Industry reactions to the Facebook/WhatsApp deal

GoMo decides to publish the whole lot

2 strong social messaging players on the same team - zoller

The acquisition of WhatsApp by Facebook has had such an impact on the mobile & cellular industry, everybody wanted to comment. It seemed unfair to just pick a few people so below is the full content of comments from Eden Zoller, principal analyst, consumer telecoms with Ovum, Stephen Sale, from Analysys Mason, Vanessa Barnett, technology & media partner with law firm Charles Russell, StJohn Deakins, founder with citizenme, Pamela Clark-Dickson, senior analyst for messaging with Informa Telecoms & Media, and Victor Basta, managing director of Magister Advisors, Thorsten Trapp CTO with Tyntec.

Eden Zoller, principal analyst, consumer telecoms with Ovum, commented, “The social messaging market is growing rapidly, with messaging volumes to reach 69 trillion with subscribers growing to 1.8 billion by the end of 2014 according to Ovum forecasts.”

“An immediate benefit to Facebook in the WhatsApp acquisition is that it has enabled two strong social messaging players to be on the same team. ”

“WhatsApp is a player which is strong in both mature markets as well as emerging markets across Asia and the Middle East, which present a significant growth opportunity for Facebook.”

“At the same time, Facebook is growing its mobile footprint with close to a billion monthly active mobile users.”

“This makes innovation in mobile services and capabilities an imperative, either organically or by acquiring best in class applications like WhatsApp.

“With the acquisition Facebook has gained access to WhatsApp’s large repository of phone numbers, which was a missing link for Facebook’s user information. The access to phone numbers now bridges the offline and online worlds of Facebook users.

“WhatsApp will also enhance Facebook’s mobile strategy and make the service grow faster and be stickier with mobile first users.”

” Facebook will in turn provide WhatsApp with the funds and resources it needs to develop the service and become an even stronger competitor in an increasingly over crowded messaging market.

“According to Ovum’s Mobile Messaging Forecast, operator based mobile messaging traffic (including MMS, SMS, A2P SMS) will peak in 2014 with 7.7 trillion messages, declining in 2015 to 7.6 trillion messages.

“While OTT messaging is set to grow strongly YoY, Ovum’s Social Messaging Traffic and Subscriber forecast, estimates OTT messaging traffic to have hit 27.4 trillion in 2013 and growing with triple digit growth rates to 68.9 trillion by the end of 2014.

” SMS volumes were higher than social messaging volumes in 2012, but in 2013 messaging apps took a big leap forward and overtook traffic. We can expect strong growth in traffic to continue in the coming years.

“There are questions as to how Facebook will position WhatsApp and its own Facebook’s own Messenger application in the longer term. In the short term at least they will continue to operate as standalone, separate applications.”

“Facebook Messenger has met with success and according to Facebook the application saw a 70 percent increase in usage during the fourth quarter of 2013.”

“However, it seems likely that that he two messaging services will eventually be merged, possibly under the WhatsApp brand that has greater resonance with consumers that Facebook Messenger.”

“Facebook will need to develop WhatsApp but must ensure it does so in a way that does not compromise the appeal of the core service that has proved so popular with users.”

“Under its own management, WhatsApp has made a point of staying true to its messaging roots and aimed to remain a pure play messaging service by avoiding broadening the platform to support additional services such as games.”

Stephen Sale, principal analyst withAnalysys Mason’s mobile services research, commented, ” Messaging apps are currently used by more than half of smartphone users worldwide and WhatsApp dominates this market with a 45 per cent user market share.”

“They have user engagement levels that are the envy of the industry. When WhatsApp recorded an all-time high of 10 billion outgoing messages in a single day in June 2013, this equated to more than 30 messages sent per person per day.”

“We estimate that IP messaging volumes were over 10 trillion in 2013 and expect them to almost double in 2014 and will reach 37.8 trillion in 2018 (a graph is available of this upon request).

“We forecast the number of users on smartphones to increase from about 1 billion in 2013 to almost 3 billion in 2018. These kinds of figures capture the attention of the major Internet players.”
“Facebook needed to make a bold move to retain relevance among younger users, the core constituency of messaging apps. Facebook failed to anticipate the way that messaging apps have transformed social networking on mobile devices.”

“Facebook’s own Messenger app has slipped in the rankings and WhatsApp Messenger has emerged as the global leader.”

“WhatsApp has a user base of 450 million (with smartphone penetration rates as high as 80 per cent in some countries) with a stronger bias towards the young than Facebook. ”

How will Facebook monetise the WhatsApp acquisition?

Facebook has stated that it will not introduce intrusive ads but there are alternative routes to advertising revenue.

It can use WhatsApp data to enrich its social graph and identify influencers in communication networks.

The data can be used to enhance its service to advertisers via established channels. It will also seek to emulate the likes of WeChat, Line and KakaoTalk by monetising gaming, stickers and in-app purchases.

Vanessa Barnett, technology & media partner with law firm Charles Russell, commented, “This is a clear statement of intent on the part of Facebook.  $19 billion is a hefty price tag, particularly given that previously Facebook had only paid $1 billion for Instagram.”

“What can we take from this?  Well, we could sit here and talk of bubbles and the early 21st Century, or we could say ‘hey, you know what, there’s value in the technology sector and this is another sign of confidence’.”

” I’ll go with the latter.  We are seeing a growing number of sophisticated, well funded businesses in the technology sector coming to us for advice – particularly those who are harnessing apps/Internet technology for their business model.

“Global confidence in the sector bodes well for the UK.  Watch out Silicon Valley!”

StJohn Deakins, founder with citizenme, commented, “As news broke last night that Facebook had snapped up WhatsApp for a reported whopping $19bn, it strikes me that as consumers we have less choice now about which social platforms we share our data with than ever before.”

“Currently, WhatsApp can change terms and conditions at any time, without notifying users, which many people who use this service aren’t aware of. Meanwhile, Facebook already has a very broad copyright license on people’s content and already shares your data with many other services.

“Now with Facebook buying WhatApp, this could see more and more private information becoming part of Facebook’s database. From a personal data standpoint, this is extremely worrying.”

“Our social data is being concentrated into silos – Facebook also bought Instagram for $1bn, it bid $3bn for Snapchat, Yahoo bought Tumblr, Google purchased YouTube and Android – all these acquisitions are really about buying customers, and therefore, buying data.”

“Right now any social or messaging network that hits critical mass – i.e. all of our friends are using it and its user base skyrockets – is likely to be purchased by one of the big California-based personal data hoarders.”

“It’s not just the network that is being sold, it’s our data that really makes the purchase as they combine it with all the other personal data they already hold about us. Their mission is to own a ’360 picture of you’ – and it seems to be well on its way to a ‘mission complete’.”

Pamela Clark-Dickson, senior analyst for messaging with Informa Telecoms & Media, commented, ” WhatsApp has made a stunning exit, having been snapped up by social-networking giant Facebook for an initial US$16 billion in cash and Facebook shares, with another US$3 billion to be paid over the next four years.”

” The deal values each of WhatsApp’s 450 million monthly active users at US$42.20, and each of the company’s 50 or so employees in excess of US$300 million.

“WhatsApp is able to command a premium by virtue of being the largest mobile messaging application in terms of monthly active users. WhatsApp was probably also in the unique position of not needing to sell, since it is able to generate revenue from its user base via a small annual subscription.”

“Facebook’s CEO, Mark Zuckerberg, clearly made WhatsApp an offer that the company could not refuse.”

“WhatsApp must also have seen Facebook as the best fit for its application, given that the company must have had other suitors – most notably, Google was rumored to have offered to buy WhatsApp US$1 billion in 2013.”

“It remains to be seen whether, and how, Facebook will recoup its substantial investment in the app.

“Clearly, mobile messaging and VoIP apps now have sufficient reach and maturity to excite the interest of the larger Internet companies.”

” WhatsApp is the second mobile messaging app to exit within the last week, after Japanese Internet giant Rakuten acquired Viber Media on February 14 for $900 million.”

“The early indications from Zuckerberg and WhatsApp CEO Jan Koum are that WhatsApp will continue to operate as an autonomous subsidiary of Facebook and, crucially for its users, will continue to eschew advertising. Zuckerberg stated during the conference call discussing the acquisition that he does not think that advertising is the right way to monetise messaging systems.”

“Currently, WhatsApp’s sole source of revenue is a small annual subscription fee, which is charged to subscribers only after their first year of use.”

“Facebook is emphatically delivering on Zuckerberg’s pronouncement in late 2012 that the future of the social network lay in mobile.”

” The company now owns the world’s biggest mobile-instant-messaging application, as well as Instagram, which is one of the world’s biggest mobile-photo-messaging applications. Interestingly, Facebook will now be operating three messaging apps – Facebook Messenger, WhatsApp and Instagram Direct – all of which enable users to share photos (albeit with varying levels of sophistication).”

“From an industry perspective, it is likely that further consolidation will occur, though it’s unlikely that subsequent acquisitions will provide as high a return as that achieved by WhatsApp.”

“The increased monetization of messaging apps is evidently on Zuckerberg’s mind, but it is clear from the conference call that both WhatsApp and Facebook are keen to grow  WhatsApp’s subscriber count first.”

“WhatsApp’s subscriber numbers are rising by about 1 million a day, and the company is on track to reach 1 billion users – though no time frame was given for when this would occur.”

“Engagement with WhatsApp is also high, with daily messaging traffic on WhatsApp alone almost equaling daily global P2P SMS traffic.”
” WhatsApp subscribers sent 18 billion messages a day in January, and Informa Telecoms & Media estimates that mobile subscribers were sending 19.5 billion P2P SMS messages a day in 2013.

“WhatsApp has previously focused on providing its subscribers with a good user experience, as opposed to rolling out new features, largely because of its low employee count.”

” Once WhatsApp becomes part of Facebook, the company will have access to significantly more resources, so it is extremely likely that new, revenue-generating features will be added to the platform, which could be similar to the community and commerce capabilities offered by WeChat, Line and KakaoTalk.”

“Enterprise messaging is another area in which WhatsApp could become more prominent. WhatsApp is already being used by government departments and enterprises in both developed and emerging markets as a means of communication between employees, and to customers and the general public.”

“With the financial backing of Facebook, WhatsApp could develop additional enterprise-messaging capabilities.”

“Meanwhile, mobile operators are in an interesting position: Facebook, one of their key content partners, now owns an application that has been a major catalyst in the decline of SMS revenues and, for some, SMS traffic.

“The potential souring of the relationship between the operators and Facebook brought on by the acquisition will be mitigated somewhat by the fact that mobile subscribers will continue to demand access to both applications, resulting in sustained generation of mobile data revenues for operators.”

Victor Basta, managing director of Magister Advisors, commented, “Facebook’s announced acquisition of WhatsApp for $16 billion is a simultaneously offensive and defensive move that will send a shiver up the spines of social platforms and telcos worldwide, according to Global M&A advisory firm Magister Advisors.”

Under Facebook’s ownership we can expect WhatsApp to ramp even faster, and extend its international reach even more aggressively.  With the parallel sale of Viber to Rakuten, this means that two major ‘over the top’ messaging companies have traded hands into much larger players.

“The WhatsApp deal is a conquest of another emerging platform by Facebook which is increasingly looking like a digital republic.”

“WhatApp’s 400M+ user base is bigger than Twitter’s which has a higher valuation.  The deal buttresses Facebook against a potential decline in engagement on its core platform and adds another convenient layer of engagement for those in its existing user base that don’t currently use WhatsApp and potentially better social integration for those that do.”

He added, “It is also yet another blow to mobile service providers globally as it is essentially game over for text revenues.  Mobile operators are the digital drug mules of the 21st century and this acquisition will only increase their burden.”

“The deal is akin to putting Messi’s [the footballer/soccer player] legs on a sumo wrestler – offensive and defensive at the same time.  Defensive in the sense that it locks another burgeoning social platform, alongside Instagram, into the Facebook republic.

“Offensive because WhatsApp is a malleable product and signals wider intentions for Facebook including potentially voice.”

Thorsten Trapp CTO with Tyntec, said, “Facebook’s acquisition of WhatsApp is a significant milestone of the social media giant to become THE global communications hub.”

Facebook’s next move will likely be to acquire a company that has a voice component, enabling them to offer a complete range of communication channels for their users.”

“For Facebook, having access to WhatsApp’s huge worldwide user base, most of which are predominately made up of young people, is a strategic move as Facebook needs to make sure it stays relevant with younger audiences. It’s also a concession towards 1-to-few communication in contrast to Facebook’s original complex 1-to-all model, which seems to be losing its appeal among a growing user base.

“Whilst today’s news highlights that internet messaging services have significant market capitalisation, the announcement also marks another blow for mobile operators. With the acquisition of WhatsApp and its current 450 million users, Facebook gets instant access to a tremendously large subscriber base – bypassing operators internationally.

“For mobile operators, this deal means a massive attack on their SMS business as their value chain is based on transaction charges. The market is continuing to quickly move away from paid telecommunication services to free internet services and operators need to now seriously think about creating sustainable business models that will allow them to cooperate with OTT players.

“Being asked for tyntec’s latest research<http://www.mobilesquared.co.uk/blog/operator-revenues-under-increased-threat-as-facebook-buys-whatsapp-for-$16-billion/> project, Facebook was not considered a major threat by mobile operators. Instead, WhatsApp was viewed as the threat by the majority of surveyed operators. This might have changed by now.”

About Hans Cett

Hans Cett is an established freelance author and consultant specialising in the mobile communications industry. He also writes for Countdown2MWC - http://countdown2mwc.wordpress.com/
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