A panel of journalists joins Diane for analysis of the week's top international news stories.
WhatsApp, recently bought by Facebook for $19 billion, allows its users to text at virtually no cost. How consumers worldwide are using mobile apps to communicate for free and what it means for the future of the telecom industry.
- Cecilia Kang technology reporter, The Washington Post.
- Michael Calabrese director of the Wireless Future Project, New America Foundation.
- Farhad Manjoo technology reporter, The New York Times.
MR. TOM GJELTENThanks for joining us. I'm Tom Gjelten of NPR, and I'm sitting in today for Diane Rehm because she's on vacation. $19 billion dollars, that's how much Facebook recently paid for the tech company Whatsapp. The price surprised even close industry watchers and sent a strong signal about the growing importance of mobile messaging applications. Today, a conversation about how apps are changing the way we communicate. Joining me from San Diego is Farhad Manjoo of The New York Times, and here in the studio with me is Cecilia Kang of The Washington Post and Michael Calabrese of The New America Foundation.
MR. TOM GJELTENYou can join our conversation, especially those of you who are already WhatsApp users. Our phone number is 1-800-433-8850. Our email is email@example.com. You can also, of course, join us on Facebook or Twitter. Cecilia, I'm one of those old fogies that had no idea what WhatsApp was until these stories started coming out. I did download it last night, and lo and behold, a big number of my address book users turn out to be WhatsApp users. It surprised me. But, for those who don't know, remind us, tell us, explain what is this WhatsApp platform?
MS. CECILIA KANGHi Tom. Thanks for having me. WhatsApp is essentially a text messaging app that allows you to do everything that you can with a text message, which is just a very simple way to communicate with other people over your smart phone, but over what is your data plan. Over the internet, as opposed to through your carrier and their cellular network. So, it's basically a close to free service that lets you text and beyond text, to leave voice messages and other things. But primarily to, what essentially seems like a text over an app.
GJELTENAnd only to those people who are -- who have downloaded the WhatsApp.
KANGYes. Those who are in the network. Right.
GJELTENSo, if I haven't received -- I haven't received any text messages from any WhatsApp users. This is because I wasn't, myself, part of the network. I mean, the creation of the network is part of the idea, right?
KANGYes. You have to be a WhatsApp user to be able to send to other WhatsApp...
GJELTENAnd to receive.
KANGAnd to receive as well. But, as you said, the network is really large, and it's interesting that so many people in your contact list, in your smart phone, were already users, and that was the same case for me when I downloaded. And it went through my contact list on my iPhone, and I found a lot of people were using it as well. But, I have been using it, and one of the reasons why it is so popular is that I use it, actually, to communicate with people overseas for nearly free, as well.
KANGAnd that's something that's really beyond what your carrier, your telecom carrier's allowing you to do right now, in that right now, you're charged quite a bit when we try to text message overseas, or even to people domestically.
GJELTENSo, Michael Calabrese, 450, or more, 460 million users worldwide, but it seems like the great majority of those users are overseas. Is that correct, and is that because text messaging fees are much higher for those users?
MR. MICHAEL CALABRESEThat's right, Tom. In fact, yeah, the majority, the vast majority of WhatsApp users are overseas. In fact, in Mexico, it's reported that 90 percent of text messages, in Mexico, are over WhatsApp. And not over the local, you know, cellular carriers. And that's because the fees for text messaging are still very high overseas. In the United States, the carriers have tried to get ahead of these free social messaging applications, these free texting, by creating bundles where you pay, you know, one price to get unlimited texting, unlimited voice and data up to, typically, up to a cap. At least with Verizon and AT&T for a flat rate.
MR. MICHAEL CALABRESEAnd that's their way of getting ahead of this, because this free texting over the internet is really eating into carrier revenues. Text messaging is between 100 and 1,000 times more profitable than voice or data, because it takes extremely little bandwidth, and there's no marginal cost to the carriers. And yet, they were charging separately for it. I mean, as recently as a few months ago, my family was paying, I believe, 30 dollars a month from limited text messaging as a separate service. And so,
GJELTENAnd for some people, 30 dollars a month may not seem like a lot, but for some people, that is a pretty significant investment.
CALABRESEOh, right. And especially in these developing nations. Mexico and other places. So, people are moving in droves to WhatsApp, and not only WhatsApp, but in Japan, there's a similar service called LINE. In China, it's called WeChat. And, you know, they even have, I believe, WeChat in China has even more users. I would just mention one other thing, which is, to give you sense of the scale of this shift, is that analysts project that carriers worldwide are losing about 32 billion dollars in text messaging revenue, you know, last year, compared to what they would have made had they been able to continue charging separately for that.
GJELTENFarhad Manjoo, in San Diego, as Michael just said, WhatsApp is just one of these mobile text app platforms out there. What does it have -- what did it have over its competitors that attracted Facebook?
MR. FARHAD MANJOOWell, it had a lot of users. And it's growing very quickly. I mean, it sort of reached this, you know -- what really matters in this business is network effects, right? The network effects is this sort of economic theory that a product gets better as more people use it, because then, you know, if I, as you said, you joined WhatsApp and other people were already on there, so it makes it sort of harder to replace. That's what Facebook saw.
MR. FARHAD MANJOOFacebook thinks that this network is gonna grow to one billion, two billion, maybe more users. And I think they think it's gonna get at users who don't already use Facebook. You know, Facebook has about a billion users around the world, but it's really been trying, recently, to introduce its services to people who don't have internet access at all. You know, in poorer countries and developing countries. And WhatsApp could be a way to get at those users. I mean, it's a mobile app. It's low bandwidth, so it can work in, you know, places where they don't have very good coverage.
MR. FARHAD MANJOOAnd it's essentially free. So, you know, it's offering a compelling economic case for users. And Facebook thinks that it could get at those people, perhaps as either, you know, a feeder system for Facebook, the bigger app. Or, you know, they may be able to figure out some way to make money from this separately, but we don't really know about that yet.
GJELTENFarhad, I think you actually wrote, recently, that by buying, buy acquiring WhatsApp, Facebook was buying a social system. What did you mean by that?
MANJOOYeah. I mean, I think -- so, the big, sort of, frontier for many internet companies, recently, has been this intercepting, kind of, the way we talk to one another. Kind of talking to our friends has become a big deal, unexpectedly, I think. You know, we now have so many different ways to talk to our friends. We have, you know, regular old text messaging. We have email. We have apps like these. We have newer apps that rely on pictures like Snapchat. And I think that there's this kind of wild west atmosphere in these apps, where people are using a bunch of different ones.
MANJOOAnd WhatsApp had really distinguished itself as a kind of, as I said, a system that, you know, covers a lot of people. It's unclear yet if it's going to be the only one. I think it's not. I mean, I think we see other similarly huge ones, like WeChat and LINE in China and Japan and other places, other Asian countries. So, it's not clear that WhatsApp is gonna be sort of the sole winner here. But it seems like it's gonna be one of two or three huge ones, and Facebook wanted to get a handle on that.
GJELTENWell, Cecilia, Farhad just mentioned WeChat and LINE. How does WhatsApp compare with those two companies, in terms of their business models?
KANGWell, in terms of its business model, WhatsApp is very committed to being very simple. Uncluttered, unfussy, really. Just, to sign on, you really just have to enter your name and your phone number. So, it's easy to get on. They don't do any advertising on it, either. So, there's real questions, going down the line, how it's going to make money for itself, and then now, for Facebook. But, WhatsApp is really interesting in its timing. And I think Farhad mentions, sort of points to an interesting thing that's happening in the evolution of social networking on the internet, in that WhatsApp's rise really was in tandem with the really fast clip growth of smart phone adoption in Asia.
KANGAnd in Asia, right now, you have something like 740 million smart phone users. That's more than two times than any other market, much bigger than the US. And well over half of those people are using chat apps, these kinds of app based messaging services. So, there's a huge opportunity there, and these people don't have the kind of custom and routine that we do in America, of thinking about social networking as Facebook and Twitter. They are actually going first to their mobile phone for their first internet experience, for many countries and developing countries, as well.
KANGAnd they want something simple, cheap, easy and that's gonna reduce costs for them, compared to what their carrier is gonna charge them. So, they're a different sort of audience and a big opportunity for Facebook in that way.
GJELTENBut they're doing some of that web chat -- and WeChat and LINE are doing some other things, right?
KANGGaming and -- yes. Gaming, advertising. WhatsApp is sort of moving towards beyond text messaging in that they do voice messages, and that you can also send links to, you know, graphics and photos and visuals. But it's not -- you know, the model is different than say Kapow in South Korea. And I know that one because a lot of my relatives use that. And that's high, like heavy gaming use. And they really want to build up the entertainment portion of that communications network. And Viber, that was bought, that's used in Japan, WeChat, all these -- they're definitely trying to branch beyond just text messaging, or chat messaging, if you will.
KANGBut, WhatsApp is very dedicated to staying simple, and that actually might be its distinguishing factor. That's what they're betting.
GJELTENCecilia Kang is a national technology reporter for The Washington Post. She writes about tech and internet policies at the FCC and the Federal Trade Commission, and how regulations affect businesses and consumers. We're talking about this new WhatsApp, and what it means for the future of communication. We're gonna take a short break right now. Stay with us.
GJELTENWelcome back. I'm Tom Gjelten sitting in today for Diane Rehm. We're talking about this new mobile texting app WhatsApp and Facebook's purchase of it for $19 billion which, by the way, would make WhatsApp more valuable than for example American Airlines with all their big aircraft. So it's really a pretty stunning figure.
GJELTENMy guests are Farhad Manjoo who writes the state-of-the-art column for the New York Times where he reviews software and devices, examining the tech industry and the role technology plays in society. And here in the studio with me, Cecilia Kang, national technology reporter for the Washington Post and Michael Calabrese, director of the Wireless Future Project which is part of the New America Foundation's Open Technology Institute.
GJELTENMichael, you were saying in the first segment that the telecom companies have been making a lot of money over -- it's a very profitable business, the texting business. And along comes WhatsApp which is doing it for much lower fees. Would -- could Facebook's acquisition of WhatsApp be seen as a defensive move to sort of take away a big part of its competition in this area as opposed to a move that is, you know, designed to sort of build Facebook's business in a wider direction?
CALABRESERight. Yeah, it certainly could be probably both defensive and offensive at the same time because really Facebook has been able to take WhatsApp -- you know, to make sure that WhatsApp doesn't end up in the hands of Google or Apple or Microsoft. Microsoft, for example, acquired Skype for I believe $11 billion, you know, just a year ago. And although that still hasn't clearly worked out for them, it just shows the appetite of these global internet companies for platforms -- for internet platforms where people would go and spend a lot of time in a place.
CALABRESEAnd WhatsApp really adds an entirely different platform to Facebook that is also complimentary because WhatsApp, it's very different from Facebook, the whole user experience. It's very immediate, it's very personal and its largely anonymous. Whereas -- in other words you're communicating just with one person or a few. They don't store anything you do. Whereas with Facebook you're broadcasting status updates to a large -- to, you know, all your friends and family.
CALABRESEAnd so it's a very different experience that a lot of young people are beginning to back away from because they're afraid of, you know, the photos that their aunt is going to see. And they don't want all their friends to know all these different aspects of their life. And so WhatsApp is an entirely different -- entirely separate platform but it's also very complimentary because, for example, they announced -- the CEO announced last week at the Mobile World Congress in Barcelona that by the end of the second quarter they will add phone calling, much as Skype does, to their service.
CALABRESENot only could that perhaps be an extra charge, which will increase the revenue on a business model, but you can imagine then in the future where when you're in Facebook there may just be a little button there to immediately make a phone call on WhatsApp, you know, from Facebook and vice versa.
GJELTENThat's amazing. And Farhad Manjoo, this bring up the topic of an email we just got from Ernie in Abingdon, Va. who asked "Is there a general trend to move all communications away from the traditional phone infrastructure to the lower-cost internet? Certainly if people could just push a button on their Facebook page and be connected by telephone to another user that would certainly bypass the traditional phone infrastructure, wouldn't it?" Is this the future of telephone communication?
MANJOOYeah, I mean, I think that question gets to the heart of it and what's really interesting about WhatsApp. You know, you -- WhatsApp was able to get around the cellular infrastructure by going over the open internet for texts. And that's clearly happening with voice calls. You know, Skype is an example of that. Apple has its own thing called Face Time Audio. And it's happening with video calls, you know, with Face time and also Skype. And, you know, we're really seeing these communication platforms move away from kind of the proprietary cellular infrastructure.
MANJOOThe reason that's important is because, you know, there's just a lot less competition in the carrier space. You know, there are four big carriers in the United States and they -- that allows them to -- you know, the lower competition there keeps prices relatively higher. The internet is -- you know, the barriers to entry there for any communication company is just much, much lower. So they essentially provide these services for free with, you know, trying to make money by advertising or through other methods. But basically at much lower cost to the consumer.
MANJOOSo you get -- you know, you get to get these communication systems for very little money. The effect this has had on the telecom industry is interesting because now, you know, you don't -- many of the carriers provide plans where you don't pay extra for voice calls and you don't pay for texts. And they're basically just charging you for the data plan now. That's the discriminating -- that's the part you kind of choose and pay for. So, you know, we may see more competition in the data plans and we may also see, I think, you know, I'm trying to make more money on that portion because they're not making money, you know, on the voice calls or the text messaging anymore.
GJELTENCecilia Kang, let's go back to this issue of what the business model -- or what the acquisition of WhatsApp means for Facebook's sort of business strategy going forward. I asked Michael if this was a defensive or an offensive acquisition. What's your sense of how Facebook intends to integrate WhatsApp into its business strategy?
KANGSo Facebook has said that WhatsApp will remain a standalone separate entity in the same way that it's handled Instagram which they bought I think two years ago. Their engineers actually aren't integrated into the Facebook engineering team. It's run separately. There's a totally different managerial system there. And WhatsApp will be maintained sort of separately from that too, which -- you know, and that sort of points to an interesting potential feature for Facebook in that, you know, the question is does Facebook want to be sort of like a conglomerate with lots of media holdings, sort of like Walt Disney or, you know, for the internet where it has lots of standalone verticals under it.
KANGAnd, you know, Instagram of course is -- you can share photos very easily on Facebook but so a lot of content on the internet can be shared easily on Facebook. But if Facebook's trying to invest in what it sees as these big not just media brands, but also these very popular services, that can somehow be integrated into their system without -- but still feel standalone. There's a separate app for WhatsApp. There's a separate app for Instagram. It's all easily used within Facebook as well. But that's sort of the growth strategy going forward.
KANGAnd as we talked about before, a lot of this is also about obtaining more users in growing their base internationally because that's really where the growth is. Our market's sort of saturated right now when it comes to the Smartphone market.
GJELTENMichael Calabrese, tell us a little bit about the development of WhatsApp or the developers of WhatsApp. I read the other day that both of the two men associated with the development of WhatsApp actually applied to work at Facebook and were turned down, were rejected. And then talk about sweet revenge, they -- Facebook then buys them back for $19 billion. What do we know about these two guys that started WhatsApp?
CALABRESEWell, that's an interesting point but it's probably the case that the very best entrepreneurs are not -- would not be the best employees, you know, that they're really out of the box, independent thinkers who, you know, just like to, you know, run with their own vision on their own timing. And, you know, I actually don't know a whole lot about -- Farhad might, but I don't know a whole lot about their actual backgrounds before WhatsApp. But it's clear they have a very distinct vision. So, you know...
GJELTENGo ahead, Farhad.
MANJOOI think it's really interesting. So they worked at Yahoo for a long time and, you know, from what I've heard and what I've read, they grew very disillusioned with Yahoo's business model. Yahoo makes money through advertising like a lot of internet companies. And they felt that the sort of advertising drive at Yahoo was ruining the products at Yahoo. And you really see that vision be kind of anti-advertising vision in WhatsApp. You know, they were adamant from the start that they did not want this app to feel lumbered -- you know, lumbering, sort of weighed down by advertising.
MANJOOIt has no ads. They sort of have written several blog posts about how they hate advertising. And it also doesn't collect much user data because they don't have advertising. So they don't really need to kind of target you by, you know, your demographics or your location or, you know, any other information about you. So you sign on with very little information. And this is very unusual kind of in the internet industry and unusual -- very unusual for a company that's now going to be owned by Facebook.
MANJOOI mean, Facebook's -- what Facebook does, like a lot of internet companies, is collect a lot of information about you based on your usage. And then, you know, it pays for the service through advertising. And it's just -- you know, it's just an interesting shift in the internet industry that, you know, one of the world's biggest internet advertising companies bought this firm that has been, you know, adamant about its opposition to advertising.
GJELTENWell, Farhad, Michael made a really interesting point which is that upstart entrepreneurs don't necessarily make good employees. What's interesting to me is that Facebook itself was a very innovative company that got started, you know, in a Harvard dorm room. And yet now it has to go outside to acquire another upstart company. And the two guys that started it apparently couldn't work under -- or weren't welcome to work under Facebook's conditions.
GJELTENWhat does this say about the nature -- the requirements for innovation in this fast-changing technology industry that Facebook has to buy innovation rather than develop it in house? And couldn't even accommodate the guys who were going to develop it?
MANJOOYeah, I think this is a problem for Facebook that I think it recognizes and is trying to solve. You know, it's going to be expensive for Facebook to keep buying the next new thing. It's going to be -- it's sort of -- real effort should be to try to build the next big thing. It's tried that. They've tried that with various sort of efforts. You know, they created a clone of SnapChat after SnapChat became popular. SnapChat is a picture messaging app. And their clone didn't really work.
MANJOOThey have a messaging app that works similarly to WhatsApp but it sort of serves a very different audience. It serves the Facebook audience rather than kind of a new audience, the WhatsApp audience. I think, you know, they have this new effort they call creative lab where people within Facebook are allowed to essentially sort of have their own startups, their own social app startups and try to create new and interesting experimental apps. I think that, you know, this is something that Mark Zuckerberg is trying to spend a lot of time on and try to think about why Facebook has missed these innovations and what it could do to address them.
GJELTENCecilia Kang, it really is an interesting start-up story on its own, isn't it?
KANGIt sure is. And I think you point to a really interesting point, Tom, in that this is the perennial problem with Silicon Valley. As you grow big, how do you stay innovative and how do you stay ahead of the game? And Facebook did this -- has this engineering lab that's supposed to stay ahead of -- they just released this new app called Paper which is very visual and very interesting. And they're trying to stay ahead of the new technology trends and also not be so big and lumbering and cumbersome and bureaucratic like big companies do become.
KANGAnd they look at the examples of big companies and the past tech companies that have gotten too big for their own good, like IBM or Microsoft, in their view. And they don't want to be like that. And Google's responded with its own sort of experimental lab and also by letting their users carve out 20 percent of their -- excuse me, their engineers carve out 20 percent of their work time to experiment on their own obsessions and passions and interests. So that's a perennial concern.
KANGAnd one thing I wanted to say about WhatsApp and why it's become so popular, they did two things right. The first being simple, like we said, simple to log on, simple to use, simple to register and also being so cheap. And the second thing is they build it so that it was across every device early on. So they didn't commit themselves to just the Blackberry or the iPhone only. I mean, in the beginning it was an iPhone development at first. But they quickly expanded to make sure that they were across Android and Windows, to make sure that they didn't wall themselves off from market opportunity early. And that was really smart.
GJELTENCecilia Kang is a national technology reporter for the Washington Post. I'm Tom Gjelten. You're listening to "The Diane Rehm Show." And I want to remind you, our phone number is 1-800-433-8850. In a few minutes we'll be going to the phone calls but first I want to read -- Michael, I want to read this email from Al in Indianapolis. And he's wondering about what the effects of WhatsApp and similar apps will be even for those of us who don't use them. He asks, "Do you think this will place downward price pressure on the traditional carriers to reduce their unlimited text fees," which is something you mentioned earlier?
CALABRESERight. Oh yeah, very definitely. I think, you know, what's happening already in the United States, you know, we'll probably begin to see around the world, which is that the cellular carriers will offer, you know, all-you-can-eat plans. In other words, apps like WhatsApp, right, are converging all -- you know, converging everything onto digital, onto a similar platform, basically onto the internet. And so as a result it's all data.
CALABRESEAnd so what we're seeing is actually in effect the beginnings of a price war among the carriers who are already offering things. Like AT&T, for example, has this family share plan which, you know, for one price gives you unlimited texting, voice and data up to a limit for a single price for individuals or family. And, you know, you'll definitely be seeing, I think, more of that.
CALABRESEAnd then, you know, what's interesting is depending on the levels of competition among carriers, you know, where those prices go for data. But it's clearly going to move to where they're going to basically be able to lose the premium they receive now by selling text and voice as separate items. And instead you'll be basically just buying data and doing everything, whether it's over the internet work or over the internet, you know, through the data pipe.
GJELTENVery quickly, Cecilia.
KANGWell, I was just going to say, your wireless experience as a consumer is really going to change. The billing experience is going to change. Right now all the wireless carriers are really focused on trying to make the most money they can out of data. You're right, voice and text are really not going to be the feature. And this is not necessarily a good or bad thing. We don't know yet because they're imposing caps on data. And we're using more data also at the same time. So as to whether we spend more money or less is really a question right now going forward.
GJELTENCecilia Kang is a technology reporter at the Washington Post. We're talking about WhatsApp, this new app that was just bought by Facebook for $19 billion. We're going to take a short break right now. When we come back, your phone calls. Stay tuned.
GJELTENWelcome back. I'm Tom Gjelten of NPR sitting in today for Diane Rehm. And we're talking about WhatsApp, this new mobile texting app that was just bought by Facebook. And my guests are, first of all, in San Diego, Farhad Manjoo who writes the "State of the Art" column for The New York Times. And here in the studio with me, Cecilia Kang, national technology reporter for The Washington Post, and Michael Calabrese, director of the Wireless Future Project which is part of the New America Foundation's Open Technology Institute.
GJELTENWe've gotten a ton of emails. And we've got phone calls lined up as well. But let me first go through some of the emails we've gotten. We were just talking about, before the break, about what the effect of this free or these almost free text messaging services will have on the traditional phone companies. Nick writes, "How about mentioning there would be no WhatsApp if phone companies weren't gouging their customers?" So maybe that'll -- this will bring an end to gouging customers.
GJELTENSeveral emails from people who are using WhatsApp, because of the international connections that it makes possible. This is something you mentioned earlier, Cecilia. As Shelly says, she's -- that WhatsApp is valuable for users with global friends. "I'm able to text with my friends who live outside the U.S. It's very useful for business use for people who have clients overseas and need to get some information quickly. In this day and age where people travel extensively, WhatsApp is very important for keeping in touch anywhere that has Wi-Fi access."
GJELTENAnd finally an email from Gustov who says -- I don't know if I'm pronouncing her name correctly. She says, "My husband is from Bali, and we use WhatsApp to talk to his family daily. We send photos and videos to his parents and siblings, something we would have to otherwise pay for. We can also text as a group to more than family member at once. It's wonderful."
GJELTENAnd, finally, just some indication of how fickle some of these new social app users might be, Anthony says, "I've been using WhatsApp happily. But if Facebook starts with ads or charging them, I'm out." And Samuel says, "Some of my friends are actively moving away from Facebook and the services they buy up. When WhatsApp was acquired, I switched to a similar service called Telegram." And, Cecilia, people certainly do have options out there about how they want to communicate with their friends, don't they?
KANGThey certainly do. And I think that these reader emails are so indicative of what's going on in the marketplace, and it really shows sort of the feeling that people have towards their traditional wireless telecom carriers and having to pay so much. And those bills are really increasing every year. And that's been a source of concern. And when they see the opportunity to, for nearly free, communicate with a relative, a friend, a business contact overseas for, again, nearly free, it just opens up people's minds to the possibilities.
KANGAnd it was interesting, when the story was announced that Facebook was acquiring WhatsApp for $19 billion, a lot of people in my newsroom said, what WhatsApp? You know, it was sort of the joke. What's up? WhatsApp.
KANGYou've never heard of it. And the reason why that was interesting was that it shows how it's become so popular overseas where you do see text messaging still be a big part of the -- be charged -- I mean, excuse me, so expensive for a lot of households. The average global text message cost still is about 11 cents in U.S. currency. There's a 6.1 trillion SMSes sent every year, even more -- that's a statistic from two years ago even.
KANGSo it's a huge opportunity, and it's a huge opportunity. And it shows how people are adapting to these new tools. And, you know, I challenge you to think of any teen these days that talks on the phone, if it's not to their parent, you know.
KANGSo it's just that sort of portends the feature of where communications are going. And, again, because WhatsApp, because Viber, WeChat, all these chat messaging apps are so easy and so fast and so reliable, it's just really exploded the telecom communications model.
GJELTENBy the way, Bill wants to know, "What's the difference between WhatsApp and Viber?" Viber appears to be exactly the same kind of application. What was more appealing to Facebook about WhatsApp than -- that might have made it more appealing to buy than Viber?
KANGFarhad probably has some views on this, but I think it's just the numbers -- 450 million people. That's hard to ignore. And how fast they grew, that the fact they only have a few dozen employees, a few -- I think, four dozen employees, so the overhead costs are so low.
KANGAnd it just -- it grew at such a rapid clip. It's bigger than Twitter, bigger than Skype, bigger than Instagram, which is what Facebook bought. So it's a huge growth story, and the network effects, as Farhad pointed out in the beginning, is sort of the important thing. If you buy big, you buy sort of -- you catch everyone in that net.
GJELTENSure. Right. Well, Farhad, I keep coming back to this question of whether Facebook is ever going to make its $19 billion back from this. You did mention a huge number of users that WhatsApp has. But on the other hand, we see so many competitors out there and such a rapidly evolving technology landscape. What's your guess about how wise that acquisition was for Facebook and whether they will be able to make their money back?
MANJOOYeah. I don't know. I mean, I think it's the big question surrounding this. And I think the truth is they don't know either. They -- you know, in their public comments about -- in their public comments about this acquisition, Facebook executives have essentially said, they think it's valuable. They think WhatsApp is valuable because it's going to head to, you know, more than a billion users. And they think that networks with more than a billion users are inherently available, is their phrase.
MANJOOBut how you value that at, you know, $19 billion is -- how they came to that number, I think, is an interesting unanswered question. You know, there are two ways to make money on the Internet. There's advertising, and there's charging users. WhatsApp charges users a dollar after the first year of use, I think. So if they had to -- a billion users, that's a billion dollars a year, which sounds big.
MANJOOBut it's not huge. It's not huge. It doesn't sort of justify the $19 billion valuation. So they're going to have to think about some other way to make money. I think that they have leeway. You know, Mark Zuckerberg has said they're going to try to grow the network to more than two or 3 billion users before they start seriously thinking about making money. And Mark Zuckerberg has the freedom to do that. He has, you know, huge control over Facebook.
MANJOOHe controls the entire stock and can control sort of all the decisions regarding it. So if they have freedom from Mark Zuckerberg to do that, then they'll do that.
GJELTENYeah. All right. Let's go now to Carrie who's on the line from Hope Mills, N.C. Hello, Carrie. Thanks for calling "The Diane Rehm Show."
CARRIEHi. Thanks for taking my call. I have a question about your guest who mentioned the future of phone service will be moving to online. And I wanted to know how this will affect the pockets around the country that don't receive high-speed Internet. My parents, they can only get service through satellite, and it has a limited amount of data usage, and the speed doesn't support a lot of these sites. And I wanted to know if that will create any incentive for companies that provide high-speed Internet.
GJELTENMichael Calabrese, do you have any thoughts on that, of whether we're going to see any ripple effect here from this widening use of smartphones as an encouragement to companies to provide better Internet service around the country?
CALABRESEYeah. I think we will. There's clearly a -- you know, a surging demand for data, particularly over mobile devices, over smartphones, over tablets.
CALABRESEIn fact, the growth in this mobile data traffic has been 66 percent a year. That's the current rate of growth.
CALABRESEAnd so the estimate is that total data use -- so on mobile devices will increase by 12 times over the next five years. And, really, what's accommodated that has been primarily Wi-Fi, the growing use -- in fact, one of your listeners who emailed in, you know, mentioned that they, you know, communicate with Bali and relatives overseas on Wi-Fi.
CALABRESEAnd that's really because, when you're on Wi-Fi, you're not on your carrier network, and so you're not being -- you know, the data use is not going against your cap. You're not increasing your monthly bill at all.
GJELTENBut if you don't have Wi-Fi, if you don't have access to Wi-Fi, that's a constraint.
CALABRESEOh, that definitely is, and it's why you see things, for example, you know -- almost I consider somewhat sad stories, and I'm trying to remember if Cecilia wrote this -- but of, you know, of parents sitting in the parking lot of libraries with their children at night to do homework so that they can get onto the library Wi-Fi even after the library has closed.
CALABRESESo, you know, of course, the president announced this ConnectED Initiative where they want to expand connectivity to every school and library in the country that will promote Wi-Fi. What we really need to do even more, there needs to be, you know, a kind of an extension of universal service from phone calling to Internet access.
GJELTENDid you write that story, Cecilia, about people trying to piggyback on...
KANGI've written a little bit about that, about libraries, sometimes fast food restaurants that offer it, coffee shops. They'll park nearby. The -- I actually have a maybe a less -- a more cynical view, unfortunately, of that in that it -- you don't -- the companies don't get the bang for their buck for extending their faster services, either landline or wireless, to rural areas.
KANGWhere they're really getting the most money is from urban customers who -- urban and suburban customers who spend a lot on data and who are in areas where, you know, that are -- where they have already service, and they just want to bolster the service, these companies. So that's a -- it's a real problem. It's a real question where you have -- and that's probably the biggest question in Washington when it comes to telecommunications policy right now is how to make sure that there are no pockets that get left behind as everybody moves to the Internet.
KANGAnd right now, you have every single phone company transitioning their traditional copper wire network into Internet-protocol based networks, which is, you know, IP-based networks. So it's -- everybody's already moving to digital, and the areas that are underserved right now are very likely to be underserved going forward as well. And that's the real question as to what is the obligation of companies and the government to make sure that doesn't happen.
GJELTENUm-hum. Let's go now to Matthew who's on the line from Washington, D.C. Hello, Matthew. Thanks for calling in.
MATTHEWHi. Thank you for taking my call.
MATTHEWSo my question basically is is around how carriers and potentially hardware manufacturers will response to this kind of mainstream messaging app platform. So I'm a Verizon user, and my fiancée's a Verizon user. And my friends are all Verizon users.
MATTHEWAnd because I, you know, have had free messaging to Verizon users or free calling to Verizon users, those are features that have kept me on Verizon even though I might have wanted to switch to Sprint or AT&T at various points. So do you think that carriers are going to actually take advantage of this sort of platform or carrier agnostic messaging to maybe try and steal competition from -- or steal users from the competition?
GJELTENWell, let me ask you this, Matthew. Are you tempted to move away from Verizon as your carrier because you now have alternatives that you maybe didn't think you had?
MATTHEWIt's definitely a possibility. I mean, I am on an iPhone right now, and I enjoy it. But, you know, there have been hardware released before that's been restricted to certain carriers. There are certain features, especially regarding data and data costs that are carrier-dependent. So it's an option that I can now consider if I were to switch over to something like WhatsApp.
GJELTENWell, Farhad Manjoo, this is certainly -- these are developments that really could have repercussions for the carrier industry, right?
MANJOOYeah. I mean, I think what's happening in the carrier business is that we're seeing carriers become essentially commodities. There's very little to distinguish Verizon's service from AT&T's service from T-Mobile services anymore. I mean, some of them have better networks than others. Some of them have better coverage. But the -- but they're close enough these days -- you know, they all have the iPhone. They all have top smartphones.
MANJOOThey're -- so they're close enough these days that they can really -- their main competition now is on price. And we're seeing that happen. We're seeing this sort of price war breakout with T-Mobile really kind of leading the way. T-Mobile has lowered its prices and changed its plans to try to attract its competitors' customers. And it's working. They've gained 4 million customers over the last year. And so it's possible that we'll see kind of profit margins go down in that industry and competition breakout.
MANJOOI wouldn't bet on it because we always see sort of -- these industries, you know, are inherently less competitive than sort of the open Internet industries. So there are -- and they're sort of -- they have great lobbying power, another thing, so, you know, they -- this kind of competition could slow down. But, for now, it looks like, you know, it's an improving climate for consumers -- the mobile data industry is.
GJELTENCecilia, a related question here from Chris who wonders whether there's any concern that Facebook will do an exclusive subsidy relationship with carriers for free data for WhatsApp and Facebook.
KANGI'm so glad that this person sent this email 'cause I think that the future of the carrier industry and the Internet industry are, in many ways, more entwined than we're discussing right now. There will be so many -- the big fear is what Farhad just outlined is that the wireless carrier business will become a commodity business. They have a word for it -- dumb pipe. They don't want to become dumb pipes, these two words.
KANGAnd so the way that they will get around this -- and what we're seeing emerge -- are new partnerships with Internet companies, so you might see a Verizon in the future -- and this is what they're fighting for right now in Washington, is for Verizon, for example, to be able to charge Facebook for free access to Facebook services and bundle it to consumers so it seems like a great price for a consumer and then to have some sort of a business deal in the back end between Facebook and Verizon.
KANGThat's what they would like to do. You're going to see Netflix and all these different -- so those are the kinds of new business models that you will probably see emerge because, as we've said before, voice and texting right now, everybody sees the future of that in the carrier business which is something that they can't concentrate anymore.
KANGThey can't rely on those great margins that they are able to sort of rest their laurels on for a while for quite some time. So you are going to see new business models. And, again, I don't know if it's going to be good or bad for consumers. I don't know if that means that it's going to make my bill at AT&T go down further, or if I'm going to get, you know, free Netflix, streaming video, at Verizon, so I'm going to want to go there instead. There could be more options. It could be just a lot more confusing. Who knows?
GJELTENMichael Calabrese, you direct something called the Wireless Future Project at the New America Foundation's Open Technology Institute. It's an interesting time to be in this field, isn't it?
CALABRESEOh, yeah, very definitely. Because there's -- as Cecilia was saying, you know, there's these really kind of, you know, grinding tradeoffs that are going on. So even, for example, you know, I mentioned before about Wi-Fi, which is actually saving the carriers quite a bit of money in the sense that their own infrastructure can't handle the traffic, but at the same time, you know, they worry about it reducing them further to being a commodity or a dumb pipe.
GJELTENMichael Calabrese is director of the Wireless Future Project, which is part of New America Foundation's Open Technology Institute. My other guests were here in the studio: Cecilia Kang, national technology reporter for The Washington Post, and, joining us from San Diego, Farhad Manjoo who writes the "State of the Art" column for The New York Times, reviewing software and devices. Thank you very much for coming in, folks. And thanks to our callers. I'm Tom Gjelten. Thanks for listening.
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