WhatsApp has over 1.5 billion active users who send 60 billion messages per day, disrupting SMS text messaging and other messaging platforms. As WhatsApp usage grows due to lower data costs, telecom providers see declining SMS revenues. WhatsApp's popularity is due to its multi-platform availability, focus on messaging simplicity, and lack of ads. It has achieved strong network effects through its massive user base and high switching costs. However, telecom providers face challenges from new messaging apps and declining voice and text revenues.

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WhatsApp
Group – 8 : Akshat Vaidya, Darsh Ajmera,
Deep Talati, Ditika Bhanushali, Harsh Patel

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Timeline

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Current scenario (WhatsApp)
▪ 1.5 billion active users as of Dec. 2017
▪ 60 billion messages a day ( 21.9 trillion messages a year)
▪ Voice calling introduced in March, 2015 → users spend 2 billion
minutes using voice calls as of July, 2018
▪ Group video calling and voice calling introduced
▪ WhatsApp for Business launched

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What did it disrupt?
▪ Text messaging
▪ Other IM platforms like AOL, Yahoo Messenger
▪ Mark Zuckerberg on WhatsApp - "most engaging app that we've
ever seen exist on mobile by far.”

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Are SMSs becoming obsolete?
▪ Telecom operators feel the wrath of WhatsApp’s soaring popularity
▪ Text messaging revenue dwindling
▪ Unlike SMS, WhatsApp messages are transport agnostic
▪ Worldwide SMS revenues drop from $120 billion in 2013 to $96.7
billion in 2018
▪ Text is the single most used feature of the smartphone. 97% of all
smartphone users have texted within the last week! With WhatsApp
replacing SMS as the de-facto standard for conversing, telecom
industry is in grave danger.

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WhatsApp vs SMS
▪ The average price of 1GB internet has come down from 7.5% of
monthly income (2015) to 5.5% (2017).
▪ Lower data rates → Higher WhatsApp use (potentially)
▪ With 60 billion messages and 4.5 billion photos sent each day,
WhatsApp serves nearly the same text-message volume as the
entire telecom industry, which is around a $100 billion business
for carriers.

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Are Telecom Providers Doomed?
▪ Due to OTT applications, recent trend is declining price of voice and data
services.
▪ The heyday of big profits from high SMS margins is coming to a close.
▪ OTT chat apps put more pressure on telcos since they offer social networks
that retain user loyalty and stickiness.
▪ Ovum, a London based research firm predicts a loss of $386 billion to the
telecom industry between 2012-2018 due to OTT services and chat apps.
▪ Most profit hit sector would be international calling and messaging – a cash
cow for most due to exorbitant roaming fees!

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SMS vs WhatsApp Messages
▪ 18.7 billion SMS a day vs 30 billion
WhatsApp messages a day in 2014

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Rise and Fall of IM applications before
WhatsApp
▪ Due to OTT applications, recent trend is declining price of voice and data
services.
▪ The heyday of big profits from high SMS margins is coming to a close.
▪ OTT chat apps put more pressure on telcos since they offer social networks
that retain user loyalty and stickiness.
▪ Ovum, a London based research firm predicts a loss of $386 billion to the
telecom industry between 2012-2018 due to OTT services and chat apps.
▪ Most profit hit sector would be international calling and messaging – a cash
cow for most due to exorbitant roaming fees!

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How WhatsApp displaced other IMs
▪ Multi-platform application
▪ Focussed on primary function i.e. simplify messaging
▪ Embraced the mobile revolution
▪ No lengthy signup procedure
▪ No ads
▪ Freemium model – First year is free for the users (penetration
pricing), from the next year a $0.99 subscription fee.

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WhatsApp’s Popularity – a Story in
numbers
Growth of Userbase

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Challenges WhatsApp faced
▪ Emergence of new competitors like WeChat, Line, Kik
▪ Google and Apple tried enveloping WhatsApp with Allo and
iMessage (failed miserably)
▪ Facebook buyout was met with user resistance – users
concerned about their privacy

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Addressing challenges
▪ Dropping user subscription fees to tackle the advent of new
entrants
▪ End-to-End encryption to allay privacy concerns
▪ Introduction of new features such as group video and voice calling
▪ Change in revenue model by implementing WhatsApp for Business
thus, making users the subsidy side
▪ Reputation for being a winner and high investor confidence →
healthy capital

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Factors favouring WhatsApp over other
IMs
▪ First mover advantage
▪ Extremely massive user base
▪ Phenomenally high collective switching costs
▪ Intra-device operability
▪ Ease of use
▪ No ads/gimmicks
▪ To put things into perspective from a monetary standpoint, Rakuten
acquired Viber for $900 million and Facebook paid $19 billion to acquire
WhatsApp and even then it was considered a slightly aggressive buy! That
high are the network effect costs for WhatsApp

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Economies of WhatsApp
▪ Platform Envelopment
▪ Low Multi-Homing Cost
▪ High Switching Cost
▪ High Network Effects
▪ Multi-sided Platform

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Future Offerings
▪ Online Shopping Platform
▪ Document Editing
▪ Portal for communication in educational institutions
▪ Photoshop tool
▪ Auctions
▪ Differentiated features for Doctors/Medical Institutions for faster
transmission of medical reports

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References
▪ https://economictimes.indiatimes.com/magazines/panache/staying-connected-users-spend-
over-2-billion-minutes-on-WhatsApp-calls-per-day/articleshow/65213213.cms
▪ https://www.investors.com/news/technology/facebook-whatsapp-acquisition-may-disrupt-
wireless-texting/
▪ https://a4ai.org/new-mobile-broadband-pricing-data-2018
▪ https://www.textrequest.com/blog/how-many-texts-people-send-per-day/
▪ https://www.investopedia.com/articles/investing/071515/how-whatsapp-killing-sms-
texting.asp