RudeVC: How to create a monopoly for your app in 2014

RudeVC: How to create a monopoly for your app in 2014



Pop quiz: what do Klyqme, WhatsApp, WeChat, and Line have in common?

Answer: they all enjoy quasi-monopolies in certain markets for their apps.

Klyqme is the pre-eminent sms-based social network in Indonesia (which is rapidly threatening to displace India among the elite group of BRICs in my opinion, but that’s fodder for another blog post) thanks to its penetration of 120+ million Telkomsel customers.

WhatsApp has a lock on 42% of all mobile subscribers in Singapore thanks to its exclusive deal with Singtel.

With China Unicom’s 284 million subscribers, WeChat is the beneficiary of unlimited access. Same goes for WeChat in Hong Kong on PCCW’s network.

While not quite unlimited, Safaricom in Kenya offers a complimentary 20MB of daily usage of Facebook, Twitter, and WhatsApp to its customer base of 73% of Kenya’s mobile subscribers.

These OTT players accomplish this dominance in certain markets by one simple technique: they pay the local mobile operator to offer the app to subscribers free and clear of any data plan (or without any additional consumption levy within their existing data plans). It is rare in emerging markets to find unlimited (or high volume) data plans at a price point affordable by the mass population. Yet this same population represents a large set of discerning mobile customers willing to consume content and adopt new services when the cost barrier is removed.

I’ve heard it called in-tariff content. Many mobile operators welcome the practice, as it represents a way for them to derive more revenue indirectly from their subscriber base asset. It’s a win for consumers since they obtain free access to an app that would normally cost them phone credits. And provided the app developer performs an accurate user acquisition and lifetime value calculation, paying the operator to carry their app makes sense for them too. The table below depicts a handful of the most noteworthy in-tariff content arrangements (special thanks to Jerry Yang for compiling this material).

Then along comes Facebook…

First, the lifetime value math of all those active users exploded the calculator when Facebook offered approximately $42 per WhatsApp user.

Moreover, in case you didn’t hear, Mark Zuckerberg appeared for an over-subscribed fireside chat last Monday at the Mobile World Congress. While he preferred to focus the bulk of the discussion on the project (a global initiative to provide people in emerging markets a taste of what a data plan could offer) rather than dwelling on the WhatsApp acquisition, there is one question that I wished interviewer David Kirkpatrick would have asked Zuck:

How will Facebook reconcile WhatsApp’s Singtel arrangement with the company’s own policy to not pay telcos for in-tariff access to Facebook?