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Google & WhatsApp: Opposites attract


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Steve Costello

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Almost a year to the day since Facebook announced its big-ticket acquisition of Instagram, rumours abounded about another megadeal: an acquisition of WhatsApp by Google. Although subsequently denied, it has raised some interesting issues.

There is little doubt that WhatsApp has been a phenomenal success. According to reports, it has “an estimated 250 million users worldwide”, handling more than 10 billion messages per day. And by offering communications services, it is at the heart of the mobile phone.

While Google has managed to create a phenomenally strong position in mobile through a number of its products – and with apps such as YouTube and Google Maps as well as its core search business extending its presence beyond its Android heartland – messaging is one of the weaker points in its armoury. Buying WhatsApp would enable it to address that, in one fell swoop.

But buying a successful app is not an instant fix, especially in a market as competitive as social and messaging.

For all its success, the thing about WhatsApp is that it has a lot of competitors. And it is relatively easy to shift to one of the others.

I’m not one of the most socially connected people, largely due to my deep-seated misanthropy, but for various reasons I have a few social messaging apps on my smartphones. So, should I need to, switching to another is no big deal. Likewise, if I find my contact moves to another, downloading and installing the alternative is also painless.

The fact that Google has been able to achieve such a prominent position in the mobile space means that the majority of consumers are obviously happy to engage with the ad-funded company. But privacy issues are a common theme in the coverage of Google, and some WhatsApp users may well feel unhappy with the change of regime.

As Facebook discovered when it attempted to change the terms and conditions of Instagram, users are increasingly vocal when it comes to changes made to existing services – especially if these are seen as detrimental. So integrating an existing, successful app and its users into another successful, but significantly different, business will always be a challenge – especially when it is so easy to churn.

There is another fundamental mismatch between some of the OTT messaging apps and the business models of their potential acquirers (Google and Facebook particularly).

In a blog post late last year, WhatsApp said: “Advertising isn’t just the disruption of aesthetics, the insults to your intelligence and the interruption of your train of thought.”

“At every company that sells ads, a significant portion of their engineering team spends their day tuning data mining, writing better code to collect all your personal data, upgrading the servers that hold all the data and making sure it’s all being logged and collated and sliced and packaged and shipped out… And at the end of the day the result of it all is a slightly different advertising banner in your browser or on your mobile screen.”

“Remember, when advertising is involved you the user are the product.”

Likewise, Talmon Marco, CEO of Viber (a WhatsApp rival with more than 175 million activations), recently told Mobile World Live that “The problem with advertising…is that [devices] don’t have that much screen real estate.  You take up some of it with an ad, you have even less. It’s just doesn’t look good. There are better ways to make money.”

So two of the most high-profile OTT messaging apps have adopted a business model that differs from the main internet giants (and potential acquirers) and, more than that, executives from both companies have also been explicitly critical of the alternative.

Of course, there is the option that an acquired company could be allowed to operate as an independent subsidiary, and certainly this could be a good short-term option. But where a mega-deal is involved, it is only a matter of time before men in suits start looking to “exploit synergies”, even if a closer integration means a lot of compromises somewhere along the line.

As Strategy Analytics said earlier this year, unless the OTT messaging companies are able to effectively monetise their services – something that is not the case yet – their future may be acquisitions “by larger corporations that use them as brand extensions”. So for some, if not all, a tie-up with a bigger partner is likely to be an increasingly attractive option.

But if such deals are to be a success, the whole process will need to be handled very, very carefully. There is a long history of failed acquisitions across a whole range of industry sectors. The clever trick will be in not joining it.

 

The editorial views expressed in this article are solely those of the author(s) and will not necessarily reflect the views of the GSMA, its Members or Associate Members.

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  • WGBJ

    Interesting analysis but don’t forget Instagram 1bn$ acquisition was not so much about its inner potential for ad monetization inside the app as to avoid disintermediation on “photo sharing” which is one of the main usage driver (hence of audience) on Facebook.

    Same can be said for Google-WhatsApp: if Google were to have a powerful messaging service with 250M+ users, that would probably decrease the odds of people wanting to replace the default Android homescreen (and its suite of Google services) by the Facebook Home for its Chat Heads feature for instance.

    That in itself could be worth a lot of money to Google. Plus all the data collected.

    In other words they would not need to cripple the service with ads to make it valuable to them.
    Remember Android is free and not a direct source of revenue for Google.
    It’s all about keeping the user into their ecosystem…

    • http://twitter.com/dlonergan Declan Lonergan

      Good comment WGBJ. In the end, Google knows this is all about ecosystem economics i.e. do whatever is necessary to lock-in existing service users and attract new ones. Messaging will always be a part of that.

  • http://www.mobileworldlive.com/ Mobile World Live

    Which does, of course, leads to another question. How would operators
    feel about such an important part of the mobile proposition – messaging – being
    controlled by Google? There’s a big
    difference between OTT apps being available from a store, and being owned by
    (and therefore closely integrated by) a device platform provider.