WhatsApp Winning the International Carrier Wars
How Skype lost, WhatsApp won – what’s next?
Phone carriers have always held a firm grasp on their industry. Only in the past decade did technology startups begin to wage war on the carriers. An early victor, Skype won by arbitraging expensive International voice calling via the PC. The next big pot of monopoly rents was SMS. The arrival of the iPhone opened up communication networks enabling WhatsApp to win by arbitraging expensive International SMS charges.
For overseas users, this is obvious: what is inexpensive inside a country becomes prohibitive across borders. In the US we see texting as cheap, with bundles for unlimited texts, because we seldom do cross-border texts. In places like SE Asia and Europe, with lots of nearby countries, better to use WhatsApp and save on $1 cross-border text messages.
The carriers are losing this war. Skype has had a measurable impact on carrier voice revenues, and has grown to be 1/3 of all International phone traffic. WhatsApp is devastating global carrier SMS fees. Ovum estimates WhatsApp and other messaging apps cost carriers $33B in 2013 and will cost $54B by 2016. That is a huge chunk of a $150B business segment. SMS is declining in many markets, forcing carriers to offer bundles of unlimited texts as part of data plans, but their overall revenues are less.
Skype advocates can argue that it should have become WhatsApp by capturing the messaging traffic from its built-in IM. Skype was a web-first product, however, and did a poor job migrating to mobile. Its mobile apps tended to suck battery life and over-use data plans by constantly pinging the network. Only in the last few weeks (!!) has it fixed a lousy message synchronization deficiency. Skype is a classic case of a web-first product missing the transition to mobile. Facebook almost face-planted over its own transition to mobile. WhatsApp was a Mobile First design from the beginning.
The next big honey pot of carriers is data. Could the next WhatsApp arbitrage cross-border data roaming? Many have tried, using multi-country SIMs or WiFi offload. Newer attempts are from OpenGarden (meshing mobile devices) and Karma (portable and shareable MiFi). I gave it a try with SkyPilot, building an outdoor high-speed WiFi network, partnering with AOL. Oh well.
These infrastructure plays are capital intensive. Could it be done with apps? Data is a different beast than voice or SMS. Those services came out of an era when the transport and service were bundled, whereas data is the unbundling of the transport from the services. VoIP and IM apps are the unbundled services of voice and texting. Hard to see how data itself gets unbundled.
(One of my startups, Xumii, done with a very creative CEO, tried this by offering access to Facebook and Twitter without data plans by using a free data protocol called USSD; but that was a one-off case. In the day, Xumii saw the WhatsApp play. Woulda coulda shoulda.)
Maybe the next arbitrage comes from a different direction. Benedict Evans, one of the best commentators on mobile, described the Three Phases of Messaging, and pondered whether the next step is to remove the phone number metaphor from voice and messaging, and create a direct social layer into mobile apps. No need to dial or text the cab driver; instead, connect directly. The social layer of friends gets unbundled as well.
I have seen some early attempts at this, usually based on a layer to manage multiple connection options. This strikes me as unlikely to succeed. Mobile is a platform where clicking on a single purpose app wins over bundles and complexity. Maybe Voxer is moving in the right direction, where the voice connection becomes more like a walkie talkie, but that metaphor may itself be limiting.
Much of the disruption so far has been on the consumer side. Similar arbitrage is beginning to emerge in mobile-first business calling and messaging.
The next WhatsNext is out there. Or will be shortly.
