We are experiencing the highest amount of tech M&A in ten years. Mobile World Congress started and the announcements are rolling in. From the reality that Samsung and Apple have the top of the market in devices, therefore the other mobile OEMs are focusing on the cheaper and lower priced markets in the emerging economies around the globe. Some claim that the recent acquisition of WhatsApp was insane both based on the price point/valuation of the startup, to the variation in the products and business model between the companies (free vs. ad supported). Personally, I think it was a smart move, but time will tell how it actually impacts mobile and communications on a global scale.
Facebook has acquired this company for a variety of reasons. First of all, it provides a movement to become a strong provider in the messaging solution. The existing Facebook messaging solution was never growing into mainstream use as a reason to log back into the site and use it to communicate. That is a dream of all social and online providers to become a primary messaging solution. I have heard that interest and objective for years after working in providers that built and customized mobile messaging solutions for mobile carriers and OEMs around the globe. Reality is that the most native solutions (SMS, Carrier/OEM email/messaging) in the mobile device usually has been the winner. In the markets controlling the devices via the mobile operators, it has helped provide a retention hook that many users will follow.
However, as soon as the mobile apps have emerged and the open app stores are available and being used around the globe, the previous powers and influence of the mobile operators and manufacturers have decreased. As someone who began my career working for an operator, I will confirm that they are merely a dumb pipe play to many in the economy today. They are regulated and monitored by government and technical regulators around the telecom industry. This tight and slower viewpoint of operations is what has attracted the startup and less regulated companies such as Google and Facebook to focus and invest in the emerging markets. From the hot air balloons that will provide network connectivity via Google, to the Internet.org project from Facebook.
Growth is not only part of Facebook’s plans, but always part of WhatsApp. This has occurred primarily due to the outrageous price points for basic SMS by the mobile operators around the globe. The option to have unlimited texts/discussions on a mobile messaging application and bypass the carrier fees for SMS in exchange for data use has clearly been a winner for many users. This expands well beyond the similar value of Google voice, due to the fact that WhatsApp was developed for all mobile OS types, from the older “dumb phones” that are still in use in many emerging markets to the high end devices on Android and iOS. The claim to ZERO marketing however is very skewed. I know this especially as a marketing and growth leader who has worked for many years in Silicon Valley as well as mobile companies specifically. The claim by Sequoia Capital about Zero dollars spent in marketing is not something that most of the other mobile app startups can expect to happen. This is one of those early mover advantages as well as the luck that the regulations on competing services (SMS) have actually helped them stand out and grow in a viral manner due to the nature of messaging – where growth happens via the personal network that uses the tool. What other mobile app provides something critical like P2P communication for a cheaper/hidden/free price point compared to others that are tightly measured and regulated?
Metrics are key to all success and many of the news stories included skewed by those who do not understand the mobile industry metrics clearly. Specifically, many were boasting about the number of new users on WhatsApp on a daily basis around the globe. Anyone who knows mobile on a global basis knows that there is a huge prepaid market where customers can look like a new subscriber/activation on a daily basis. Many markets include data plans where you can pay as you go and pay as you need the services. WhatsApp has most of its growth from emerging markets, which are mostly prepaid, and therefore those stats are heavily skewed and misleading. Why? Because every time someone might buy a new prepaid SIM or switch devices they might download the app again. Therefore the claims about new daily users has faded away and out of the news coverage for those who know what they are talking about, likely after Facebook was smashed by an analyst or press contact who knew mobile. The appropriate metrics to measure success and growth is daily active users (DAU) and monthly active users (MAU) and analyze those numbers over time. Facebook purchased the company for billions, and the valuation was questioned often, yet for those in the mobile industry, it is clear why Whatsapp was purchased – it was the reach and exposure, not the profits.
Where will Facebook take WhatsApp from here? Will this help or hurt their relationships with the mobile operators around the globe? Will it result in a duplication of this solution in the markets where Whatsapp is not the leader (Asia)? How will the mobile operators respond? What will happen to the SMS market, which has already started to watch its decline on a global basis? Will the financial outlook for mobile messaging solutions continue to decline? Will the carriers work with Facebook or against them? Share your feedback and comments.