Time for telecoms CEOs to worry: Michael Jordaan

WhatsApp’s plans to offer free phone calls should seriously worry the telecommunications CEOs and boards around the world. This is according to former FNB CEO Michael Jordaan.

Jordaan, an expert in innovation and disruptive technologies, said that free calls from the Facebook-owned WhatsApp is a major tipping point – like when Kodak was faced with digital photography or Nokia was faced with iPhone.

“I suspect they [mobile operators] may soon stop promoting Whatsapp or not include the App in the low-cost smartphones to protect revenue,” said Jordaan.

Facebook’s acquisition of WhatsApp

Questions have been raised about Facebook’s decision to pay $19 billion for WhatsApp, which does not have a strong revenue model.

Jordaan explained that Facebook could afford to pay such a high price for Whatsapp as it is partly paying with its own paper (shares) which are valued even higher when measured by dollar per user.

“It would be a mistake to only look at Whatsapps current 450 million users,” said Jordaan. “The focus of valuations should always be forward-looking and the 1 million odd new users per day means that they will soon break the billion mark and due to virality and the strong network effect that growth may even accelerate.”

“Facebook understands virality and the strength of the network effect very well as they are the same two drivers that catapulted Facebook to be the dominant western social network.”

He added that WhatsApp now adds a messaging/chat component that is in the first instance mobile, while Facebook was originally PC based.

Facebook-WhatsApp impact on Mxit

Jordaan said that the Facebook-WhatsApp deal has pros and cons for Mxit.

Some of the pros for Mxit from a competitive position, Jordaan said, are:

  • two competitors become one;
  • the period of internal focus during merger;
  • privacy concerns by Whatsapp users; and
  • the deal demonstrates how hot this space is.

Jordaan said that the cons include that “David does not always beat Goliath”, but added that they are more determined than ever to give it a go, especially by focussing on feature phones in emerging markets.

More on WhatsApp, Facebook, Mxit

WhatsApp to add voice calls

Facebook to buy Whatsapp for R209 billion

WhatsApp a hit in South Africa

Mxit launches in India

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Time for telecoms CEOs to worry: Michael Jordaan