Facebook, Google land blows against wireless carriers, undercutting their role
By Chantal Tode
February 21, 2014
WhatsApp is adding voice services
It has been a bad week for wireless carriers, with moves by MasterCard and Visa likely to diminish their role in mobile payments while Facebook’s WhatsApp acquisition pushes carriers farther to the sidelines of mobile messaging.
While carrier-controlled SMS messaging has been under attack for a few years, Facebook’s $19 billion deal for mobile messaging application WhatsApp – the social media giant’s largest acquisition to date - points to just how important messaging is when it comes to building a leading mobile platform. With Japanese ecommerce company Rakuten dropping $900 million a few days earlier to purchase Viber and Google reportedly offering $1 billion to buy WhatsApp last year, other deals could be in the making, promising to only make it more difficult for carriers to hold onto a meaningful role in mobile beyond being an access point.
“’Carriers’ as we know them are communication platforms,” said Chis Cunningham, co-founder and CEO of Appssavvy, New York. “So is Facebook, Instagram and WhatsApp.
“As people evolve their communication methods, if the carriers don't keep up, then they won't be carriers at all,” he said.
Messaging apps enable users to send text messages over the Internet, thereby bypassing SMS services offered by wireless firms. Such apps have been taking away SMS revenue from wireless carriers for several years because they are free or, in the case of WhatsApp’s 99 cent subscription fee, significantly lower in cost.
WhatsApp currently has 450 million monthly active users. Users send 19 billion messages and 600 million photos via the app every day, which means WhatsApp has nearly the same text-message volume as the entire telecommunications industry.
Overall, the social messaging market is growing rapidly, with messaging volumes expected to reach 69 trillion and subscribers growing to 1.8 billion by the end of 2014, according to forecasts from Ovum.
At the same time, Ovum predicts that operator based mobile messaging traffic, including MMS, SMS, A2P SMS, will peak in 2014 with 7.7 trillion messages and begin to decline thereafter.
Wireless carriers missed the chance to develop their own over-the-top voice and messaging services or have seen such services struggling as the dominance of WhatsApp and others makes it difficult for any new providers to enter the market.
Facebook acquisition of WhatsApp will only make it harder to wireless carriers to try to make a mark here.
“Messaging applications have evolved to provide mobile users with a better user experience, and the ability to purchase other types of content, services and products, making them more attractive to mobile users,” said Pamela Clark-Dickson, senior analyst for mobile content and applications at Informa Telecoms & Media, London. “Meanwhile, mobile operators have been slow to innovate on SMS, and their inability to provide their users with an enhanced messaging communications experience in a timely fashion is costing them SMS revenues and traffic.”
Evolving communication needs
The growth in social messaging is being driven by the changing ways that consumers are communicating with one another as mobile and social both continue to grow.
Carriers need to do a better job of adapting to these changes.
“Wireless companies don’t get it,” Appsavvy’s Mr. Cunningham said. “They want to squeeze every last dollar out of their user while more innovative companies are offering the service for free and in the case of WhatsApp, the ability to go international.
“SMS needs to adapt to the way people communicate, in groups, with photos and with no friction,” he said.
Carriers already have relationships with a large number of consumers.
They need to find new ways of leveraging these relationships that will drive revenue while adding value for customers.
“Carriers are shifting their thinking from ‘SMS as a service’ to ‘SMS as a channel’ in order to drive customer monetization beyond standard data usage,” said Lara Albert, vice president of global marketing at Globys, Seattle, WA.
“In addition to wanting to secure a higher recurring monthly APRU, carriers know they must understand their customers better to further leverage their customer relationships and create long-term dependency and loyalty,” she said.
While SMS is still about a $100 billion business for carriers, revenues have been shrinking because of the growth in over-the-top such as WhatsApp.
However, from a marketing perspective, SMS could be the stronger alternative, for the time being.
WhatsApp does not currently offer advertising and Facebook has said it does not plan to change this, at least not until the app reaches at least 1 billion users.
“At this point, SMS remains more useful to brands and enterprises than a messaging app, of which a mobile user might have several, making a targeted approach difficult,” Informa’s Ms. Clark-Dickson said.
“Brands and enterprises are also targeting messaging app users, where they can, but at this stage the infrastructure is not in place for them to do so on a systematic scale, as it is for SMS,” she said.
“At the moment if a brand wishes to engage with the widest possible audience, then SMS is still their best option.”
As the number of strategies for reaching mobile users continues to grow, SMS’ role in marketing could diminish.
“I don’t think that SMS is in danger of becoming obsolete, at least not in the short term,” Ms. Clark-Dickson said. “But what will happen is that SMS will become one of a number of tools that brands and enterprises will use to target their audiences with marketing campaigns, as opposed to being the dominant mass-market communications channel that it is today.”
While Facebook is a key content partner of wireless carriers, the fact that it now owns an app that has been a major contributor to the decline of SMS revenue and, in some cases, traffic could make for a more strained relationship going forward.
Facebook’s goal is to grow WhatsApp to 1 billion users.
Mobile payments front
For Facebook, the deal gives strengthens its overall mobile positioning as well as its ability to appeal to younger consumers who have been embraced WhatsApp more readily than Facebook’s own messaging service. Additionally, WhatsApp’s strength in emerging markets such as Asia and the Middle East presents a significant growth opportunity for Facebook.
Wireless carriers are also struggling in their efforts to play a meaningful role in mobile payments.
In the U.S., the Isis mobile wallet – a joint venture of AT&T, T-Mobile and Verizon, is struggling to gain traction while in Britain, Telefonica O2 recently said it would close its mobile wallet.
The announcements this week from MasterCard and Visa that they will support Google’s Host Card Emulation further calls into question the role of carriers in payments as HCE opens up NFC payments to banks, retailers and others without the need for carriers to grant access to a phone’s secure element, which was previously required.
Going forward, mobile operators will look for new ways to generate revenue streams, including mobile data.
“As the penetration of smartphones and mobile broadband increases, the range of choices available to mobile users as to which company provides their voice and messaging services also grows – users no longer have to rely on accessing these services through their mobile operators,” Ms. Clark-Dickson said.
“So yes, operators have good reason to be scared about seeing their role in mobile narrow to that of being simply an access provider,” she said.
Chantal Tode is associate editor on Mobile Marketer, New York
Related content: Carrier networks, Facebook, WhatsApp, ATT, Verizon, T Mobile, Appsavvy, Chris Cunningham, Informa Telecoms and Media, Pamela Clark Dickson, Globys, Lara Albert, mobile marketing, mobile
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