Facebook, WhatsApp and the price of messaging

In its largest-ever acquisition, Facebook's $19bn deal is about growth, but it could be at the expense of conventional telcos.

Those SMS charges are hugely profitable for operators, but they have also persuaded younger mobile phone users, in particular, to switch to services such as WhatsApp and BlackBerry Messenger (BBM). It has also prompted operators to bundle more and more texts with their plans. EE, currently the UK's largest network, includes unlimited texts with its 4G plans.

This suggests that services such as WhatsApp are taking some of that valuable business from the operators.

The sums involved dwarf Facebook's last large acquisition: photo messaging site Instagram cost a mere $1 billion; they are also more than Facebook raised in its own flotation.

Ovum, the industry analyst firm, predicts that the telcos' mobile messaging service will peak this year, at 7.7 trillion messages worldwide, and will then fall back. The firm's survey of "OTT" or internet-based messaging points to 27.4 trillion messages last year and 68.9 trillion this year. WhatsApp alone claims to have delivered 36 billion messages in one day.

According to Eden Zoller, principal analyst for telecoms at Ovum, buying WhatsApp is part of a growth strategy for Facebook. Especially, the company wants to grow its mobile user base and revenues. WhatsApp's large subscriber base is a ready way to do this.

The growth in OTT services, though, could yet bring hidden costs to businesses. As more mobile subscribers abandon conventional SMS in favour of social messaging such as WhatsApp, operators will need to switch their attention to data services, such as their 4G networks.

Operators could be forgiven for increasing the cost of "legacy" services such as SMS, leading to higher prices for business services that depend on them.

Perhaps CIOs should ask any teenagers in their households for a quick WhatsApp demo.

Stephen Pritchard is a contributing editor at IT Pro.

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