Rohit Dadwal
Feb 20, 2014

Economics in the new world of mobile

Since Rakuten bought Viber last week for US$900 million, I’ve been telling myself that I am missing the boat in the new age of mobile business. This morning’s breaking news of the US$16 billion Facebook-Whatsapp deal made me wonder what these companies are thinking and doing.

Economics in the new world of mobile

I do not have any answers nor do I know the rationale behind these deals, though I believe that at a very high level Rakuten bought Viber to increase their exposure to international markets outside of Japan. Facebook on the other hand, wants to capture mobile-first customers and leverage the growth in the emerging markets to be seen as a truly mobile company. 

Mobile messaging has reached a stage where it isn’t economically understandable any more. I wonder if there is a need for us to revisit our economics textbooks from school and rewrite the definitions there with mobile as the context. Here is one of the simplest definitions of economics:

ec·o·nom·icsˌekəˈnämiks,ˌēkə-/noun
The branch of knowledge concerned with the production, consumption, and transfer of wealth.
 

We know that demand refers to the quantity of a product or service that buyers desire at a certain price. The relationship between price and quantity in demand is known as the demand relationship. Supply is, of course, the quantity of a product or service that the market can offer at that price. The correlation between price and quantities supplied to the market is the supply relationship. Price, therefore, is a reflection of supply and demand.

Doesn’t it seem that the fundamental concepts of supply and demand that form the backbone of the market economy have gone out the window where the recent flurry of mobile-focused acquisitions is concerned?

Facebook is breaking the bank for the 400 million users on the Whatsapp network. Given that Facebook has already promised not to sell advertising on Whatsapp, it’s not immediately clear how they plan to recover the cost of this acquisition. The Viber deal, too, lacks a monetization model, with an almost-zero revenue stream apart from approximately $1 million from stickers on the app.

These are only two of the many acquisitions that will help with the consolidation of the industry and needless to say, a deal of this size will always raise the eyebrows of sceptics and set even higher expectations for things to come. I am personally very excited and interested in the potential of the mobile medium because such deals not only raise hopes but will also encourage a new breed of start-ups and entrepreneurs who could create many more innovative services in the days to come. 

The Facebook-Whatsapp deal is at a different level and I hope this is one of those visionary deals like Microsoft’s acquisition of Hotmail some 16 years ago worth around US$400 million.

I guess there are benefits to all the brands involved in these multi-million dollar deals. As Facebook becomes more mobile-centric as a company, they will use Whatsapp’s unique product features to ensure their offerings on mobile are integrated and there are options to access Facebook features through Whatsapp and vice versa. To a certain extent, this is similar to the capabilities that Wechat has under their ‘discover and moments’ categories. Viber, on the other hand, is a product that will be utilized by a true ISP to make a foray into international markets by leveraging the technology and as an add-on for current users.

As far as Facebook and Whatsapp goes, as a user myself, I would hate having to change my user experience to allow for the integration of two companies, and this is a big challenge that the two companies will face. I like the way the both Facebook and Whatsapp work and it is important for the two to integrate seamlessly without spoiling the user experience. Perhaps something similar to the partnership that Microsoft and Skype have, which I think has worked in the best interest of both companies. 

In the meantime, I’m waiting for the next big acquisition that redefines the world we’re used to.

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