Comment from Pamela Clark-Dickson, senior analyst for messaging at Informa Telecoms & Media, on Facebook's US$19 billion acquisition of WhatsApp
Facebook will focus on increasing WhatsApp subscriber numbers, before additional monetization
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 US$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 monetize 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.
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