3 reasons why the WhatsApp/Facebook deal wasn’t a user acquisition strategy
Initial coverage of the Facebook/WhatsApp acquisition pegged the deal as a way for Facebook to acquire 450 million new users, located in regions the social network hasn’t penetrated.
But this explanation misses the bigger picture — the acquisition actually represents Facebook’s initial move to dominate global communications, an area previously owned by carriers like Verizon and Vodafone.
Here’s why:
1. WhatsApp isn’t just a “social app. ”
Following the acquisition, commentators compared the Facebook/WhatsApp deal to Instagram, calling it “another social app.”
But WhatsApp has been a serious threat to global carriers’ business for the past 3 to 4 years. Companies like Vodafone and Telefonica, with 800 million customers worldwide, were challenged by this tiny startup’s freemium model, which eroded their revenue from text messaging.
Bloomberg notes that over the top messaging services (OTT), where content is delivered via the Internet instead of through mobile networks, resulted in phone carriers losing $33 billion in texting fees.
WhatsApp enabled users to move between countries with a single mobile identity. Customers took advantage of carriers’ cheap data plans (especially low in highly competitive mobile markets), and combined them with free, flexible, and easy to use OTT options like WhatsApp to get the most functionality for the lowest cost.
[Telefonica actually created their own OTT competitor to WhatsApp, called Tu Me, for their 350 million mobile customers in Europe and Latin America. The product was shut down in September 2013.]
2. WhatsApp’s 450 million users are not equivalent to traditional revenue-generating Facebook users. In other words, a potential new user from the WhatsApp acquisition doesn’t necessarily mean a new revenue-generating Facebook user.
Here’s an anecdote from the Association of Internet Researchers, comprised of academics who examine Facebook usage around the world. It supports the notion that Facebook’s advertising-led business model may not be profitable when applied to WhatsApp users:
In the slums of Brazil, users don’t care about the Internet, email, etc…they only want to get on Facebook. Their activity is mostly limited to chatting, sharing and liking. Chatting occurs in a horizontal way, where users communicate with people who belong to their social class or community. However, what they share and like is vertical in nature— shared content is in English, generated by individuals from higher social classes and/or recommended by Facebook itself.
In this case, many users were illiterate and spent all of their afternoons in Telecentros and LAN Houses sharing and liking content they didn’t understand. It would be difficult or impossible to advertise to individuals who view content but are not moved to purchase, etc. because of it.
WhatsApp is prominent in countries like India, Brazil, and Mexico. A new Facebook user from WhatsApp may not result in a corresponding revenue increase through the social network’s current business model.
3. By keeping WhatsApp independent, Facebook aims to dominate global communications— not just social networking.
Even though Silicon Valley may view social networking as Path, Facebook, Twitter, etc., the global communications industry encompasses much more.
Facebook’s mission is to “Give people the power to share and make the world more open and connected.” The WhatsApp acquisition is a purposeful and strategic move to capture the communications industry, not just what we think of as social networking.
The convergence of mobile and social networks have made it difficult for carriers to compete with free OTT services, forcing them to reconsider longstanding business models. Facebook has the product and design expertise to rediscover and reclaim the value carriers have lost in recent years. The company has proven adept at understanding user needs and building products that serve those needs, which is a strong foundation for developing new monetization strategies.
This acquisition represents the first of many strategic moves to facilitate the communications habits of users across the globe, rather than simply folding new users into Facebook’s existing businesses and extracting value accordingly.
Update: News from Mobile World Congress in Barcelona confirms that Mark Zuckerberg is intent on partnering with carriers — carriers will provide the data/connectivity to mobile customers and Facebook will offer products that facilitate global interpersonal communications. Facebook is also increasing the efficiency of data services, which will further erode carriers’ existing revenue streams. (Source: Techcrunch)
Facebook acquiring WhatsApp wasn’t an expensive user acquisition strategy. Zuckerberg is moving into carrier territory, which is worth a lot more than $19 billion.
Note: VentureBeat published an article that references this Medium post http://venturebeat.com/2014/02/26/whatsapp-shows-that-facebook-google-are-serious-about-competing-with-telcos/
