by Barry Tuck, Paton Tupper Digital |
We live in the Age of Disruption. The impact of digital innovations on every industry, from banking to travel to marketing, has been profound and earth-shattering. Giants are being humbled over night if they fail to keep up (just ask the former board of Kodak) and new developments and innovations are turning startups into over night billionaires. In some instances, innovation is happening so quickly, that some ground-breaking inventions and technologies are being rendered obsolete before they have even made it to market.
In a rapidly digitising world, new possibilities, probabilities and realities are being created daily, and with advents like Mark Zuckerberg’s internet.org and Google’s similar desire to get the world online, it looks like it is just a matter of time until the entire planet is a massive WiFi hotspot.
Given that paradigm, let’s consider one of the biggest (and newest) industries in the world – the mobile telecommunications industry. Since mobile technology became mainstream in the mid-90s (a mere 20 years ago) the providers of these services have made fortunes. They have developed a network of towers, satellites, cables and communication lines that keep us in touch instantaneously. The first point of development was voice, and as the tech evolved, so the telecoms began providing internet access via ADSL, 3G and other services. Voice, airtime, bandwidth – these are the commodities these companies trade in, and they make trillions.
Now let’s consider disruption. Surely nothing can usurp this monster of an industry? Surely the telecom giants are untouchable? Or are they?
Let’s now look at Google and Facebook, and the future they are building towards. These two tech giants don’t trade in voice or bandwidth, they trade in data. Information. To them, internet penetration and access is the enabler of their entire revenue stream. No wonder they are striving towards a digitised world. More people online means more people accessing their platforms, and this means richer and more meaningful data for them to trade in. This is why Google are looking to launch satellites to beam internet signal into remote areas, and Facebook have recently acquired a drone manufacturing company… And then there’s Mark Zuckerberg’s ‘noble’ internet.org movement (note: I do think it is noble, but I realise that it is also self-serving). The digitisation of the world is inevitable.
But how will this affect the telecom giants? Well firstly, the impact on their bandwidth revenue stream will be significant. Google and Facebook trade in data, not bandwidth. Their goal is tomake internet access more affordable (if not free) and farther reaching. “But surely this will not have an effect on the telecoms’ other revenue stream – voice?” you ask.
To answer that, let’s look at another recent Facebook move, their (seemingly) bizarreacquisition of WhatsApp for $19 billion. Yes, $19 billion! To the majority of people, the valuation of the 5 year old instant messaging platform was ludicrous. Yes, WhatsApp has 500 million users (as of April 2014). Yes, WhatsApp has a revenue stream (they charge each user $1 a year for the app’s use)… But $19 billion! As was widely reported, the valuation meant WhatsApp was worth more than Sony.
The move was astounding. Even at a cost of $1 a year per user, it would take Facebook almost 40 years to recoup the purchase price (ignoring inflation and other economic principles of course). That isn’t exactly a savvy investment in anybody’s book.
But then the pieces began to fall into place. WhatsApp’s user base is worth something more than the $500 million earning potential a year, especially if one considers the introduction of voice. There are several players in the instant messaging space – Skype, BBM, Viber, WeChat and even our own Mxit – but none have attracted the numbers like WhatsApp, and none have become as ubiquitous as a daily communication tool. WhatsApp has single-handedly decimated SMS, and now it has its sights set on voice.
Currently, individuals and companies are spending hundreds if not thousands of Rands, Dollars, Euros, etc every month on mobile communication. Whether by contract or Pay-As-You-Go, the monthly costs are exorbitant. The reason for this massive monthly spend on voice communication is simple… Firstly, the reach of these technologies exceeds that of the internet. We’ve all seen photos of Masai tribesmen on their iPhones in the Serengeti like the one below. The second reason is that there is no cheaper alternative. While in the office, or sitting at home, or at any other WiFi enabled location, people will potentially opt for a digital voice communication solution (such as Skype), but anywhere else the preferred option is a phone call. The cost of data on a mobile phone simply precludes the voice option, essentially allowing telecoms the luxury of protecting one of their revenue streams (voice) with another (data costs).
But a fully digitised planet changes this. Suddenly, any individual on the planet can be reached via a digital communication platform, from the Masai warrior in the middle of the Serengeti, to a businessperson boarding a bus in London. If tech companies like Facebook and Google are offering affordable (if not free) internet access, then voice calls via a digital platform become a no-brainer.
Imagine if WhatsApp introduced a voice service at $10 a month with unlimited voice calls globally, in a world where data costs weren’t a concern. I can’t imagine any person in the world not bailing their current service provider to take advantage of WhatsApp’s offer. Without any growth of WhatsApp’s user base, they would instantaneously be turning over $5 billion a month! Suddenly Facebook’s purchase price of $19 billion doesn’t look so crazy.
But more importantly than that, where will this leave the telecommunication giants? Where will this multi-trillion Dollar industry find itself in the Age of Disruption? Perhaps we should ask the board of Kodak…
[via Linkedin]
