Technology

76 | GlobeAsia May 2014

During a keynote speech at the Mobile World Congress in Barcelona last month,

Facebook founder Mark Zuckerberg was remarkably candid in explaining to those gathered that his purchase of WhatsApp was about the internet.org vision and connecting people. If that doesn’t make other messaging companies quake in their boots, then it is their ignorance that makes them sanguine.

Internet.org is a Facebook initiative where the company has partnered with other giants of the industry including Samsung, Qualcomm and Nokia to make the vision of a free

basic universal internet (at least in the mobile space) a reality. A noble goal indeed and one that if realized would completely revolutionize human civilization. If we get there on Facebook’s terms however, it will almost assuredly spell doom for WhatsApp’s rivals.

WhatsApp just became an MVNO WhatsApp has just begun selling branded prepaid SIM cards in Germany that enable free data usage for WhatsApp even without calling credit. The plan, a partnership with Germany’s E-plus, has been in the works at least since February and

Why WhatsApp’s latest move could change the future of mobile messaging

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WhatsApp has announced its intention to pursue such agreements with carriers around the world.

Mobile Virtual Network Operator (MVNO) deals are not unusual and can be very lucrative for a carrier with excess bandwidth for sale. The scary part is that free WhatsApp usage without data charges essentially makes SMS obsolete. Since WhatsApp use will not be billed as data, people will naturally migrate to the more full-featured WhatsApp – not to mention that unlike SMS, it’s free. The net effect of this would be to declare WhatsApp effectively the de facto messaging app in these countries.

May 2014 GlobeAsia | 77

Of course it’s a mistake to take a company’s mission and presuppose it to be a foregone conclusion but Facebook is different. Facebook’s ownership of WhatsApp changes everything. Now that WhatsApp has untold resources available to it, as well as Facebook’s massive bank balance to make these goals a reality, WhatsApp is clearly the favorite to dominate the messaging market in the future.

The fact that it has data on multiple phone numbers in every region worldwide allows WhatsApp to pinpoint its usage and go after deals with carriers only in areas where those deals will be most effective. Facebook realizes that potential growth in internet penetration, particularly in developing countries like India, is almost wholly in the mobile space and this is an area that WhatsApp seems to have pretty much sewn up.

reach is everythingThe fact is that WhatsApp users are also more engaged than Facebook. WhatsApp is on track to reach over a billion people and, if the numbers hold, over 70% of those will likely be daily users. This penetration means that the WhatsApp valuation works out to a cost per user of about $42. Contrast this with Twitter, which trades at around $140 per user despite recent revelations that over 44% of Twitter users have never even sent out a Tweet. Now WhatsApp’s steep price tag begins to seem like almost a bargain!

On the other hand, even at first glance it’s apparent that even if WhatsApp had 1 billion users and they each paid a dollar for the app every year, that is a maximum of $1 billion a year in revenue. Obviously for a $19 billion company there is another game plan at work here and it’s likely not advertising.

The two main pillars of the Facebook/WhatsApp strategy are reach

Predictably, these overtures have spooked the carrier industry. Jo Lunder, head of Russian carrier VimpelCom, told Reuters that “they (internet firms) need to be regulated a little bit more and we need to be regulated a little bit less.” These feelings were echoed by Sweden’s Mats Granryd, chief executive officer of Tele2, who said he was happy to partner with WhatsApp but felt that telecom carriers were subject to additional regulations and were at a disadvantage vis-a-vis internet companies.

Even Vodafone CEO Vittorio Colao was incensed that a deal between Facebook and WhatsApp went unchallenged while telecom operators in the EU continue to face intense regulatory scrutiny.

WhatsApp will have to manage these sentiments very carefully if it is to remain in the good graces of the carriers it intends to partner with. Ultimately as 4G becomes more commonplace and infrastructure improves, VOIP calling over cellular data will likely replace voice calling anyway, and operators who do not see the writing on the wall are just lulling themselves into a false sense of security. The last thing these carriers want is to be hoisted on their own petard and be the agents of their own destruction, whilst letting WhatsApp/Facebook in on their game.

A 2011 study cited by Business Today estimated that carriers in India had lost an estimated $318 million in SMS revenue due to the existence of these messenger apps. Statistics like these make any partnership seem unlikely unless WhatsApp is able to truly add value to telecom carriers. On the other hand, with Facebook’s backing, WhatsApp has enough capital and clout to jump headfirst into the MVNO space.

While it may or may not be beneficial for carriers in the short

and growth. There is massive value in simply being able to reach this many people at one moment, no matter where they are in the world.

Certainly WhatsApp’s relentless growth has come at the cost of profits. The company has long been vocally anti-advertisement and a complete about-face is unlikely in the short term, but Zuckerberg realizes that monetizing WhatsApp right now is less important than solidifying its reach and ensuring it does not get bumped off the map by the next big thing.

The plot thickensEarly reports are that WhatsApp is not content ruling the mobile messaging industry and will soon be launching voice calls. A recent article in the International Business Journal cited leaked insider information indicating WhatsApp was developing a voice calling feature. While WhatsApp’s Jan Koum had announced the initiative at the Mobile World Congress as early as February, this is the first we are hearing of it already being in development.

While it remains to be seen if voice calling will also be included for free in future WhatsApp MVNO deals, this does raise some intriguing questions about just how services like Line and Skype can hope to compete with what could essentially shape up as free or low-cost long-distance calling over VOIP.

Jason FernandesTech commentator and the founder of SmartKlock.

Early reports are that WhatsApp is not content ruling the mobile messaging industry and will soon be launching voice calls.

Technology

78 | GlobeAsia May 2014

remain United States-centric.The sheer reach of Facebook, when one

considers its WhatsApp purchase, is absolutely staggering. The deal has increased Facebook’s reach by at least 50% but perhaps more significant is the new source of endless user data that you can be certain Facebook will mine to the best of its ability.

Federal Trade Commission regulators in the US have explicitly warned Facebook of its obligation to either respect existing privacy policies already in place, or to solicit affirmative approval from its users prior to a change. This might be a temporary spoke in their wheel but certainly enough data can be mined with just the information accessible to Facebook right now to make competing with them a difficult task indeed.

Facebook’s idea of a universal free basic plan for the internet is revolutionary, and most other companies have not quite grasped yet that, in the developing world, free is a powerful concept and high data costs are a barrier that might just sink the messaging industry.

Certainly services like Microsoft’s Skype and Apple’s iMessage have the clout to throw a wrench in the workings, but they will have to move quickly and decisively if they are to ensure that WhatsApp does not ink deals with carriers with such speed that by the time anybody else pays attention, the battle has already been won without a fight.

WhatsApp continues to be an unrestrained juggernaut, adding over a million new users every day. While there has always been competition from other messaging apps, WhatsApp has managed enormous and sustained market penetration. Its entry into the MVNO space, particularly if this happens on a large scale, is just going to propel it into the stratosphere because it makes it very hard for others to compete.

Comedian Jon Stewart once referred to the internet as “...just a world passing around notes in a classroom.” Will WhatsApp grow to become the very embodiment of the internet? Its future remains to be seen, but for now WhatsApp competitors should be very, very nervous.

term, it only takes one of them to break rank and sell WhatsApp excess bandwidth before the others in the region are forced to be similarly competitive. Carriers will ultimately have to learn to see themselves less as telecom companies and embrace their new identities as internet service providers.

The other guysCertainly WhatsApp continues to face stiff opposition from the likes of Line, Skype, Kakaotalk, Viber and others, but the question is whether any of these companies have the vision or capital to invest vast sums of money and resources into negotiating deals with global telecom network providers. My guess would be no, particularly since many of these services

The two main pillars of the Facebook/WhatsApp strategy are reach and growth. There is massive value in simply being able to reach this many people at one moment, no matter where they are in the world.