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Summary:

Facebook’s blockbuster $19 billion purchase of WhatsApp won’t necessarily kick off a consolidation wave. There aren’t that many more major OTT players left in the market that aren’t focused on Asia.

There’s been a run on the big over-the-top communications apps lately. Last week, we saw Asian e-commerce giant Rakuten scoop up Viber for $900 million, but on Wednesday Facebook announced it is buying the biggest OTT enchilada in the oven, WhatsApp, in a deal that could eventually be worth $19 billion.

So now that the WhatsApp is joining Facebook, does that mean we’re going to see a massive rush in the tech industry to buy its dozens of smaller competitors? Not necessarily. We are sure to see some more consolidation in the OTT space, but not all of these peer-to-peer messaging, voice and video apps are going to find homes.

mobile-war-whatsapp

WhatsApp is the granddaddy of OTT with 450 million monthly active users. It has the largest global footprint and messaging traffic that’s set to surpass the total volume of SMS sent over every carrier network in the world. What surely attracted Facebook to WhatsApp — and it may even have participated in a bidding war with Google for the prize — is its enormous scale. The only other OTT players with that kind of scale and reach are Skype, which is already owned by Microsoft, and Facebook Messenger itself.

Viber isn’t the second-largest independent OTT player — that distinction likely goes to China’s WeChat — but it is definitely one of the heavyweights in the space with 300 million registered users (though keep in mind a registered user is different from an active user). Yet Facebook is paying more than twenty times for WhatsApp than Rakuten paid for Viber. The difference in market value between the OTT king and mere OTT nobility is huge, to say the least.

Marc Lefar Vonage Andreas Bernstrom Rebtel Mobilize 2013

Rebtel Andreas Bernstrom (center) at Gigaom’s Mobilize conference (c) 2013 Pinar Ozger pinar@pinarozger.com

Last year, I had a conversation with Andreas Bernström, CEO of OTT voice pioneer Rebtel, regarding his thoughts about consolidation in his industry. He predicted either Google or Facebook would buy WhatsApp, and the other would pick up Viber. He turned out to be half right, but I think his basic argument was sound. Internet companies are interested in these OTT players not because of their technology or their business models — most of which are non-existent — but because of the way they’ve been able to attract incredible volumes of mobile users in relatively short periods of time.

That said, Bernström feels that there are really only a few big global players of any value to the internet companies, and two of them are now accounted for. So who’s left?

There’s Tango, which specializes in video chat and its 150 million users, and rising stars like Kik Interactive. The Asian messaging apps — WeChat, Line and KakaoTalk — would all seem like good candidates, each with their hundreds of millions of users on their rosters (though WeChat is already owned by Chinese internet giant Tencent). But Bernström pointed out that the Asian OTT companies all tended to focus on their home regions, which would make them less attractive to a big global internet company like Google.

Tango's video app

Tango’s video app

That, however, is starting to change. A recent study by On Device of OTT usage in four different countries found that Line and WeChat were starting to spread beyond their home countries, taking root in the U.S. and Australia. Surprisingly, On Device also found that BlackBerry Messenger was starting making big gains globally, now that BBM is decoupled from the BlackBerry OS. If BlackBerry decides to sell off its valuable assets, BBM might get some takers.

So is Google still in the market for an OTT app? It’s hard to say. There’s no single purchase it could make that would give it the sheer customer volumes or global reach that Facebook just achieved by acquiring WhatsApp. Buying Line or KakaoTalk would bring in a large volume of users, but they would still be concentrated in Asia (though if it’s Google’s goal to expand its services rapidly into Asia then these companies are the perfect targets). Buying a smaller player like Kik would give it users closer to home, but not the scale of WhatsApp of Viber.

But Google, Yahoo, and every other internet communications company and mobile carrier is probably taking pause at this transaction. Combined, Facebook and WhatsApp will control a plurality if the not the majority of the world’s mobile messaging transactions. Compared to that, Hangouts looks like an also-ran app buried in Google Play.

  1. This article has quite a few typos, Gigaom guys. I know this is big news, but you should do a little proofreading before you hit “publish.”

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    1. Thanks Gregory, we were in a hurry to get this one out considering the news urgency. But I gave it another scan and corrected the typos (hopefully all of them) you noticed.

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  2. It should be “So now that WhatsApp is joining ‘the’ Facebook…” :)

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  3. WeChat is part of Tencent, third largest internet company by marketcap. so likely not for sale :)

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    1. Good point, BB, WeChat is hardly an independent company. I’m adding that to the post.

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  4. Facebook is buying up every possible emerging threat to its domination.

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  5. M$ needs one even more, not so sure how many mobile users Skype has, Guess M$ could try to push GroupMe harder since they already own it.
    But someone less wasteful than FB might want to wait for the next for factor transition.
    You also got to wonder if Apple should stay as dumb as always or maybe open it’s app to other platforms.If you look at email.social networks, IM apps as just ways to communicate, it makes no sense to stay out of this fight. Email is dead and they can’t do a social network but maybe they could survive here, if their app would actually work.

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  6. I think the next company to be bought in the OTT space is Counterpath. Counterpath is a little different than the likes of Whatsapp, Viber, RebTel etc as they do not have a service but they are the leading provider to Telcom and Cable Service Providers and Enterprises. They have been around for 10 years and have an extensive patent portfolio as well as early stage deployments with some of the largest companies in the world.

    This company is controlled by Sir Terry Matthews who the Telecom Billionaire who sold Newbridge to Alcatel for $7B but happens to be a very tightly held Nasdaq company (CPAH:NASD) that rarely trades and few know exist.

    Counterpath customers are going to be under huge pressure to complete against the likes of Facebook, Apple and Microsoft and someone will but this company for all the reasons above.

    My prediction Oracle who bought Counterpath partner Acme Packets last year for $2.8B.

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  7. You failed to mention SnapChat…

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    1. SnapChat got tiny userbase…

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    2. Hi Mike,

      I didn’t mention SnapChat, but it was a purposeful omission, not an oversight. I don’t really consider Snapchat an OTT company in the sense of WeChat or Viber because its not really cannibalizing the carriers traditional communications service. I know I’m on slippery ground trying to define what is and isn’t an OTT company, but I think most people would put it in a separate category because if provides a unique service. If you were judge SnapChat by the metrics of other OTT companies — registered users — it would be a non-factor. Sure Snapchat is likely a big acquisition target, but not for the same reason as WeChat or Viber.

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  8. Om, this merger should be blocked on antitrust grounds on Feb 20, 9:06 AM said:
    @euro: Whatsapp is the strongest competitor Facebook has experienced. Whatsapp is a social network. It is now sharing more photos daily than Facebook.

    Facebook is paying this money to protect what it already owns. The photo sharing social market. That why they are paying it. It may not make sense from a dollars and sense PE ratio but it protects Facebook from being eclipsed by Whatsapp.

    The government and DOJ and SEC should block this merger.

    It hurts consumers. Consumer choice is being hurt because while Facebook might not put ads on whatsapp they will surely mine your data. I dont want Facebook in my life. Whatsapp was a great alternative to Facebook. Now by this merger that consumer choice is being KILLED.

    By the way… isnt it funny how the Whatsapp guys swore they wouldnt become Facebook and wouldnt sell out and blah blah blah and along comes a big check and they sell out. horrible but I guess expected.

    Anti-trust law protects consumers in the United States.

    All the other messaging apps in China, Japan, and Korea do not have the marketshare in America as does Whatsapp. It is Whatsapp that is the strong competitor in America for Facebook not the other countries apps.

    I disagree with anyone who says the kids will just switch to another app. Nobody wants to recreate their social network. Those “costs” are why Facebook is still Facebook today. Despite all the talk about Facebook losing people they have more people than ever… including more teens. And they own Instagram.

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