Facebook’s acquisition of WhatsApp immediately makes Facebook a major provider of fast-growing social messaging (over the top messaging) services globally. Precisely how much the acquisition will affect market dynamics (though intended to benefit Facebook) is less clear.
Over the top messaging might grow at triple-digit rates in 2014, and at least some of that activity shifts user behavior. Where people might have sent text messages, they now send OTT messages (social or instant messages).
Among the key metrics are revenue and usage, with the caveat that over the top messaging revenue models normally are indirect. Volume is easiest to depict.
“The social messaging market is growing rapidly, with messaging volumes to reach 69 trillion with subscribers growing to 1.8 billion by the end of 2014,” says Eden Zoller, Ovum principal analyst.
Perhaps as significant ar the growth rates. OTT messaging traffic was about 27.4 trillion in 2013, and will grow at 300-percent rate and will grow at a triple digit rate in 2014, Ovum estimates.
Operator-based mobile messaging traffic (short message and multimedia messaging) volumes will peak in 2014 with 7.7 trillion messages, declining in 2015 to 7.6 trillion messages, Ovum also estimates.
It might be easy enough to predict that the text messages WhatsApp actually cannibalizes are high-cost international messages.
That has been true of Skype, the classic example of an over the top voice calling app. Such new apps get used first when the cost of carrier-provided messaging or voice is high. In the same way, WhatsApp likely directly substitutes for international text messages.
Domestic use is more complicated, and likely represents activity that would not have occurred at all. So most OTT messaging probably is largely incremental activity, not a direct substitute for text or multimedia messaging at all.
But it would be reasonable enough to conclude that the revenue impact on mobile service providers will be to cap revenue growth, as users needing to send international text messages will shift to use of OTT apps such as WhatsApp.
That doesn’t necessarily mean international texting revenue will halt, only that it will grow less robustly, as has been the case for international voice. Also, to the extent that the base of users continues to grow, more text messaging users and revenue-generating units will be added to the universe of customers.
The impact on usage in some ways is clearer: OTT messaging volumes will grow.
As always is true, users have multiple ways to communicate, and use of OTT messaging will at least indirectly reduce the volume of messages sent other ways.
Text messaging will generate more than $100 billion in 2014 revenue for mobile service providers, about 50 times the total revenues from all over the top messaging services.
The volume of OTT messages is substantial, with Deloitte analysts estimating that 50 billion OTT messages will be sent every day, compared to 21 billion text messages. But, as with everything Internet, volume and usage is not revenue.
Some observers have estimated that OTT messaging in 2013 cannibalized $32 billion in SMS revenues. But such extrapolations tend to quantify such developments by assuming that nearly all the incremental OTT messages would have been sent using SMS.
In most cases, especially international messaging, the alternative would have been “no message sent,” or use of some other communications mode.
A Facebook-owned WhatsApp likely will help cap potential revenue growth for carrier-provided messaging services, in part by reducing usage, in part by forcing carriers to merchandise texting services (reducing both aggregate revenue and profit margin).
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