A Blog by Jonathan Low


Feb 26, 2014

Messaging Wars: The High Stakes Battle for Control Over How You Talk to Friends

Consequences. We're beginning to think about them and they may even be driving consumer choice, to say  nothing of corporate strategy and investment resource allocation.

The $19 or 16 billion Facebook spent to acquire WhatsApp (financial precision is for the little people...) has sparked a lot of commentary about whether they paid too much or too little, with lots of charts and graphs to demonstrate whichever side the author takes. But if you're wondering about the future of your enterprise, how much is too much?

The issue for Facebook is not so much that teens are bored. Or that gunking the site up with all those ads on top of the boring posts from people you dont feel comfortable de-friending but whose digital prattle is becoming a chronic annoyance has become a manor turn-off. It is that people want to be able to communicate with their network and maintain a modicum of discretion: share a joke, post a thought, offer a warning, pass on some gossip. All without fear of exposure.

And this is not an either/or. People do not want to choose between privacy and networked public life: they want both. Sorry if that's too complicated or not an elegant enough solution. But they want what they want. Some use for some communications and some for others. So whoever establishes early leverage in this evolving market stands to gain - or lose - significantly. Facebook probably still has an advantage because people can cull from their already established networks on it. And by acquiring a string of alternative messaging systems - Instagram and now WhatsApp - Facebook hopes to maintain their advantage. It's just that their customers want manage their accounts without Facebook's interference, er, help, thanks.

Yes, imagine the little people's nerve at no longer wanting to cede that authority. But what did you expect from this networked, increasingly savvy crowd, obedience? Just wait till they start demanding money. And dont laugh. That's coming. JL

Mat Honan reports in Wired:

People don’t want a web-style social network on mobile devices. They want a less public and more intimate way to share with the friends they care about the most.
Before the scrum over who will control mobile messaging turned hot last week, with Facebook’s $19 billion purchase of WhatsApp, things got very, very cold. In December, an ice storm was blowing into the Canadian city of Waterloo, and even by Ontario standards it was epic. On the radio, the local newscasters were talking about flight cancellations and telling listeners to stay off the streets. Within 24 hours, 400,000 people would lose power for several days. But Ted Livingston, the CEO of Kik—perhaps the most daring of the messaging apps that are redefining how young users communicate in the mobile era—wanted to take me for a drive.
And so we headed out in his sporty Subaru, its engine revving and rumbling as we cruised out of town, slipping across icy roads past Mennonite farms and horse-drawn wagons. Livingston likes to go fast, which left me slouching nervously in the passenger seat, wondering if the national health care system here will pay for an American journalist’s full-body cast. “It’s a shitty day to come, for sure,” he says with a laugh as we pull into Tim Hortons to get a pair of enormous coffees.
Livingston, I soon discovered, laughs constantly. It’s just one of the many ways in which the 26-year-old comes off as a bizarro Mark Zuckerberg—a freewheeling Canadian version of the hoodie CEO. They share quite a few physical features: The two men have similar jawlines as well as sleepy eyes under a mop of curly hair. But Livingston is as gregarious as Zuckerberg is measured.
What’s more, Livingston is out to take down Zuck. This once seemed ridiculous: After all, Facebook has more than a billion active users in its vaunted “social graph”—the digital map of all our relationships, built up over years—which would be nearly impossible for competitors to recreate. Facebook posted $7.8 billion in annual revenue last year; Kik, on the other hand, has a mere 100 million users and, well, no revenue to speak of.
But as we move further into the mobile age, it’s clear that Facebook is on the defen­sive. The problem isn’t with the Facebook mobile app per se, which is ele­gantly executed and does a fine job of recreating the web experience on a phone or tablet. Rather, the problem is that people don’t want a web-style social network on their mobile devices. They want a simpler, faster, less public, and more intimate way to share with only close friends, the ones they care about the most. They want to swap pictures. They want to say, “I’m here.” They want pieces of Facebook, but not the entire package at once.
Facebook and its competitors are struggling not just for revenue, or for home-screen real estate, but for the very future of mobile communication.
That is, what they want is just messaging—good old messaging, like the text messages that have been around nearly as long as there have been cell phones. And they have plenty of choices: In less than two years, services like WhatsApp, Snap­chat, Kik, Line, KakaoTalk, and WeChat have grown from nothing to become social lifelines for millions of users. In the near term, these apps are saving their customers money by reducing text-message fees. But that’s not why Facebook has been so desperate to compete with these upstarts. It’s not why Facebook revamped its own stand-alone Messenger app, or why it offered (unsuccessfully) to buy Snapchat for a reported $3 billion in November, or why it finally bought WhatsApp for the aforementioned knee-buckling sum of $19 billion.
No, Facebook’s angst is entirely about eyeballs and fingers, about owning the icon that you tap when you want to connect with friends. It worried that if it didn’t act now, one or more of these upstarts would soon supplant it as the go-to tool for sharing news with friends. As Zuckerberg noted when announcing the acquisition: “WhatsApp is the only widely used app we’ve ever seen that has more engagement and a higher percent of people using it daily than Facebook itself.” The acquisition doesn’t mean that Facebook will win what can only be described as the messaging wars, but at least it puts the company in a position not to lose.
The stakes are sizable. Facebook and its emerging competitors are struggling not just for revenue or home-screen real estate, but for the very future of mobile communication. In 2014, the message is the medium worth fighting over.
Conversation, Not Documentation


Let’s say you just took a picture. It’s a really beautiful shot: your kid, happy as can be, posing in front of the Eiffel Tower. Good job! Your friends will be so proud, so jealous. You post it to Facebook for everyone to see. Now. Let’s say you just took another picture. It’s a really hilarious shot: your kid, seriously jet-lagged, having a meltdown on the Champs-Élysées. Good job! Your friends, some of them at least, will totally relate. But you worry others may find it cruel or at least misunderstand it. You’re reluctant to put it on Facebook. And you’re not alone.
In the history of human communication, the Facebook post is a highly unnatural way to interact with friends and acquaintances. It’s akin to standing before a room filled with every single person you know and delivering a presentation about your personal life. You really don’t want all of those people listening, since a lot of them won’t care and a few of them you’d rather not tell. Sure, Facebook’s privacy controls let you target posts in principle, but in practice it’s a lot of work, especially when you’re trying to share something quickly.
This overly public nature is a big reason why Facebook, long stereotyped as a teenage obsession, today has a self-admitted problem with young people. Namely: They are leaving. By one estimate, some 11 million fewer high school and college kids in the US use Facebook today than did three years ago. Increasingly, kids don’t want to be on a network where their parents can so easily monitor their communi­cations. The generation that has grown up with social media is also wary of its permanence—that picture you post today may come back to haunt you when you’re ready to find a job. Even the site’s central design, a timeline that literally begins with your birth, emphasizes the notion that Facebook is forever.
This approach, as popular and powerful as it turned out to be, has created an opportunity for the mobile-messaging apps. They all foster a more natural feeling of conversation taking place between ad hoc groups of friends. Even better, to participate you don’t have to set up yet another social network. Instead, you just capitalize on the one that’s already in your pocket: your phone’s address book. With all of them, you download the app and, based on matches in your phone book, get automatically connected with any of your contacts who are also on the new service. After that, it’s astonishingly fast and easy to send texts, photos, and more, just as you would with SMS.
In terms of sheer user base, WhatsApp is the biggest of the bunch, making it a natural target for Facebook’s attentions. For 99 cents a year, it gives you unlimited messaging, and it works on just about every kind of phone you can throw at it—iOS, Android, BlackBerry, Windows, Symbian, feature phones. Hell, it even runs on Nokia Series 40 phones. That compatibility and pricing has made it massively popular around the world: WhatsApp now has some 450 million active monthly users and is adding a million more every day. For the moment, WhatsApp is essentially a text-message replacement, one that may already have surpassed text messaging in terms of sheer volume; its success is probably the number one reason why the ocean of revenue that carriers generate from per-text charges is projected to recede by $23 billion over the next four years.
Next there’s Snapchat, which lets people send photos and videos overlaid with snippets of text or hand-scrawled illustrations. The twist is that after a few seconds, the files disappear from the recipient’s phone. When Snapchat launched in 2011, people puzzled over it: Was it just a way to facilitate sexting? As it turned out, the appeal ran far deeper than that. By removing the specter of permanence, Snapchat soon became a casual and conversational way to send any sort of picture to any sort of friend. “It’s been amazing for us to see how much joy people get from taking ugly photos of themselves,” says Evan Spiegel, Snapchat’s CEO and cofounder. “Pre-Snapchat, there were basically no ugly selfies on the Internet.”
Rounding out the crowded field are a handful of messaging apps that have become mammoth, multifunctional platforms in their home countries and throughout Asia. In South Korea, there’s KakaoTalk, which made some $200 million in revenue last year from its 130 million users. China has WeChat, whose 272 million monthly active users made it the fifth-most-used app in the world last year, behind only Google and Facebook products in the second quarter of 2013. A Japanese app called Line, with more than 300 million registered users, capitalized on its platform to sell other apps and facilitate in-app purchases. According to app-ranking service AppAnnie, Line was the fifth-highest-grossing game publisher on iOS and Google Play in 2013; excluding games, it generated more revenue than any other publisher in the world. It’s a great example of how these apps have built new products and services (beyond text and photos) on top of a messaging infrastructure.
These international breakouts are another huge cause for concern at Facebook, because messaging has proven even more popular in the developing world—where many more billions of people have yet to come online—than it is in the US. These new Internet users will probably come online for the first time on mobile devices, and it won’t be surprising if they bypass traditional social networks altogether.
Messenger Today, Platform Tomorrow

Then, finally, there’s Kik, which is trying to bring the broad scope of these international competitors to the North American market. As with WhatsApp or Snapchat, the basic service gets you up and running quickly, finding your friends through your address book and enabling fast, seamless chat. But Kik also has a bunch of great tools for making your messages more fun: video, sketches, LOLcat-style memes, and more. Unlike many of its competitors, Kik runs not just on phones but also on tablets and iPod Touches, helping it reach that substantial population of teens who don’t have phones. This past Christmas (new device day!) it shot up to number nine in the iOS app store.
Download the Kik app—from iTunes, from Google Play, from the Windows Phone store, BlackBerry, or even Nokia—and you get a simple piece of messaging software that asks you to pick a username. Give it access to your address book and it scans its database to connect you with any of your friends who have Kik accounts. The main screen is a simple list of conversations, with a contact’s picture and a preview of the most recent message.
But the real action, or at least where Kik sees its future, is over to the left. Slide a drawer out and you’ll see a list of little apps, a web search field, and an option to download more. Here’s the stuff Kik wants you to share. There are games and music videos, Buzzfeed lists, even a Foursquare widget so you can share your location with friends. There’s a disappearing-photos app—think Snapchat—and video websites optimized for the built-in browser. A meme-maker lets you add large text to popular meme images. There’s even a One Direction app that helps the band connect with its audience—fans can message other fans directly, reroute them to Twitter or to videos, and share updates and concert notices.

When Livingston returns us safely to Kik HQ, just a few minutes’ drive from the university, I find an office where everyone is young and friendly—even the dog that bounds to the door to greet me looks like an overgrown puppy. To make sure it doesn’t lose touch with its key demographic, Kik keeps a steady stream of collegiate interns (or co-ops, as they’re called in Canada) cycling through. The service has no intention of standing still. “There’s the messenger today, the platform tomorrow,” Livingston says. He understands the basic tension: Although mobile apps need a simple allure, a quick and intuitive reason to launch them, the app that wins the messaging wars will need to find ways to keep users sticking around longer. “Can we become a platform where the core function stays simple but all the apps we want to use—the next Snapchat, the next Instagram—are there too? Then the network effect will start where users will get Kik not for Kik but for those apps that plug into it.”
As far as Livingston is concerned, Facebook itself will be hard pressed to catch up in the messaging market, because its identity is already too defined in people’s minds. When it comes to the competition, “we don’t think about Facebook at all,” he says. “I think that Instagram Direct”—Facebook’s related attempt to add messaging to its popular photo-sharing service— “has failed as well. In mobile the brands need to be so simple. Kik is a messenger. Instagram is photo sharing. Snapchat is a broadcaster. For Facebook to compete with us, I think they would have to build a new mobile-only version of Messenger with a new brand. A new community, built from scratch.”
That was in December. But as February proved, Facebook had another option. It could simply buy one.
Facebook Strikes Back


Facebook’s strategy, as it turns out, is two-pronged. First up, it completely revamped its Messenger app—essentially its own attempt to reimagine messaging for the mobile era. With Messenger, it’s trying hard to make users think twice about moving their chats to the competition. Facebook has always allowed users to send private messages back and forth, and two years ago it broke this feature out into a stand-alone app. In the past year, though, the company has refocused its attention on the app, giving it a completely new look and making it more personal and immediate. Luke Woods, Messenger’s design manager, seems like just the kind of pitchman that Facebook needs right now. He’s trim and blonde and quick to smile, enjoyable to be around even in a windowless conference room. At 30, he may be a little older than the target user Facebook is so desperately courting. But he’s fashionable in his stovepipe hipster jeans and killer specs. Woods and his colleague Peter Martinazzi are telling me how they have transformed Messenger to make it faster and more … well, more like Snapchat. “We put a lot of effort into building better controls into the app,” he explains. “Messages don’t have to live forever!”
And make no mistake: The new Messenger app is impressive. Unlike previous iterations, it’s blazing fast. When someone sends you a message, a notification immediately fires up on your screen. (On Android phones, a floating picture of the person—a “chat head”—will also pop up.) Like on WhatsApp and Kik, you can see when other people are typing replies, a visual cue that the conversation is still happening. And yes, though Messenger lacks the ephemerality of Snapchat, it avoids that trademark Facebook feeling that you’re adding to the Permanent Record. Chats on Messenger are taking place privately between individuals and small groups, not on a public wall or timeline. You can mute people and delete entire conversation threads from your phone (though they still remain on the phones of others).
Even though the phone’s contact list does somewhat undermine the necessity of the social graph, comparing Messenger to Kik or Snapchat does remind you how useful Facebook’s wide net of connections can be. If you’re like most people, occasionally you’d like to be able to chat with friends whose contact information you don’t have.
“If someone is using Kik or WhatsApp, you can message the people who are already contacts on your phone,” Woods points out. “But on the new version of Messenger you can also message all of the people you’re friends with on Facebook.” This is true even if they don’t have the app installed, since Messenger just taps into the chat function of Facebook writ large; you can use the app to chat with anyone who has a Facebook account.
The social graph might not be everything, but it’s still something—especially in a crowded field of apps, all vying for downloads and shares. And Messenger was working. After version 3.0 came out in November, usage shot up by 70 percent.
The $19 Billion Gamble
But it also left Facebook with a problem: What does it do about all the people who aren’t already in the Blue? Internationally, the world is coming online using phones not desktop computers. And most of those new users don’t have iPhones; they’re far more likely to use a low-end plastic Android handset or even an old-fashioned “feature phone.” Most of the world pays for data by the kilobyte, and for each and every text message sent—which makes messaging apps an easy sell, since light­weight platforms like Kik and WhatsApp let you communicate without paying per-message fees.
And so if the first prong of Facebook’s strategy was to build, the second was to buy. It tried to do that with Snapchat but was spurned by that company’s kiss-and-tell CEO, who not only turned down Zuckerberg’s offer but then proceeded to leak details of the courtship to the press. Now, after that embarrassingly bad date, Facebook finds itself in a promising marriage to WhatsApp—promising, that is, if opposites attract.
Because the two firms couldn’t be more different. WhatsApp runs on a shoestring; it’s as small as Facebook is big. While Facebook has thousands of employees and a massive Silicon Valley campus with multiple restaurants, a health clinic, and a pharmacy, WhatsApp has a mere 50 employees and rents space in the offices of an iPhone accessory maker in Mountain View. If you get sick or want a snack, you’ll need to run out to CVS—but don’t worry, that’s in the same building, just on the other side of a multilevel parking garage.
The generation that’s grown up with social media is also wary of its permanence—that picture you post today may come back to haunt you.

The cultures are also very different. WhatsApp has long been vehemently anti-advertising. It quotes Fight Club on its blog and espouses a you-are-the-product philosophy. “We focus ourselves on being a utilitarian communications company,” says WhatsApp CEO Jan Koum. “Look at the telecom com­panies. That’s something they’ve been doing for the past 100 years. When you go to make a phone call, you don’t hear a promotion first. You don’t have to hear about some new app to download or game to try—you just have a conversation. That’s what’s important.” He means this as a slap at some of his messaging competitors that rely on in-app ads and game promotions to make money. But it could apply almost equally well to Facebook. And yet: Even though the companies are so dissimilar, they stand to make an extraordinarily powerful pair. WhatsApp is nearly as massive as Facebook itself, with a staggering 53 billion messages and 600 million photos crossing its servers every day. And in terms of geography, the user bases are highly complementary: WhatsApp is massive internationally but not in the United States, precisely the opposite of Facebook.
It’s a damn good match, at least on paper. That’s why Facebook was willing to spend what amounted to a full 10 percent of its market capitalization on the acquisition. No wonder people at both companies were popping corks.
Winner Take Some

If all this sounds a bit daunting for Kik, don’t worry: Living­ston hasn’t lost his swagger. “We worry more about Line, KakaoTalk, and WeChat than WhatsApp,” he says. “You turn them from parents into nannies, and give them $19 billion to compensate them, and they aren’t hungry anymore.” Maybe not. But with 450 million people, WhatsApp’s plate is already looking pretty full. Yet Livingston is probably correct in his belief that Facebook can’t win the messaging wars, even with the infusion of WhatsApp’s user base. That’s because the messaging wars might never be won by anyone.
Why? For the same reasons that companies like WhatsApp and Kik have been able to grow so fast in the first place. Mobile apps are easy to download and launch with a single finger tap; the phone’s contact list is always available to get you up and running with at least a few good friends. On mobile devices, the self-reinforcing network effect might not be as important as it has been on the web. A recent study of 15- to 25-year-olds in the UK showed that 25 percent of them were using multiple messaging apps.
“The winner-take-all dynamic is obliterated on mobile,” argues Benedict Evans, an analyst and investor with Andreessen Horowitz. It’s not just that these apps can access our address books, reducing the frictional barriers to joining. The mobile experience makes it trivial to pick different apps for different uses with the mere tap of a thumb. And this shift, in turn, accelerates the process of building com­panies around such apps. “You don’t have to raise $50 million,” Evans says. “You don’t have to have 500 employees. You can have 20 to 40 guys who have never raised any money from venture capitalists reach 500 million users.”
Facebook’s social graph might not be everything, but it’s still something—especially in a crowded field of apps, all vying for downloads and shares.
Seen this way, the unique features of the individual apps—Snapchat’s disappearing pictures, Kik’s messaging add-ons, WhatsApp’s two-way voice chat—aren’t trial runs to define new paradigms for the mobile era. They might simply become differentiators in a perennially crowded and shifting field. “Apps will surge through schools and cities and countries like wildfire,” Evans says. “Some will be able to create platforms. Some won’t try. But on mobile, you’re going to have a much richer range of communications options than on the web and desktop.”
In other words, there may not be a new Facebook for mobile. But that means Face­book, even with WhatsApp on board, won’t be the Facebook for mobile, either. All the imperviousness that Zuckerberg’s giant built up in a web-based world—as the only place, the permanent place, to curate friendships and photos and messages and memories—will give way, in the mobile era, to a world where it’s just one app among many.
For 10 years, Facebook has connected us to the outside world. And it’s not going away. But when you grab your phone to share a photo of something that just happened right now, something you want to talk about this instant, maybe something embarrassing, maybe something wonderful, but something that you want a response to right now—you’ll have a choice. Will it be the Facebook icon you mash with your thumb? Or WhatsApp or Kik or Snapchat or Line or … something altogether new? Will you frame your question behind glass, hanging it in the hallway for everyone to comment on? Will you throw open your window and shout it at your neighbor? Or will you whisper it to a friend? A lot of money is riding on how you answer that question.


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