Monday, March 10, 2014

What's Next for Line & WeChat After WhatsApp Deal

Author Bio: 
Viviana Woodbury is a freelance writer and blog junkie from app developer. She loves receiving reader feedback, which can be directed to
With Facebook’s purchase of the OTT giant WhatsApp, and the eventual merging of the WhatsApp and Facebook Messenger databases, common wisdom might have indicated that the remaining OTT companies would either also be bought up or would consolidate so as to beef up their combined market value. As is often the case, however, common wisdom simply didn’t apply. To better understand why not, and to get an idea of what is likely to happen to the remaining “giants” in the OTT delivery field, we need to look first at what the OTT companies actually provided.

To begin with, consider what an OTT (Over The Top) company is. To put it simply, it is a provider of multimedia content, such as audio, video, and graphic content, functioning independent of a supervisory system to control or manage the content. That supervisory system doesn’t maintain a cache or record of the content it transmits, with one very important result being that it bears no responsibility (read: liability) for that content. At a time when a lot of noise is being made about exercising regulatory control over Internet content, such elimination of liability becomes very attractive to ISPs and online content providers alike.

Furthermore, being relieved of the necessity for maintaining documentation of the content being transmitted, ISPs and content providers are also relieved of the necessity to invest the significant capital that would be required to purchase and maintain the gargantuan amount of storage hardware and administrative software to manage such a storage task.

Next, we must recognize what an OTT company is not. Realistically, the hardware and software requirements to run an OTT operation are minimal, especially as compared to the sheer volume of traffic involved. Essentially, the OTT operation is little more than an operating protocol and a database of users, and it is in the latter that the operation’s true value lies.

With that basic understanding, it becomes more understandable why “common wisdom” doesn’t necessarily apply. WhatsApp is by far the largest of the OTT companies, with roughly 450 million active users each month, and with a traffic load that is likely to soon exceed the total volume of all SMS (texting) messaging sent over every single carrier in the world. It is this scale – in both the number of active users and traffic – that made WhatsApp so valuable. And while the Chinese- internet giant Tencent owns WeChat and its database of roughly 272 million registered users, the number of active users is much smaller, and those users are primarily concentrated in Asia, where Facebook is banned. Japan’s largest OTT messaging service, Line, is being eagerly pursued by the Japanese company SoftBank, which acquired Sprint last year. WhatsApp, on the other hand, is more global in its reach, and therefore more attractive to a giant such as Facebook or Google than its more regional-focused smaller competitors.

The next step for the also-rans
While it is still possible that companies such as Line and WeChat could merge, it is more likely that one or both will issue an IPO sometime in the next year or so, in order to raise sufficient capital for one to either purchase the other or expand their reach into other non-Asian markets. SoftBank’s purchase of Sprint gave clear indication that the Japanese firm intends to do just that, and their efforts to build upon an already-sizeable user database such as that offered by Line would fit well within such plans.

Before being bought by Facebook, WhatsApp offered a year of its services at no charge, and charged each user a flat fee of 99 cents per year thereafter. Frankly, such a charge was a fraction of what they probably could have charged, since users accustomed to a given service will tend to remain with and even pay for that previously free service, so long as the price isn’t too high and the service remains viable. But with its low operating overhead and 450 million users, WhatsApp’s net profits were certainly nothing to sneeze at. Whether Facebook  will continue charging the same amount for the WhatsApp feature, raise their annual fees, or do away with the fees altogether and compensate for the loss of revenue with pushed advertising content is anybody’s guess at this point. Common wisdom, at this point, flies out the window.

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