One of the fundamental things that smartphones changed about the internet is that the smartphone itself is a social platform:
- Every app can access your address book, getting an instant social graph. The phone number in particular acts as a unique social identifier
- They can access the photo library and camera directly (and location), making sharing easy
- Push notifications mean you don’t need people to keep checking your site (or open emails).
- Every app is just two taps away on the home screen, which makes switching services easier, and also drives a trend for focused, single-purpose apps over apps that do everything - it's easier to find a feature as an icon on your home screen than as an option in a sub-menu of the Facebook app
So joining a new service from a different company is much easier than it was on the desktop and, crucially, using more than one at a time is also much easier. People can swap apps in and out for different behaviours or content types or social groups, on top of that underlying platform, and they do it all the time. And so there has been an explosion of apps trying to take advantage of this. Facebook bought two of the biggest, Instagram and WhatsApp, but it can't buy them all.
Looking at all of these apps, I think there are three threads that we can pull out:
- More or less plain vanilla person-to-person text messaging, with extras like group chat, pictures, stickers and voice clips etc added on. The big global winner so far has clearly been WhatsApp, which dominates outside the USA and East Asia (and is doing 50% more message volume than the entire global SMS system), but Facebook Messenger is doing pretty well too, mostly in the USA. I'd expect relatively little new innovation to happen here now, and most of it to be in the next two categories:
- New pieces of psychology - new behaviors or attitudes that an app can enable or ride on. Sitting on that underlying social platform, an app that finds one of these can go viral. Examples include Instagram, Snapchat, Yo, Yik Yak, Secret or Meerkat. The challenge for these is to find a behavior that's different and compelling enough to create that growth, but not weird or specific enough to be a gimmick or a fad and flame out, or at least to evolve beyond that specificity once the growth is there, which one could argue Snapchat is doing
Platforms - messaging apps that aim to broaden the UX beyond pure person-to-person messaging into a development environment. WeChat is the big example here, with 500m users, almost all in China, while Line in Japan and Kik in the USA are also significant.
The potential to turn messaging into a platform is the Trojan Horse that drives a lot of the excitement in the sector. It's one thing to sell stickers and quite another to sell users: can you use social to spread content and acquire users, and to solve the problem of app installation? Can it become the third runtime and the third channel on the phone, after the web and native apps?
The first big success here has been WeChat, which has 500m MAUs, almost all in China. WeChat has built a messaging client that's also a development environment, using web views and APIs so you can build services within the app that can access location, identity, payment and other tools from within the app. You can send money, order a cab, book a restaurant or track and manage an ecommerce order, all within one social app. So, like the web, you don't need to install new apps to access these services, but, unlike the web, they can also use push and messaging and social to spread. This is Facebook's old desktop platform, more or less, but on mobile.
The common criticism of this approach is that this is 'just a portal', and that integrating lots of different services into one app is doomed in the same way that Yahoo on the desktop was doomed to be replaced by more powerful and focused single-purpose products. The more subtle version of this is that WeChat only works in China because the market structure is different - no vertical category killers (Google, Facebook, Amazon) and instead parallel, horizontal competition by large competing companies. WeChat is providing the 'primitives' that you can't get elsewhere. This may be true - but it may also be that WeChat (and similar products such as Baidu Maps, which also has deep service integration) show us what the rest of the world might look like if the big portals had executed better. That is, is this what Yahoo would have achieved if it hadn't gone to sleep for a decade? *
A lot of people thought that Facebook would clone this, but it's actually done something quite different. Rather than trying to turn Messenger itself into a development environment, it's opened it up to become a channel for anything else on your phone and the web. This means that it's addressing both the platform thread and the viral apps thread outlined above, and that rather than WeChat, it's going after the iOS and Android notifications panel.
First, if you have an idea for a great type of content for messaging - a new piece of psychology that might go viral - your iPhone or Android app can now insert that directly into a thread inside the Messenger app, and your app can be invoked directly from within the Messenger app. Messenger has a list of featured apps (with links out to the App Store or Google Play) and, crucially, each piece of content posted into a message thread comes with a link to install the app - a viral hook. Facebook has made an API for the 'sticker button', and turned it into an acquisition channel for third party apps, and is now letting the entire internet compete for that slot, with itself as gatekeeper.
The WeChat model achieves some of this, avoiding the app installation problem itself by putting everything into web views within the WeChat app, but that puts a cap on how sophisticated you can get - it's hard to make video clips with web apps. Facebook is trying to square the circle - rich native code to make cool stuff, yet no need for an app installation for it to spread.
This is a great jujitsu move, and very seductive. Facebook is trying to co-opt the next Snapchat. Yes, the smartphone is a social platform that makes it easy to use multiple social apps, but you still have to get someone over the hurdle of installing the app in the first place, and they have to get all of their friends to install it too so that they have someone to send to. Facebook is trying to bypass that - you can drop your content straight into the existing Messenger install base (600m MAUs). Now just one person can get a cool app and send messages to their friends even if their friends don't have it, and if it's cool enough they can tap on the link and install it too.
So acquisition is much easier, but they're Facebook's users, and always will be. And since there will be dozens of apps fighting it out for that slot, Snapchat and any other new stand-alone network will be competing against all of those apps - against the whole app store. This means that Facebook is trying to reset some of the dynamics I described at that beginning of this piece - it's trying to avoid the 'whack-a-mole' problem of having to buy cool new messaging companies (Instagram, WhatsApp) by getting those communication forms to happen inside Messenger instead, using Facebook's own social graph instead of the phone's address book. And as I said, this is seductive - Facebook removes a major barrier to growth, but owns your users and has a history of ruthlessness in dealing partners who build on its platforms. Join, get growth 'easily' and give Facebook control, or stay out and struggle for installs against Facebook and all its partners as well.
The second part of the Messenger announcement is just as interesting - Facebook will also let websites send messages directly into Messenger, without having their own apps installed on your phone, if you logged into that website with Facebook when you placed the order. So you can order shoes and get a message in Messenger that they're out of stock and be offered an alternative. This is another attack on email (and Gmail) and another attempt to pull your communications and commerce into the Facebook data platform. And again, if you do this you get richer and more engaging communication with your users, and don't need them to install your app, but your access is entirely controlled by Facebook.
If you take all of this together, it looks like Facebook is trying not to compete with other messaging apps but to relocate itself within the landscape of both messaging and the broader smartphone interaction model. Facebook Home tried to take over the home screen and lock screen - Messenger is trying to take over the notifications panel, by pulling those notifications inside its own app, and to co-opt large chunks of future communications developments on the phone.
This makes perfect sense - notifications themselves are becoming that third runtime. That pull-down panel aggregates activity from everything on your phone, and Google and Apple have made notifications actionable and given them payloads. One can already look at an iPhone or Android phone's notification screen and ask - 'where's the algorithm filtering this?' And in a sense, the notification panel fills the 'cross platform compatibility' role that some people would like to see in messaging - all the notifications for all my messaging apps show up there. More and more, one's primary interaction with any app, social messaging or otherwise, is a little pop-up with a button or two. So shouldn't that get a native, messaging-focused UI? Instead of replacing stand-alone apps with light-weight versions built inside a messaging app, is it better for rich, actionable messages from native apps to be aggregated into a notification panel? Once you have that runtime, do you need an actual stand-alone app on the actual phone itself, or can you send those messages - really, little applets, down from the cloud? Do you turn apps into messages and notifications, or messages and notifications into apps?
Meanwhile, smart watches (to the extent that they take off) reinforce a model of atomic units of content with a handful of possible actions, and of glancing at a few key items rather than submerging yourself in a dedicated UI. So after unbundling sites from the web browser into apps, notifications take things further, unbundling each unit of content or action - each verb or noun - into a separate atom. So you can order a car with a flick of your wrist and a tap or two, instead of fishing your phone out of your pocket, unlocking it, loading an app and navigating the UI.
This obviously leads one to ask what the platform owners themselves are doing. Should this be done by Facebook or the platform owners (the same question as for deep linking last year)? Do Apple or Google introduce an algorithmic filter to manage the flow in the system-wide notification panel, and does that compare to Facebook's lethal power over newsfeed partners? They're some of the way there. Both Apple and Google have perfectly solid mobile messaging apps that are not development platforms in their own right, and have done a lot of work on notifications in their smartphone OSs yet clearly have lots more to do. And Apple already lets websites send push notifications on OS X, while Google is clearly pushing Chrome hard as a development environment and so notifications from the web there would also make sense.
So we can see some building blocks, but we can also see obstacles. The obvious one is that neither has the kind of desktop social presence that would make it easy for them to drive personalized push motivations for web to mobile - you're not logged into anything from Apple or Google (pace Plus) when you shop on the desktop web. On the other hand, you're always logged in on Android, and Apple has shown plenty of hints that it might see TouchID as a universal identity platform, and of course, they do have your address book. So Apple or Google could easily let an app send a push notification to a friend who doesn't have that app. Meanwhile as mobile devices zoom past half of time spent on commerce sites and a third of the transaction value, a web identity platform might matter less. There are other interesting possibilities too, if one thinks where Now or Passbook might fit.
The core issue across all of this, I think, is how much is still totally unsettled. We spent 20 years in which the mainstream internet experience was a web browser, mouse and keyboard, and over a decade in which Google was the way you navigated. Smartphones ended all that, but we haven't settled on a new model, and the idea we'll all revert back to the comfortable, simple model of the web seems increasingly remote. Even within messaging, the model is still in flux. I wrote above about the search for new psychologies, but there are deeper architectural questions than anonymity or filters, which you can see in SnapChat's disappearing messages or Meerkat and Periscope's use of live. What will the next blow-up model be - synchronous or not? One to one or one to many? Feed based or thread-based? Algorithmic filter or endless stream? Rich client or rich message? Runtime or deep links? That may be the real problem for Facebook - the next messaging thing may not be messaging at all.
* As an aside, it's challenging for anyone outside China to have a firm view on WeChat given that almost no-one has actually used it - the most interesting features only appear if you run the app with Chinese language settings. I don’t read Chinese myself, and I’m always reluctant to have a strong view on a product I’ve not used, though this is a minority position.
WhatsApp is now sending 50% more messages than SMS, but what happens next? How many messaging apps can co-exist? How far can the WeChat platform model spread? Can messaging become an aggregation layer?Read More
Once upon a time, someone decided that the train service from London to Birmingham was terrible, and that a bus service would be much better. So they started a bus company. However, once they were up and running, they found that it would be much more efficient if they built big bus stations in the centre of each city. And to get the loading to work better, you want to get 8-10 buses linked together as one vehicle. And then you really need to raise money and build a dedicated road from London to Birmingham...
The point is, buses can be much more flexible or efficient than trains, but you need to be careful you're not actually planning to build a train after all. Are you trying to unbundle an existing product with a more flexible tech that allows a more flexible product - which is where buses beat trains - or to replicate it?
This is a recurrent problem in mobile - there are wireless technologies around that look like they should be able to disrupt cellular operators, but actually they never do, because to disrupt cellular you need another train line, not a bus.
Mobile LOOKS like a tech business where tech should change things, but most of the money in a new mobile network goes on base stations and three quarters of the cost of an urban base station is in the construction and site acquisition, not the equipment (the cost of a national fibre network, meanwhile, is irrelevant). And the number of towers you need to get enough coverage for the first customer to sign up has relatively little to do with the technology you use - it's down to the physics of in-building penetration at the frequency you're using and the number of hills and mountains there are. (Technology has a big effect on the number of towers you need to build later for capacity, of course, but not for coverage.)
Hence the problem with disrupting mobile networks with new radical technology: the notional efficiency gain tends to get buried by the rest of the underlying economics of the system, all of which you need to build just the same.
Hence, for example, the now totally failed attempts to use WiMax for mobile service were a bit like replacing diesel engines with electric: you might or might not choose to do it if you were building a national train system from scratch, but the real money would be going on tracks regardless. The same applies to wifi, which in which the bus v train analogue is almost perfect - wifi is great, but if you try to use it to offer a mobile service you end up building, well, a mobile network, with no cost savings at all and, in fact, a much less efficient business than you'd get if you'd started with the right technology in the first place.
Of course, none of this is to say that you can't disrupt the mobile network industry in any given country. But you do it by being a mobile operator - by getting spectrum, and building towers, and (very often) by getting the regulator to put a hefty thumb on the competitive scales in your favour.
As an aside, one of the things that dropped out of the great MVNO bubble of 7-8 years ago is that a reseller can't disrupt the person whose infrastructure they're reselling - unless, again, the regulator imposes disruptive wholesale rates or the telco screws up and sets the prices too low (as One2One/T-Mobile did for Virgin Mobile in the UK), or just uses MVNOs to fight a price war by proxy (which I don't think really counts as disruption). MVNOs need an angle, whether that's being a supermarket, or targeting immigrants, or something else - just being an MVNO isn't enough.
The place in which technology really IS affecting mobile network operators, of course, is in what goes over the top - WhatsApp versus SMS, with voice coming next. Unlike a pure infrastructure play, these are essentially unbundling stories, and they’re aiming unbundling at the right part of the system. Of course, that's not how a telco sees them - a telco sees them as arbitrage.
The classic telco arbitrage story was long distance and international. Long-distance and international connections used to be very expensive, no longer are, but telcos pricing had not fallen to match, and first calling cards and then Skype arbitraged the difference between the list price and the real economics of long-distance or sub-sea fibre. Mobile messaging apps do something similar for data, arbitraging the gap between the economic cost of a few K of data and the price charged for SMS. As cellular data speeds go up, we should expect voice apps to take off in a big way as well: the pricing gap is not as big but things like on-net/off-net call pricing will also go away (with both positive and negative margin effects for telco, for reasons I won't go into here).
(Incidentally, VOIP annoys mobile operators on principle since it tends to use several times more radio network capacity than a circuit-switched call, as it's not optimised for how the network functions (this will change with LTE). Hence VOIP on cellular is an interesting example of new technology that actually has worse real underlying economics than the product it attacks.)
How much does this matter to mobile operators, though? There's also another train analogy that's applicable here: Roald Dahl wrote a story about a character who made a living by arbitraging railway luggage fees. He had noticed that, while you had to pay the railway a luggage fee based on what your luggage weighed, if the scales showed a negative number then the railway company had to pay you. So he travelled everywhere with a large suitcase full of helium and charged the railway company a fee.
The idea that OTT messaging services pose some sort of existential threat to telcos remind me a lot of this story. If the railway company can't change the pricing system and everyone goes out and buys a helium suitcase then yes, they're screwed. But telcos can and do change their prices. And that helium suitcase doesn't somehow change the cost of coal or locomotives. You're not using innovation to uncover a new set of economics - you're just hacking the pricing plan.
Hence, the challenge for mobile operators is to change their tariffs. WhatsApp and Facebook Messenger do not change what it costs to provide you with a pipe. If the technology now means that the pricing scheme is no longer aligned with the economic cost of the network, you need to change the pricing scheme.
There are two problems in this, though. The first is that repricing a business whose main competitive dynamic is complex and highly-wrought pricing schemes is a nightmare. In the short-term churn will shoot up and in the long-term moving to unlimited bundles means you cap the ARPU from your whales - all those people currently paying €200/month for voice calls will drop down to your €50 unlimited plan. You may well end up with a lower ARPU than before. The second is that if you have less freedom to offer complex pricing schemes you face the risk that the market will move to much more commoditised, easily comparable pricing, with a consequently much higher likelihood of price wars. Both of these issues are essentially transitional, and will vary a lot by country - in some places the transition will be fairly smooth and in others it’ll be painful and result in a step change downwards in ARPU. The arrival of data bundles is a great example - US operators added them to people's plans, pushing ARPU up, but European operators weren't able to get away with a price increase because the markets were much more competitive. The end of separate SMS pricing will see similar differences.
The big problem that these products pose to MNOs, it seems to me, is not actually the threat to SMS revenue. Rather, it’s the threat to identity. We do already have number portability, but changing your number remains a major frictional issue reducing churn. But if your contact point moves to FB Messenger or some yet-to-be-founded app that explodes in the next few years, then the SIM you have in your phone today doesn’t matter at all, and you could swap it in and out from week to week depending on which mobile operator was offering the best deal - a great recipe for truly murderous price wars. For a really killer effect, of course, you’d have to combine that with an end to the subsidy + contract model, which is far from certain (and would also be terrible for Apple and Samsung). But that’s the threat.
Way back in the dark mists of time, when Facebook first launched its platform on the desktop, one of the first hit apps was something called 'Superpoke'. Superpoke did quite a few things but the one that got all the attention was throwing sheep at people. That is, they'd open their Facebook news feed and it would say 'Benedict threw a sheep at you'.
Of course, a website that did that would never work - you'd never get a critical mass of people to open an account on a new site just for that. But Superpoke could plug into the Facebook platform so you could do this fun little social thing right away with almost no friction.
A lot of the social apps bubbling up now remind me of this. As I've written several times, by plugging into the smartphone address book, camera, photo library, notifications etc the frictional barriers to doing a new social app fade away: the smartphone is a social platform in the same way that Facebook is. The obvious expression of this is WhatsApp and similar things that directly address the core Facebook use cases. But it seems to me that there's at least as much potential in doing things that use the platform without trying to take over a core use case - things like throwing sheep. That is, the smartphone social platform enables a lot of experimentation with new ideas and behaviors that don't need to be your core comms channel and that would never have worked on the web, and (for a bunch of reasons) might not have been possible on the desktop Facebook platform.
Snapchat is arguably one of the biggest of these, and Secret is another. Firechat is also an interesting example - it leverages the wireless autodiscovery features in iOS7 to do hyperlocal chat. Of course this isn't quite as easy as Superpoke - you still need to install an app from the app store (for now, though that may well change) but the friction is still pretty low. With apps like Line, WeChat and Kik you can see people trying to pull this experimentation back up the stack and put it inside a social app again - that might be the right model for some things, but of course you're trading friction for flexibility. Making your own smartphone app needs that initial install but has much more power.
I also think that (as I suggested here) retailers should be thinking about how they can leverage the social platform aspects of smartphones - shouldn't the Zappos app show you which of your friends have it and let you share shoes directly? Again, doing that well on the desktop would be really hard, but on a smartphone it's just a tap or two away.
This takes us around to Facebook again. Perhaps the problem is not that people use WhatsApp instead of Facebook Messenger - rather it might be that they use Sephora instead of Facebook Messenger. This is partly about unbundling WhatsApp, just as WhatsApp unbundled Facebook, but it's also that the fads and gimmicks and silly little things (otherwise known as 'fun') don't happen within Facebook. The time sinks don't have to happen within Facebook. And maybe the commerce apps don't need to connect to it.
The question implicit in all of this, of course, is identity. It's the machine-readable identify that allows all of this low-friction social experimentation. But what is the irreducible common denominator for connecting to your friends? Is it your Facebook identity? How much does it matter to Facebook if it isn't, if it still happens in something Facebook owns? Is it your PSTN phone number (which Facebook will actually let you use to find friends with the smartphone app)? Or do you change that from time to time without caring? The broader phone address book? Your email address? BBM Pin (cough)? Location? Would Apple try something within iOS (with the fingerprint scanner)? Where in the stack does the identify sit - the network, OS platform or something further up? Actually, I suspect there isn't any single common point that any company can own.
In the last couple of years there's been an explosion of social messaging apps, of which WhatsApp was obviously the breakout hit. But one could easily suggest that in buying WhatsApp Facebook is just playing 'Whack a mole', with dozens of other bubbling up: last summer I went through Google Play and found 50 such apps with over 1m downloads.
The data all of these give is highly variable, though - downloads and user aren't the same thing and though many apps give user figures occasionally, 'users' often means 'anyone who ever downloaded our app' (which WhatsApp has complained about, making a point of giving MAUs) and many don't even tell you that. So it's interesting to look at Google Trends for some of the biggest names that have been floating around. (And yes, Google trends is indicative but far from authoritative).
First, compare WhatsApp, where we know the numbers, with a few of the bigger names.
(Comparing WhatsApp with Blackberry and BBM is also instructive.)
Now, keep Viber for scale (it reported 100m MAUs when Rakuten bought it in February) and add a couple of the names that have floated around as regional winners.
Now compare Nimbuzz, an Indian player, with WhatsApp in India.
Now, a couple of the US hits.
Small globally, but big in the USA.
The big gap in this, of course, is that we really can't use it to look at the really big contenders - Wechat is still mostly in China where Google Trends is useless, Kakao in Korea has the same problem, and Line is too generic a search term to tell us anything much.
I've argued elsewhere that the lock-ins Facebook enjoyed on the desktop are much weaker on mobile - that it's much easier to switch between services and to use several at once. But at the same time, it does appear that WhatsApp has much greater scale than the alternatives globally (unless there's a huge new app I've just not heard of yet, which, frankly, is entirely possible). Still, there's a lot of regional variation: WhatsApp is certainly not dominant in the USA, China, South Korea or Japan. And (having said you can't use Google Trends to look at Line), Indonesia shows a fascinating mix.
As I suggested here, perhaps part of the future is messaging within other apps, rather than lots of dedicated messaging apps.
Thinking more about the acquisition of Whatsapp and Viber, it strikes me that there are three phases in the evolution of these kinds of products (so far).
The first phase was about price and the PSTN. The cost of roaming and the cost of international voice bore little connection to the underlying infrastructure cost, and a host of startups emerged to try to arbitrage between high list prices from mainstream telcos and the low underlying cost, using the data channel to go 'over the top' (OTT).
The obvious winner was Skype, which unlocked vast demand for free voice and meaningful demand for actual paid international voice. Skype upended the calling card business, which did the same thing but on a smaller scale with a worse UX and a different route to market, but had very little impact on mainstream telcos, since international voice, though high margin, had never been a big part of their business - most people don't know anyone abroad. Skype was the big success but there were many other companies trying to do things in this space around roaming and international, few of which became meaningful businesses despite often doing some technically very clever things.
The second phase came with smartphones (Skype wasn't really mobile to begin with), and is partly also based around arbitrage, in this case between unmetered data plans and metered SMS. BBM (not entirely intentionally) was one of the first but a swarm of other companies (at least 50) offer free or near-free text messaging.
This is a challenge to telcos, who have found splitting out SMS and selling it separately a convenient marketing tactic (when I worked at Orange the pricing department was called 'Value Based Marketing'). Hence, mobile operators must now rebalance their tariffs, rolling data and SMS (and indeed voice) into a single monthly plan - this poses all sorts of transitional problems but the actual financial impact varies wildly by country - see here for a discussion.
Once the telcos have gone through this process, pitching an app on 'free SMS' is not much of a pitch. However, most of them do more than this, adding anything from group chat all the way up to the full-on content distribution platforms of Line or Wechat (discussed here). What they almost all have in common, though, is that they use the PSTN numbering system but never connect to the PSTN. That is, they look at your phone book and use your phone number to identify you and see which of your friends have it, but they don't actually make phone calls or deliver any SMS. So for these apps the PSTN is a social graph but not a piece of infrastructure. Add things like home-screen icons and push notifications and one sees that the smartphone is a social platform, in a way that the desktop web never was.
In other words, Skype's strategy was all about the PSTN but Line or Whatsapp effectively ignore it (though Line does do some bundling deals with MNOs in emerging markets).
I think, though, that there's also a third phase. Why is it that if I use a cab service app I can only talk to the driver by a PSTN voice call or SMS? Why does a restaurant booking app send me out to the phone dialer? Isn't it inevitable that at some point they'll bring that loop in-house? Shouldn't that, also, become part of the generic data layer rather than the telco's voice or messaging layer?
Moreover, why should it only be explicitly social apps that access the phone address book to find my friends? Why shouldn't a retailer's app tell me that I have 8 friends using it, and let me share products with them rather than emailing them dumb, untracked URLs or even, quite probably, screenshots of my smartphone with the app open?
In other words, WhatsApp, Instagram and a dozen others have unbundled Facebook, but at what point and in what ways does WhatsApp itself get unbundled?
Facebook just bought WhatsApp, paying $16bn in cash and stock ($4bn cash, $12bn stock at current prices) and $3bn in RSUs. WhatsApp has 450m active users, of which 72% are active every day. It has just 32 engineers. And its users share 500m photos a day, which is almost certainly more than Facebook.
This is interesting in all sorts of ways - it illustrates most of the key trends in consumer tech today in one deal.
First, it shows the continued determination of Facebook to be the 'next' Facebook. It's striking to compare the aggressive reaction to disruption shown by Google, Facebook and other leading web companies today with how some of their predecessors a decade ago stumbled and lost their way.
Second, the winner-takes-all dynamics of social on the desktop web do not appear to apply on mobile, and if there are winner-takes-all dynamics for mobile social it's not yet clear what they are. There are four main aspects to this:
- Smartphone apps can access your address book, bypassing the need to rebuild your social graph on a new service
- They can access your photo library, where uploading photos to different websites is a pain
- They can use push notifications instead of relying on emails and on people bothering to check multiple websites
- Crucially, they all get an icon on the home screen.
Any smartphone app is just two taps away - a desktop site can crush a new competitor by adding it as a feature with a new menubar icon but on mobile there isn't room to do that. Mobile tends to favor single-purpose, specialized apps.
This has led to an explosion of mobile social apps - last summer I counted over 50 with more than 1m downloads on Google Play. Some sort of consolidation is clearly inevitable but it's much less clear whether we will revert to one or two. The smartphone itself is the social platform and all sorts of different ideas can leverage that, where on the desktop web they'd have needed to leverage Facebook.
So It's quite possible mobile social will have lots of services indefinitely. This creates opportunities, but also a pretty basic challenge to Facebook. Partly in response, it paid first 1% of its market value for Instagram and now close to 10% for WhatsApp, taking not dominance but at the least two of the commanding heights of mobile social. That's the right way to think about value, I think - not 'OMG $16bn!", but "is this worth 10% of Facebook?' The deal values WhatsApp users at $35 each (very close to what Google paid for YouTube, incidentally), but the current market cap of Facebook values its MAUs at $140 or so.
Third, the sheer scale of the numbers involved is a good illustration of what the shift to mobile means. I produced a presentation here to try to drive home this point: mobile is the next computing platform and it is several times larger than the desktop internet. There are now roughly the same number of smartphones and PCs on earth - those PCs are mostly shared and immobile or locked-down corporate boxes, while the smartphones are mobile and personal. Meanwhile, the widely-discussed collapse in the cost of creating a startup in the last decade combines with both the much larger scale of mobile and the routes to market and virality offered by mobile platforms to mean that if you're very good (and lucky) you can get to astonishing scale in a short time. This scale is at the heart of the valuations we're starting to see - WhatsApp is probably now sending more messages than the entire global SMS system.
Finally, mobile social apps are not, really, about free SMS. Mobile discovery and acquisition is a mess - it's in a 'pre-pagerank' phase where we lack the right tools and paths to find and discover content and services efficiently. Social apps may well be a major part of this, as I discussed in detail here. These apps have the opportunity to be a third channel in parallel to Google and Facebook.
Also, note this tweet from the co-founder.
(Note: my boss at a16z, Marc Andreessen, is on the board of Facebook - the posts linked were all written before I joined)
All the usual caveats about Google Trends data apply, but there's clear symbolism in the fact that WhatsApp passed Skype in Google Trends in the last month or so. Mobile beats the old.