Facebook looks to become big fish in another big pond - Times of India ~ Electronic Gadgets

LONDON: Facebook is the world's biggest social network. Now it wants to be the biggest player in a new field by buying WhatsApp, the global leader in mobile messaging.

"In mobile messaging, WhatsApp is the biggest guy in town," said Bertrand Schmitt, chief executive of App Annie, an analytics company that monitors app rankings worldwide. "Facebook is buying into that. It's about global scale."

Facebook's $16 billion deal to buy WhatsApp extends its reach in countries like Mexico, Germany and India, where the mostly-free messaging application has a bigger share of the markets.

And it gives Facebook a chance to compete elsewhere against other messaging startups, like Line of Japan and WeChat of China. About 45% of mobile internet messaging users rely on WhatsApp, according to the research firm Analysys Mason.

The acquisition, the largest ever by Facebook , is part of its effort to create a series of applications on a user's mobile device instead of relying on its core social network alone. It also aims to seize on the trend of more people using their mobile phones to communicate one-on-one or with very small groups, rather than sharing information more widely.

As part of the deal, Facebook, based in Menlo Park, California, agreed to pay $4 billion in cash and $12 billion worth of shares for WhatsApp. Widely used internationally but less known in the United States, WhatsApp does not sell advertising and has very little revenue. It charges users $1 a year, and the first year is free.

The deal puts Facebook in direct competition with the world's largest telecommunications operators like AT&T and Deutsche Telekom of Germany, which for years drew the ire of consumers who were charged high fees to send text messages. Global carriers lost a combined $32 billion in revenue last year as consumers shifted from costly text messages to cheap internet messaging services, according to the research firm Ovum.

Over the last decade, the likes of Telefonica of Spain and Vodafone of Britain have relied on high margins from text message services as a key source of revenue.

In response to the rise of the likes of WhatsApp, some operators have tried to ban internet messaging rivals. That includes the Dutch telecom company KPN, which blamed WhatsApp for a major downturn in its revenue in 2011. Local lawmakers later ruled that KPN could not discriminate against data traffic from rival messaging services.

Other telecom companies like Orange of France have tried to compete by offering their own internet messaging offerings, and Deutsche Telekom of Germany is looking into creating its own service.

Yet these services, which generate little revenue compared with traditional text messages, have been limited to users on the carriers' own networks and have therefore failed to reach a global audience.

Analysts say Facebook remains in a strong position when competing with these cellphone operators. With roughly 1.2 billion global users, the 10-year-old social network is still one of the most downloaded applications for smartphones worldwide. And few carriers would be willing to block Facebook's services in fear of angering their customers.

"Telecoms companies have struggled to react to the growth of services like WhatsApp," said Steven Hartley, who runs the industry, communications and broadband team at Ovum in London. "By the time they responded, internet messaging startups already had sewn up the market."

WhatsApp's growth has been explosive. The company says that around a fifth of its users, or 100 million of its 450 million subscribers, have joined in the last four months.

Founded in 2009, WhatsApp has more than 55% of its users hailing from Western Europe, Mexico, India, Brazil and the United States, according to App Annie.

It has been wildly popular with European customers, particularly in countries like Spain where traditional text messaging remains costly. It has outpaced local rivals like Viber Media of Cyprus, which was acquired by the Japanese e-commerce company Rakuten for $900 million last week. WhatsApp also is now downloaded more often by European users than rivals like Skype and competing offerings from local telecom companies like Orange.

But its popularity in Europe is eclipsed by larger growth in emerging markets like Brazil and India, analysts said.

As a growing number of users in developing economies, including Indonesia, have upgraded to smartphones, these customers have turned to online applications like messaging services that were previously not available on low-cost handsets.

"Facebook and WhatsApp will work together to get into more emerging markets," said Pamela Clark-Dickson, senior messaging analyst at the research firm Informa Telecoms & Media. "It's an area where both companies want to focus on in the future."

More than 80% of Facebook's users are now outside of the United States. So far, the company's own chat platform, Facebook Messenger, has proved more popular with American users than their global counterparts.

Not every market will be easy to crack.

Several well-established rivals in key Asian countries have kept both Facebook and WhatsApp at bay.

In China, the local social messaging application WeChat is the market leader, while regional rivals Line dominates in Japan and Kakao is the most download Internet messenger in South Korea.

In contrast, WhatsApp does not rank in the top-five most-downloaded mobile social networking applications in any of these Asian countries, according to statistics from App Annie.

Analysts say Asian tech companies have built well-entrenched operations that Facebook and WhatsApp will find difficult to dislodge. The competitors are now expanding across the region and further afield, including in Europe and the United States, which could hurt Facebook's own future plans for WhatsApp.

The rival messaging companies have successfully developed mobile games and other services inside their messaging services that users are willing to pay for. That contrasts with WhatsApp where the co-founders have vehemently opposed adding advertising to generate much-needed revenue.

"In countries like China and Japan, Facebook Messenger is not a leader," said Siim Teller, a mobile analyst at the consultancy On Device Research in London. "Facebook has a problem with innovating beyond its core social networking application."

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