And KPN is the proverbial canary in the coal mine. For operators, the impact of an increased uptake of mobile VoIP and chat (mVoIP/Chat) is potentially devastating. Operators run a very real risk that voice and SMS revenues will dwindle. A study by GSM/Wireless Intelligence estimates global mobile service provider revenues will be $1.1 trillion in 2012. In developed countries such as the US, 70% of those revenues are derived from voice. If mobile VoIP calls can be made for free on top of a $10 per month mobile broadband subscription, mobile operators must either increase the price of mobile broadband or find other potential revenue streams in the web economy.
However, not everything is rosy for mVoIP/Chat vendors. Inhibiting the growth of mVoIP/Chat is the low quality of mVoIP over 3G, bad handover of mVoIP calls between 3G cells, operators that block or price mVoIP/Chat traffic, and the existence of large “barren” areas – outside major cities and inside buildings – where 3G coverage is limited or only 2G or GPRS and EDGE is available.
Long term, mVoIP/Chat is here to stay, although mass-scale adoption of end-to-end mobile VoIP calling will not happen until fourth-generation (4G) networks that are designed for mobile broadband and OTT services are fully implemented.
In this piece, we look at the companies currently making noise in the mobile VoIP/chat space, as well as trends and companies to watch closely as we move into 2012.
Table of Contents
- Companies that impacted 2011
- What to expect in 2012
- Battle between mobile operators and mVoIP/Chat Vendors
- Best of breed versus best of suite
- How to make money
- M&A musings
- Companies to watch in 2012
- Bottom Line
Companies that impacted 2011
Skype. Skype is the 800 pound gorilla in the mVoIP/Chat market. Over the past couple of years, it has been branching out from offering mass market fixed VoIP and video to mobile VoIP and Skype for Business, a professional version of Skype with enhanced management features designed for home office, small and medium business and large enterprises. Skype was acquired by Microsoft in May 2011. Also in 2011, Skype and Facebook announced a video chat partnership that could be extended to mobile platforms. In August 2011, Skype acquired GroupMe, adding group messaging capabilities. Skype is also branching out to the TV platform forging alliances with HD TV manufacturers like LG and Samsung.
Microsoft. Until Microsoft acquired Skype, its main mVoIP/Chat offerings were Windows Live Messenger for consumers and Lync for business. Microsoft’s alliance with Nokia in February 2011 was a clear sign that Microsoft is tightening the link between mobile hardware and Windows Phone 7. With Windows Phone 8 this integration is likely to be strengthened even further.
Facebook. The leader in the social networking space has been offering limited chat possibilities for the PC and mobile platforms for some time now. Facebook’s increasing ties with Skype is bringing more flesh to the bone with video chat, adding to the existing Facebook VoIP and chat capabilities. March 2011, Facebook acquired group text messaging startup Beluga. August 2011, Facebook launched its own Messenger application.
Google. With Google Voice, Google Talk, and Gmail Voice, Google is quickly becoming a large player in the mVoIP/Chat market. Google extended the reach of Gmail Voice to countries outside the US in August 2011. With Google+, Google entered the social networking space, and with Google Huddle it included group text message capabilities. With the acquisition of Motorola Mobile in August, Google – like Microsoft – is opening up the possibility to tightly embed mVoIP/Chat into Android mobile handsets.
Whatsapp. Whatsapp made headlines when Dutch operator KPN announced a tax on mVoIP/Chat that quickly became known as “Whatsapp Tax”. For the first time, in May 2011, a mobile operator announced that mobile service revenues dropped – by 8% – because of mChat. A shot across the bow for mobile operators worldwide. The other culprit that was named and shamed for this by KPN was RIM with its Blackberry Messenger. As a result, Dutch parliament voted for net neutrality and will become the second country after Chile to implement this.
Samsung. With the launch of ChatON in September 2011, Samsung is entering the mobile messaging market. Interestingly, ChatON brings text, group chat, and image and video sharing not only to Samsung’s own Bada OS based handsets, but also to iOS, RIM, and Android. In addition, Samsung is planning to extend ChatON to the PC platform.
What to Expect in 2012
We expect three themes to dominate the mobile VoIP/chat market in 2012:
- The battle between mobile operators and mVoIP/Chat players will intensify.
- Within the mVoIP/Chat space the market will diverge further into pure play mVoIP/chat vendors like Nimbuzz and full social experience players like Facebook.
- mVoiP/Chat vendors will need to figure out better ways to monetize their offerings and subscriber base.
Battle between mobile operators and mVoIP/Chat vendors
The successful uptake of all-you-can-eat mobile broadband bundles has caused operators to think hard about their mobile broadband business models. Already they are replacing all-you-can-eat pricing with bundles with data caps or pay-as-you-go pricing. The price hikes and data caps are justified by the huge investments that operators say they need to make in order to build the next generation network. But there is more. Mobile operators’ core revenue and profit base is at risk if mVoIP replaces mobile voice and mChat replaces SMS, and the options they have to fight against this – aside from data caps and price hikes on mobile broadband – are limited. Blocking or placing a tax on mVoIP/Chat to protect revenues is a possibility, but not every country allows this behavior (e.g. Chile and The Netherlands with its net neutrality laws). Also, this strategy opens up the possibility for competitive operators to not block or tax mVoIP/Chat, resulting in customer churn. Tied selling of mobile broadband with voice and SMS is another possibility, forcing customers to buy SMS even if they might not want to use it. Another more forward looking approach for operators is to partner with mVoIP/Chat players.
Operators like 3UK, KDDI and Verizon Wireless have proactively partnered with Skype and offer handsets that integrate Skype. Vodafone made a similar arrangement with Facebook. Hyves, the Dutch Facebook, has an MVNO agreement with T-Mobile in the Netherlands. Other operators like Telefonica (JaJah and BlueVia) and BT (Ribbit) are trying to create network APIs for SMS and mVoIP to attract partners that are willing to share SMS and mVoIP revenues. So far, these partnerships have delivered more users to mVoIP/Chat players and more mobile (broadband) subscribers to operators.
Ultimately, the old (mobile) telco business model of selling bundles of service and capacity is getting tired. Communications revenue growth is flattening worldwide, and while there is still growth in emerging markets, the developed world is becoming saturated. A recent study by IBM paints four scenarios of the telecoms world in 2015, none of which predict the growth of communications revenue, and all predict the growth of connectivity and content revenues. The (mobile) telco challenge is to profitably ride out the current business model whilst at the same time positioning for the new world.
T-Mobile is a good example of unbundling. It takes the carrier agnostic route, starting to position themselves as an OTT VoIP player, and has launched Bobsled, providing free calling within Facebook. In the future, T-Mobile plans to include video chat, the ability to place VoIP calls to mobile and landline U.S. numbers, and will offer applications on smartphones and tablets across various mobile platforms, regardless of the carrier that powers such devices. Telefonica has acquired Tuenti (the Spanish Facebook) and is now aiming to roll out Tuenti across other countries.
This process will likely be drawn out over a considerable number of years. We will see emerging new models of unbundled service and capacity such as webcos (OTT players), connectcos (so-called dumb pipes), capcos (for instance Lightsquared), and servcos (for instance Vodafone selling location data to TomTom).
Wildcard prediction: Mobile operators take a leap forward and open up the SMS walled garden and invite social networking vendors to create apps that leverage SMS for a share of the revenue.
Best of breed versus best of suite
Best of breed refers to point products that are very good at performing a single function, such as mVoIP or chat. Best of suite refers to products that offer a suite of functions that work well together. Microsoft, Skype, Google, Facebook, and Apple are examples of vendors that already offer, or are planning to offer, a (social) suite that incorporates mVoIP/Chat, rather than focusing on a single solution. Nimbuzz, Whatsapp, Viber, eBuddy, Vumber, PingChat, Fring, Tango, Kik, HighNote are examples of point products that focus on mobile voice, video or chat. For the best of suite players, rounding out the (social) suite to include mVoIP/Chat will be a key area of focus.
For the best of breed players, extension within the mobile platform (iOS, Android, WP7, Symbian, BB OS) and the extension across platforms such as PC (Microsoft and MAC) and TV will be a key area of focus. Extension across the mobile platform will provide a large mobile user base. Extension across platforms in general will provide the opportunity to connect with the user base from other devices than just mobile. The increased user and device base will provide a larger opportunity to be monetised.
Wildcard prediction: Watch the acquisition space of the existing best of suite players mentioned here or device manufacturers like Samsung, HTC, and others acquiring best of breed vendors.
How to make money
Let’s face it, aside from Skype, Rebtel, Truphone, Vyke or Voipbuster that have their primary revenue stream in paid voice minutes, none of the other mVoIP/chat players are making any (serious) money. There are other vendors that have a paid mVoIP revenue stream but they are small compared to Skype. Most startups in this space have focused on getting a large user base with free services.
For the large best of (social) suite vendors, the mVoIP/Chat revenue stream is of lesser importance. The likes of Facebook are already getting their revenues from advertising. Offering mVoIP/Chat for them is more about increasing user time spent on the platform than getting another revenue stream. For the best of breed vendors, for instance eBuddy, tapping into an advertising revenue stream seems the most obvious choice.
Monetizing a chat or mVoIP service that other players give away for free will be hard. But there are other possibilities. Nimbuzz (like Skype) is extending into offering games, opening up the potential to get money from games vendors or users buying games. Skype is adding an app store, opening up potential to get a cut of paid apps, and is also offering paid global Wi-Fi access. eBuddy is offering a free app that has advertising or a paid Pro app, without advertising. However, the most obvious way to monetize the investment is the exit (being acquired) strategy.
Wildcard prediction: A large mobile operator like Vodafone acquires a large mVoIP/Chat player like Nimbuzz.
M&A Musings
The best acquisition candidates are those with a sizable registered user base and a cross mobile platform solution. These include Nimbuzz (50M users) and eBuddy (40M users). Other potentials are Whatsapp, Fring, Kik and Tango. Looking for mVoIP/Chat startups are (social) suite players that want to round out their best of suite offering, device players that want to integrate mVoIP/Chat into the device and mobile operators that are positioning for a changing business model. But there are also other possibilities. In the pro consumer or business space, think about collaboration vendors adding voice or chat like Slideshare adding Zipcast. Think about gaming console players like Nintendo and Sony, or HD TV manufacturers like Samsung and LG adding more VoIP, Video and chat functionality through acquisitions.
Companies to Watch in 2012
Aside from the M&A activity already mentioned above, next year will be another year in which we will see most of the activities coming from the best of suite players. There will also be some surprise from the likes of Twitter and Whatsapp.
Apple. In October 2011 the long awaited iOS 5 was released by Apple. iMessage is one of the many innovations within iOS 5 and its impact will be felt in the mobile operator space. iMessage provides unlimited text messaging between iPhone, iPod, and iPad devices. In addition, you can start a messaging session on an iPhone and continue the same session on an iPod or iPad. AT&T already battened down the hatches, doing away with its $10 tier for 1,000 text messages a month for new customers, making it a choice between a $20 unlimited plan or 20 cents per text message. With messaging tightly integrated into the iPhone, iPod, and iPad, a quick uptake of iMessage within the large Apple user base should have a sobering effect on SMS growth in developed markets.
Twitter. Twitter will be launching a phone-based photo service based on MMS and BlueVia (Telefonica) APIs will be used as a key part of this launch. This could help solve Twitter’s business model problem by generating cash payments to Twitter from the operators for each MMS message sent. Wildcard: Twitter revives jajah@call (also Telefonica) which has remained in beta from its launch in 2009.
Facebook. Facebook Messenger and the Skype alliance will take off because the tighter integration of social media and communications makes it easier for Facebook users to extend and mix social interactions with voice, video and chat communications. Apart from being a social network, Facebook will quickly become a worldwide directory that serves as the launching pad for a large part of global mVoIP calls and mChat sessions.
Google. Google will tightly embed Google+, Huddle and mVoIP/Chat offerings into Android (Motorola) mobile handsets. This will enable Google to compete better with the integrated Apple iOS offering.
Microsoft and Skype. The Skype acquisition and Nokia alliance open up the possibility to tightly embed mVoIP/Chat into mobile handsets and at the same time not alienate mobile operators. This will result into deeper alliances with mobile operators. Instead of operators subsidizing handsets in return for a 2 year contract, Microsoft could subsidize consumer mobility in return for a Windows Phone 7/8 sale. Mobile voice and SMS revenue sharing between Skype and operators could deepen alliances as well.
Whatsapp. Once again, Whatsapp will move into the forefront because more mobile operators will announce a drop in SMS revenues. Whatsapp’s capability of automatically finding other Whatsapp users in your mobile’s phonebook makes it so easy to replace SMS with Whatsapp texting. Let’s face it, in developed markets, with expensive SMS offerings, and a smartphone penetration approaching 50% of the subscription base this is a no-brainer.
Telefonica. In September 2011, Telefonica restructured into four new divisions. A new division, called Telefonica Digital, is a key element of the restructuring. With its HQ in London, Telefonica Digital is tasked to be the place within Telefonica where new business lines in the areas of cloud, entertainment, advertising, mHealth, m2m, and financial services will be created and managed. Internet telephony provider Jajah will be part of this unit as well. If Telefonica executes well, we can expect new social communications products that include mVoIP and chat to emerge from this unit in 2012.
Bottom Line
Long term, mVoIP/Chat is here to stay, although mass-scale adoption of end-to-end mobile VoIP calling will not happen until fourth-generation (4G) networks that are designed for mobile broadband and OTT services are fully implemented. What does this mean for:
- Mobile operators. The (mobile) telco challenge is to profitably ride out the current business model whilst at the same time positioning for the new world. Mobile operators can try to resist the uptake of mVoIP/Chat at their peril. The more innovative operators are already partnering with or acquiring mVoiP/Chat vendors or busy creating their own offering.
- mVoIP/Chat players. Need to find a way to monetize their investments. The options available are partnering with operators, creating paid mVoIP/Chat revenue streams, find advertising customers, create app stores, launch paid apps, or an exit strategy through acquisition.
- Social suite players. Need to add more communications options to increase the average user time spent on the social suite. More time online equals more advertising dollars.
- Device players. Need to more tightly integrate mVoIP/Chat into their device models. A more tightly integrated messaging and communications offering increases ease of use. It also increases the possibility to ally with operators and share communications revenues.
- You. If you are not one of the above, chances are that you can fit mVoIP/Chat into your current business model and offering, think Slideshare and Zipcast for instance. Connecting with your customers or having your customers connect to each other can increase your product’s stickiness or customer satisfaction.
