The Facebook/WhatsApp Deal Is Bad News For Telcos

Facebook’s purchase of WhatsApp shows that the market for messaging is far from dead. But it’s just gotten worse for the telcos. We’ve already discussed the underlying reasons in a report — but the fact that Facebook put $19 billion on the table, of which $4 billion is in cash, for a global messaging service with 55 staff should scare telcos, with their millions of employees and high-cost structures. Over-the-top communications tools like WhatsApp, Line, KakaoTalk, WeChat, and Viber (which itself was bought a few days ago by Rakuten) have pushed telcos further and further away from any meaningful customer engagement.

To be sure, WhatsApp is about much more than instant messaging; it’s about content sharing — which is an emotional activity. Such emotional activities are critical to closer customer engagement. As the online giants use ever more granular user analytics to cement their position as marketing powerhouses, telcos’ hopes of developing new revenue streams from analyzing user behavior are slipping away faster and faster. This is what makes the deal so dangerous.

Of course, it’s tough to justify the deal simply on the basis of WhatsApp’s revenue model of $1 annual subscriptions. In my view, the deal is really about:

  • Bringing a major competitor into your family. Otherwise, someone else could have lured WhatsApp into theirs. The deal, which accounts for about 10% of Facebook’s market capitalization, could be seen therefore as an insurance cover.
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