My $19 Billion IM Bill by Mark Zuckerberg

THE STORY BEHIND THE ZUCKERBERG’S WORDS

Facebookk CEO, Mark Zuckerberg released a statement announcing that Facebook, the popular social networking site, which he co-founded and of which he still owns around a quarter of shares subscribed, acquired WhatsApp, an internet-based cross-platform text messaging service started in Eastern Europe, which has grown to a world-wide reach of nearly half a billion users – most of whom aren’t using Facebook Messenger, its in-house variant.

Characteristically, his words understate the huge bet he is making, and his own understanding of precarious nature of a business on the cutting edge of technology: the risk of obsolescence.  For years, the death of the personal computer has been prognosticated in favour of the convenient and versatile hand-held mobile technology. But, as sales of PCs, Notebooks, Macs, and Convertible Ultrabooks have shown, the availability of mobile nano-computing devices seems to be a complement rather than a substitute, as yet, for conventional personal micro-computing.

Unless you’re a kid.

And, this is what Zuckerberg is counting on.

Facebook users have been chatting with each other for years, now, which is why many ‘early adopters’ of the social networking platform like this writer, wondered why other newer platforms were being used for a variation on the same theme.  After all, how many passwords is one supposed to commit to memorry? The answer to ‘the why’ of it all, seems to lie in three key areas: First, for younger users, Facebook isn’t fast enough – or cool enough – or new enough. After all, it’s, now, more than a decade old. That’s ancient in digital terms.  Second, the platform is cumbersome and limiting – one has to have joined Facebook to use it, and even then, one can only chat with friends.  Third (and this is becoming all the more prescient as the internet, with its myriad of communications applications, becomes concentrated in the hands of fewer and fewer big players) it’s a lot of information to keep in the data banks of a single company.

Enter WhatsApp, Skype, WeChat, Kik, Viber, LINE, GoSMS, Facetime (Apple), Snapchat, IM +…well you get the idea.

It’s a communications race in which the developing world seems to be far outpacing technology mature North American and European users.  Around 90% of Brazilian smartphone users use mobile messaging to communicate, compared with only 50% of British users and 45% of Americans.  And the traffic from mobile chats in China in a single day is greater than that of an entire month’s chatter in the US or a year’s in Canada.  It makes sense when you consider that China has roughly 460 Million mobile internet users of whom around 80% use Mobile messaging, and their patterns are even more frequent than Americans, spending an average of 4 hours per week on IM, compared with 2.6 hours/week for Americans – and yes, this includes American teenagers!

According to Flurry Analytics, overall app use in 2013 posted 115% year-over-year growth. The chart below, shows that mobile messaging leads the pack.

Is it the App or Simply the Platform?

While some of these apps, such as Korea-owned and Japan-based LINE, are enjoying great profitability growth, there is still a debate about whether these apps are simply experiences or more of a platform.  2013 saw a few examples of these apps becoming more of the latter.

In March of 2013, and just three months after launching it game distribution platform, LINE announced that it had delivered over 100m downloads to its gaming partners.

Tencent’s WeChat has conducted an experiment with China’s emerging device manufacturer Xiaomi demonstrating WeChat’s potential as an m-commerce player.  In that experiment, Xiaomi launched a new smartphone to WeChat users. The result: 150,000 new smartphones sold in under 10 minutes through a messaging application.

For its part, Zuckerberg has said that it would not require Advertisements to run on WhatsApp, further monetizing the app beyond the annual fee of US $0.99.  But he said the same thing of Facebook, which is rife with ads, and it even costs money to send a friend request, now, to someone who isn’t connected to you by Facebook friends – a model which borrows from linkedin networks and the ‘circles’ concept of Google +, which Zuckerberg had disparagingly referred to on a famous 60 Minutes interview as “A mini-Facebook”.

Look East, Young Hacker

The Facebook-WhatsApp deal is yet another indication that the ‘great game’ in high tech is being played out in developing nations, most significantly those in Asia. As the buying power of emerging markets ’emerges’, all of the tech giants are vying to capitalize on the growth.

Apple changed it maps of the Sino-Indian border to please China, facilitating its entry into the Chinese marketplace, and the meteoric popularity the company experienced among consumers. The winding lines outside authorized Apple dealers, and uproarious buying frenzy that followed doors opening up on the release of i-phone 5 variants for the Chinese market, made sales in America seem staid by comparison.

Meanwhile, the enormous success of Chinese e-commerce giant, Alibaba, which has around 80% market share in China, currently, has shown that even Chinese villagers of varying degrees of literacy are comfortable buying products through online services.  This has prompted the US-based e-commerce pioneer to announce  some two months ago that it announced that it would extend its Amazon Web Services (AWS) suite of products to China beginning with a limited preview in early 2014. Users can apply for early access on the AWS China homepage here.

The e-commerce giant is teaming up with local players to provide infrastructure to underpin AWS, and is also starting a program to incubate more localized services to run in the AWS cloud. AWS China will sit alongside Amazon’s existing China portal (which has seen some success, particularly around the newly available Kindle devices).

But this underpins the idea that, rather than sit back and let Alibaba continue to be regarded as the Amazon of China, Amazon, itself, wants to be the Amazon of China, and is using cloud computing to enable it to build its infrastructure in e-commerce the country itself.  It is all part of a more concerted effort by Amazon not only to pitch for more business from larger corporates but also to tap into the very large and still-growing community of smaller and medium-sized businesses in the country.

It’s a long-term project for Amazon — which has been expanding its ecosystem and raising its profile in the country for years already.

It started in 2004 with the acquisition of local site Joyo, which only rebranded to Amazon.cn in 2011. It was in that year that Amazon first started to lay the groundwork for Kindle device releases. Bai Juyi, who runs Amazon’s Kindle business in China, said that his division is already “exceeding expectations,” though no actual sales figures are presently available. The company’s goal is to expand its Kindle Chinese library to 100,000 titles by 2014, compared to 60,000 today.

“Microsoft has to do something or the other to keep itself alive in the market versus competition. Their strength has always been on the PC (personal computer) front. With smartphones and tablets grabbing a greater wallet share of consumers than PCs, it is important for Microsoft to adapt and exist in these spaces too,” says Kiran Kumar, Research Manager with IDC.

In fact, earlier this month, the company announced a deal in whichavailability of special bundled tablets for private schools (K6-12) in partnership with Acer, MBD Group & Tata Teleservices.

India has the largest population school-aged people in the world. By going after this market, Microsoft aims to be in contention with Google and Android in the long-run.

That Google, as it increasingly diversifies and finds itself fighting a war on many fronts, is nervous is evidenced by their reaction to Facebook’s move. They tried to stop it.

According to a report by TheInformation, Google CEO Larry Page went to meet WhatsApp chief Jan Koum last week in a desperate bid to prevent the acquisition from materializing.  The report cites three sources claiming that Page reached out to Koum upon hearing of Zuckerberg’s offer of giving him a seat on the board of directors of Facebook as part of the agreement.

An unidentified source quoted Page telling Koum, “Stay independent as you’ve always planned. You’re a big threat to Facebook. And joining Facebook would have a major impact on how things play out for years to come.”

It goes on to say that Google was ready to outbid Facebook’s $19 billion offer, but Koum reportedly felt that Facebook would give it more independence and that the two companies shared the vision of bringing people closer, polishing the already wide smile of Mark Zuckerberg.

However wonderful this buyout may be for Facebook and WhatsApp and the holders of inflating stock in new-bubble startups, this is at best a questionable development for users of smartphones in the long-run. While Facebook wants to be known for connecting people, the reality is that the company is not a proponent of an open, free, and fair functioning internet, because its goal, as stated by Zuckerberg himself, is to become what amounts to a public utility, like the electric company – only with all of your personal information in hand (see Forbes: New Facebook Policy Sells Your Face and Whatever It Infers. And the thing about utilities is they are natural monopolies or, because of government policies, don’t have real competition.

Apart from security and privacy issues serious enough to make anyone just finding out about the company more than queasy, WhatsApp is terrific if you want to communicate with other users of the same software, which at least runs on all major mobile platforms. The main value the telecom carriers bring to messaging, meanwhile, is that a text sent by one carrier’s customer to another carrier’s customer will, undoubtedly, arrive.

If Gmail users could only send email to other Gmail users, and my MS Outlook mail client could only send to others using the same package, email would soon turn into a monopoly controlled by one company or a few large oligarchies. The open internet created e-mail standards that were available to everyone, and the monopoly never had a chance to happen.

But this is changing.  Facebook, having acquired Instagram for $1 Billion, last year, went after Snapchat as well, unsuccessfully, offering them three times as much. Interestingly, these two apps, largely do the same thing – and do, in different ways, what Facebook has been doing or trying to do for years.  The indication is clear: Facebook wants to remove options from you – or if offered, want to profit from them, either directly or by using them as data mines – all information from such sources would flow to one place.

Now, with the acquisition of WhatsApp, your messages, which create a thorough profile of your habits, likes, dislikes, political views, religious and social views, even sexual predilections all flow into Zuckerberg’s datahouse. With so much information being collected and analysed in one place, this is hardly a development that democratizes new media.

It does the opposite. And, typically, developments like these make wealthy more money, and the uber-wealthy dramatically more powerful in the marketplace and society, in general.

Indeed, Zuckerberg, the smiling face of Facebook also seems intent on being the hand that holds the mobile to the mouth that talks to the world; next week he will make a keynote speech to thousands at Barcelona’s Mobile World Congress.  If the smiling CEO is grinning like a Cheshire Cat, though we don’t feel the impact, right now, we may well be the canary he just swallowed whole.