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.

1. Technology
76 | GlobeAsia May 2014
D
uring 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
photoMoh.defrizal
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.

2. 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 everything
The 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 thickens
Early 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 Fernandes
Tech 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.

3. 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 guys
Certainly 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.