payments globally, there is a huge opportunity in emerging markets to use mobile payments for bill payments, fees, as well as purchase in the real or digital world.
By redefining money in the mobile world, David Marcus will be making a lot of money for Facebook.
As of this writing, Susan J. Aluise did not hold a position in any of the aforementioned securities.