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What next for WhatsApp?

5 Mins

It’s easy to see why WhatsApp is so popular; it’s simply better and more emotional than text messages. It gives people a quick and easy way of communicating without paying heavy SMS fees to local wireless carriers.

Since Facebook purchased WhatsApp back in February, there has been a lot of speculation surrounding its future. Particularly around how Facebook can recoup its initial investment and further monetise the app.

Since Mark Zuckerberg has ruled out introducing direct advertising, one approach would be to adjust its pricing model. It would be naïve to believe that WhatsApp will in the long run stick to its weakly enforced current price model of just 99 cents (69 pence) a year. 

Why wouldn’t its users be willing to pay a nominal and low fee of say a dollar a month, especially when voice and video calls will likely soon be integrated. A minimal increase for users, but one that would yield an additional $6billion per year, doubling to $12billion by August 2015, which is when, according to WhatsApps predictions it will have over 1 billion users.

Yet, many of WhatsApps 500 million users are particularly cost sensitive – teens and users from developing countries. Indeed recent growth has been fastest in Brazil, India, Mexico and Russia. Facebook needs to tread a careful pricing path or risk alienating these key segments.

For customers who don’t want to pay, a second option is to capitalise on the data WhatsApp offers and to utilise this as part of its offer to brands seeking to run targeted adverts on Facebook, or even as sponsored opt-in content on WhatsApp where users can receive information on topics and from brands they are interested in.

The losers from this are the long-established telecommunications providers. They will find their role further reduced to that of simply an enabler of data transfer. They offer the high-speed Internet highway and the fuel for the use of Internet service providers – the cars running on the highway. 

But the most popular cars on this high speed internet highway in reality only come from a few big internet companies; the ones who have understood how to optimally monetise their services.

The telecoms industry, on the other hand, lacks the ability to monetise access to data services, which deliver benefits no one wants to live without. One reason for this is the toxic pricing models found in the telecoms industry. 

For far too long telecoms providers have offered voice minutes, text messages and data as undifferentiated goods. But not only have people been using voice minutes and text messages less and less, prices have been driven down and down. As a result, telecoms companies have one big growth driver left: data.

This is the most important area for them. However, the mobile data volume is under attack by WiFi. The time a customer needs to spend without WiFi access is decreasing. WiFi is available almost everywhere: at home, at work, in restaurants and cafes, or even while commuting. The data volume will grow but much less in mobile data. 

The clear winner will be fixed net volume but here the unlimited data world is already established, incremental usage does not have a price. In some circumstances, providers have also implemented an unlimited data usage model in the mobile world. Those that benefit from this toll-free, high speed Internet highway and its partially unlimited fuel are its everyday users and the big Internet players they use, like Facebook.

Martin Deutschenbaur is a director at Simon-Kucher & Partners, London, where he heads the Telecommunications, Online Business and Technology Services competence center

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