By Alexei Oreskovic and Leila Abboud
SAN FRANCISCO/BARCELONA Feb 24 Facebook Inc
Chief Executive Officer Mark Zuckerberg took a victory
lap at the world's largest mobile technology conference in
Barcelona on Monday, after beating out Google Inc in a
$19 billion acquisition of free messaging service WhatsApp. But
he faces bigger hurdles on the horizon.
Just 18 months after appearing at risk of getting crushed by
the swelling mobile wave, the No. 1 social network is riding
high. It gets a huge chunk of ad revenue on world-wide users of
smartphones and tablets, from virtually nothing several years
Now, Zuckerberg's purchase of WhatsApp - while raising
eyebrows with the hefty price paid for a company that boasts 450
million users but has little revenue - places Facebook at the
heart of smartphone communications.
"In the U.S. you can dial 911 and get access to basic
services," Zuckerberg said, referring to the country's national
emergency services phone number.
"We want to create a similar kind of dial tone for the
Internet," he said, citing messaging, search and weather
information among the essential online services that he said
people throughout the world should be able to access on
It's a vision that is sure to have some telecom bosses in
Barcelona gritting their teeth. WhatsApp and its fellow
messaging apps, including Viber and China's WeChat, have punched
a hole in operators' sales by offering a free alternative to
text messages, a $120 billion market for operators. Research
group Ovum said telcos lost $32 billion in text revenue last
year and will lose $54 billion by 2016.
But Zuckerberg is trying to cast Facebook and WhatsApp as
partners not foes of the industry.
The 29-year-old co-founder of Facebook used his appearance
at Mobile World Congress on Monday to talk up his company's
recent effort to make wireless Internet access easier and more
affordable in developing countries.
With WhatsApp now part of Facebook, Zuckerberg said the
messaging service will have the breathing room to put its energy
into garnering another 2 billion or 3 billion users, rather than
trying to generate revenue.
Facebook's purchase of WhatsApp is its latest move to
transform a platform and company born on the PC into a
full-fledged network for a mobile generation. Zuckerberg's
progress so far on mobile has positioned the company to take
advantage of the fast-growing markets. And it has helped boost
Facebook's stock roughly 150 percent since July.
But with a new crop of smartphone applications threatening
to eat into Facebook's audience, worrying signs of waning
interest amongst younger users - which the WhatsApp acquisition
may help address - and a tech landscape evolving more rapidly
than ever before, Facebook can't afford to fall behind again.
That is critical for Facebook as it courts the "next 5
billion" Internet users, many of whom live in places like India
and Africa and who are likely to first experience the Internet
on a mobile rather than a PC.
"If Facebook is not first in line when those people are
firing up their devices, it stands a chance of never connecting
with those folks, because there are so many alternatives," said
Brian Blau, an analyst at research firm Gartner.
Zuckerberg said the plan to bring wireless Internet access,
and Facebook, to the world is a long-term project that won't pay
off anytime soon.
"I think we're probably going to lose money on this for
quite a while," Zuckerberg said.
NO SURE THING
To some, Google wields the advantage for now.
Its Android mobile operating system comes pre-installed on
roughly 80 percent of the smartphones sold in the world today.
That helps ensure new users will see and use its various online
services, including search, maps and its Google+ social network.
Once WhatsApp is in Facebook's pocket, there's no guarantee
the messaging service - which famously eschews games, shopping
or other popular add-ons to focus on pure messaging - can remain
ahead in a notriously fickle market.
Rival messaging apps such as Tencent Holding's
WeChat and Naver's LINE are popular across Asia and
have hundreds of millions of users. They have also expanded to
allow users to book taxis, top up phone credit, and take part in
flash sales, all on the app.
WhatsApp, which Zuckerberg has promised will remain
independent, fits Facebook's recent approach of designing or
buying "spinoff" apps for smartphones, such as Instagram or the
Paper news app, which has earned positive reviews.
"You see Facebook trying to increase its surface area, with
different apps for different things," said Josh Elman, a venture
capital firm Greylock Partners. The idea is to give users
multiple ways to interact with Facebook throughout the day.
To meet his ambitions, Zuckerberg could use the telecom
industry's help. He will make his case to the handset makers and
operators gathered in Barcelona that they should work together
to make Internet access cheaper and more ubiquitous in the
Facebook has partnered with over 150 wireless providers over
the past four years to offer free or discounted access to the
social network, including a deal with Globe Telecom to provide
three months of free access to customers in the Philippines.
Once people experience the benefits of wireless Internet
access they will upgrade to additional data services, generating
more profit for wireless carriers, Zuckerberg said.
The idea, he said, is to build a "more profitable model,
with more subscribers for carriers, and get everyone on the
Internet in a hopefully shorter period of time."
Not everyone is on board.
Vodafone Chief Executive Vittorio Colao said earlier
this month that Facebook had approached him about waiving data
charges when customers access the website from their mobiles.
But Colao rejected the idea because he didn't see any benefit
for his company, which is Europe's largest wireless carrier and
also operates in India and across Africa.