Feature Article

February 20, 2014

What Facebook's Purchase of WhatsApp Means for Mobility

Facebook is buying messaging app provider WhatsApp, further positioning Facebook as a major communications services provider and adding more marketing firepower for WhatsApp, part of the over the top messaging app trend that many would agree limits the growth of carrier text and multimedia messaging, if not actually cannibalizing text messaging or multimedia messaging revenues.

WhatsApp, which has more than 450 monthly users currently, is “on a path to reach over one billion people worldwide in the next few years,” said Mark Zuckerberg, Facebook’s co-founder and chief executive officer.

Some will be tempted to say Facebook represents the “telco of the future,” which is accurate only in part, as Facebook now will be a major global supplier of messaging services that often compete directly with text messaging.

That is true especially for international text messaging, as was true of Skype, the classic example of an over the top voice calling app. Such new apps get used first when the cost of carrier-provided messaging or voice is high.

One example of how WhatsApp might affect mobile service provider revenues is that T-Mobile US recently instituted free global texting and voice.

Verizon Wireless also has added “no incremental cost” international text messaging for customers of its “More Everything” service plans.

It isn’t immediately clear how much impact that feature might have on revenue that Verizon Wireless earns from international texting services. On one hand, Verizon Wireless might lose some international texting revenue. On the other hand, Verizon Wireless might well gain new accounts attracted by the feature.

So even an actual slowdown or cut to international messaging revenues would not indicate Verizon Wireless or T-Mobile US loses revenue overall. In contrast, many would say T-Mobile’s ability to gain two million accounts in three quarters in 2013 shows a net revenue gain by offering “no incremental cost” international messaging.

On the other hand, both Verizon and T-Mobile US might see an eventual inability to compete with WhatsApp in the cross-border messaging business, in any case, making a switch to “no extra cost international messaging” a move to position for the future, when incremental revenues from such services would be nil.

Whether OTT messaging cannibalizes text messaging, and if so, how much, is not so clear.

Text messaging will generate more than $100 billion in 2014 revenue for mobile service providers, about 50 times the total revenues from all over the top messaging services.

The volume of OTT messages is substantial, with Deloitte analysts estimating that 50 billion OTT messages will be sent every day, compared to 21 billion text messages. But, as with everything Internet, volume and usage is not revenue.

Some observers have estimated that OTT messaging in 2013 cannibalized $32 billion in SMS revenues. But such extrapolations tend to quantify such developments by assuming that nearly all the incremental OTT messages would have been sent using SMS. In most cases, especially international messaging, the alternative would have been “no message sent,” or use of some other communications mode. 




Edited by Ryan Sartor


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