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Do Telcos stand a chance in their competition with Whatsapp?
Feb 20, 2014

Everyone is talking about Whatsapp, after the announcement of Facebook’s 19 billion acquisition of the 50-people company. And that is after Facebook tried to buy SnapChat for 3 billion dollars but was rejected. Is Facebook out of its mind? What can 19 billion get you?

 

-       1/3 of Ford Motor Company or Starbucks Corporation

-       60% of Sprint

-       4 Sears Holdings or 11 J.C. Penny Company

 

Obviously Facebook sees tremendous value in Whatsapp’s more than 450 million active users who are predominantly teenagers and young adults and increasingly using Whatsapp to communicate outside of Facebook. 450 million, that is 4 times the number of AT&T Wireless subscribers.

 

Should Telcos be worried? Hell Yeah. We are looking at a potentially richer SMS experience – and more effective than the so-called MMS messages for sending photos and other media that often didn’t work. Whatsapp and many other OTT providers have the whole open-ended bounty of the Internet to work with, and they don’t pay a dime to build that infrastructure. Well, I take it back. Actually one of the biggest expenses of Whatsapp was for SMS verification running the company about $500,000 a month, using cutthroat SMS brokers like Click-A-Tell, who’d send an SMS to the U.S. for 2 cents, but to the Middle East for 65 cents, which is roughly equivalent to what users pay to send SMS messages. But the Whatsapp subscription is $0.99 PER YEAR. The contrast is stark and that is the value that Whatsapp is providing to their customers. Bloomberg actually predicted that carriers lost out $32.5 billion on text fees in 2013, and that number is going to be $54 billion by 2016.

 

Traditional carriers have been challenged to capture values brought about by media, social network, advertisement, etc because their infrastructure is mostly hardware based and usually slow and costly to deploy new services. This is one of the most important reasons that they are looking into Software Defined Networking (SDN) and Network Function Virtualization (NFV) technologies to make their infrastructure more agile and elastic, so that they can deploy new services quickly and cost-effectively to stand a chance in the fierce competition with OTT providers and even get ahead through clever leverage of their infrastructure!