Social Networks – Tech.pinions

The Bull Case for Snap Inc.

Subscribers were not surprised regarding the slowing user growth of Snap Inc., which became clear in their IPO filing. We have been tracking quarterly user data via surveys for over a year and we noted the spike in user growth (which is what I think prompted them to file) and the follow on slowdown in user growth (which I don’t believe they anticipated). While all available data suggests they will have a hard time growing their base for some time, I think it’s helpful to look at the potential arguments for the upside for Snap.

A New form of Personal Entertainment
Viewing Snap as a new form of personal television, particularly the short form variety, is essential to understand the kind of company they are becoming. The key for Snap is not just getting every professional content producer they can to produce content for Snap apps and service but also to maintain an active community of user-based content creation as well. For example, if you look at the series of stories they produced around the Super Bowl yesterday, they included a mix of produced and user-generated content. It made the experience compelling and unique, something you could not get on your big screen broadcast. This combination of produced and user-generated entertainment is one of the things I believe appeals to a wider audience — more than just the mostly Gen Z and Millenial user base Snapchat has today.

There is no question the ultimate upside for Snap must include some assumptions of user base growth and, in particular, beyond the under-30 demographic. Getting more compelling produced content is key to attract the older-than-30 crowd. Interestingly, more content producers will likely continue to produce for Snapchat (like this example from the BBC to bring Planet Earth II to Snapchat). Through Snapchat Discover, publications have been mixing video and text leading to an article. I’m more optimistic about publishers who focus on the video element, not just the text/article.

In many ways, the upside for Snap must be viewed more like YouTube than anything else. While it has been a while since YouTube has released active user numbers, our estimates peg YouTube around 1.3 billion people who have watched at least one video monthly. Ultimately, YouTube is the model I’d look at for Snapchat than anything else, with the exception that the vertical video format is a clear differentiator for Snap over YouTube. This may seem like a backward step but I genuinely believe young people appreciate not having to turn their phone sideways with vertically produced video — with YouTube, you need to re-orient the phone to get the full screen experience. Again, this may seem like a little thing, but re-orienting your phone between widescreen and portrait is seen as inconvenient.

If Snap can continue to get users engaged with their unique style of short form, personal TV experiences, then they certainly have a chance to be relevant in the ever changing media/TV landscape.

Grabbing the Next Generation
Another angle for Snap’s bull case is their projected upside depends on future generations. Perhaps they don’t acquire the above-30 yearr old crowd in droves but, if they continue to be relevant and compelling as future generations get smartphones, you can argue their upside potential is based on people who are not yet owners of smartphones but who will be in massive numbers over the next ten plus years. This is a true long view for Snapchat but not out of the realm of possibility that they are the inevitable personal TV experience for future generations. Personally, I think this scenario is more likely to add to their user growth than their chances to acquire Gen X users and beyond.

The part that causes me pause is millenial parents who perhaps are more skeptical of Snapchat going forward and caution their kids against it. We hear frequently from parents who let their teen or pre-teen kids use things like Facebook or Instagram but not Snapchat. It will be interesting to see if this perspective sours young kids on Snapchat or fuels their desire to use it even more.

I fully expect a lot of noise, both good and bad, to come out around Snap’s IPO. Some of it is likely to get quite ugly. Ultimately, investors are going to need patience with Snap and be long on their upside for the public market to yield what Snap needs to continue to invest in their products and services holistically. As of now, what I’m hearing from many investors is they may be more short than long, assuming the stock will rise a bit but then drop in the same way Twitter, Fitbit, GoPro, etc., have all done.

Whatever happens over the long arc of time, Snapchat management is likely going to have to manage the investor community closely to make sure they understand where they are going and inspire the confidence they can reach their ultimate upside.

Long Live a Free Twitter

Many of you know my love of Twitter. A major part of my role studying this industry is to gather information and stay on top of everything as close to real time as it happens. Twitter plays a significant role in my daily workflow to do that. I don’t know exactly how much time I spend daily on Twitter but it is significant. Just look at my top app in usage the last 5 days.

Twitter’s journey has been an interesting one. In the beginning, we thought they were a social network. Now, they say they are a news service. In reality, both are true but news may make more sense to more people. What makes Twitter fascinating is the experience that everything happens first on Twitter. Whenever a major news story happens, it seems to go big on Twitter first then everyone else catches up. If I’m not on Twitter and I hear of something major, the first thing I go to is Twitter to see what is happening and, more importantly, what PEOPLE are saying. The voices on Twitter are broad and dynamic. To read a story on a news site, I get one voice whereas, on Twitter, I get many voices in near real-time — both professional journalists and regular people. It is the most unique blend of news and conversation I’ve ever encountered.

I do, however, recognize not everyone uses Twitter like I do. Their active user base is somewhere in the 300-400 million range with a potential audience size of ~700-800m logged out users )those without an account who still see content from Twitter in some fashion). From data we see every quarter, we are able to track a range of behaviors related to Twitter. Compared to other social networks or news apps, Twitter has a relatively engaged base. 21% of consumers say their average daily time spent on Twitter is 30 minutes to one hour and 19% say they average 1-2 hours per day. This ranks among the top of all social networks we track in terms of engagement. So, while Twitter’s base is not as large as Facebook’s, it is as engaged or more so than most of Facebook’s active accounts.

The top five most common actions, from the most recent Q3 2016 Twitter behavior data, in order:

– Read a news story (by far the most common activity)
– Liked a Tweet
– Watched a video (not a live stream)
– Looked at trending topics
– Clicked on a tweeted link

What you notice about these activities is none of them are actually tweeting. It confirms my early analysis that Twitter is more attractive to the mainstream as a consumption service than a broadcast service. This seems obvious now but much of the criticism of the platform several years ago were people claiming the service was useless because “who cares what I had for breakfast today.” This completely misses the point that broadcasters have reasons to broadcast. They report news, are celebrities, etc. and. for most people, Twitter is simply a near real-time medium to consume that content from broadcasters. Twitter is not actually different from a magazine, website, TV show, news program, etc., with the exception that it is more real-time and allows for the possibility for two-way communication. Again, unlike any other medium.

The other interesting behavior in the top five activities is looked at trending topics. This behavior has grown more over the past two quarters than any previous time since it started being tracked. In both Q2 and Q3 2016, it grew 60% QoQ in its rank as a core behavior. It was not in the top 10 prior to these two quarters. Which, again, suggests the mainstream is embracing Twitter as a content consumption platform.

Many people seem to think Twitter needs to be bought. In my opinion, only Facebook or Google made any sense to buy it and, if neither were interested, then let Twitter be free. Those two companies could have let it keep on doing business as usual and just slotted it into their advertising buying program and added Twitter metrics to their own to sell ads. Considering both these companies are off the table, I’m inclined to want Twitter to stay independent.

Lastly, perhaps the most interesting thing of late is Twitter starting to broadcast live content. You can watch a Thursday night NFL game via Twitter. I watched the US presidential debates last Sunday via Twitter. Recently, Bloomberg West started streaming on Twitter. The list of streaming content options on Twitter is increasing and the feedback I am seeing is extremely positive. I honestly thought it would be more of a gimmick when I first heard Twitter was lining up streaming deals but, having experienced it, I like it quite a bit more than I thought. Many others I talk to seem to agree. It seems like we active Twitter users were adding Twitter, via a second screen, to our TV watching when in reality we needed to add TV to Twitter. I really believe Twitter is on to something here and I expect their engagement metrics will only accelerate their ability to line up content.

The trick is to capture the new eyeballs they get from live content and turn them into consumers of more media on the platform and get them to use the service more. This has been the issue for Twitter for some time and my sense is, this opportunity around live is their best chance to grow their user base. And, for the moment, I am convinced their best chance to execute on that challenge is to stay independent.

Facebook and China

A few days ago, Glenn Solomon, a friend of mine and a partner at VC firm GGV Capital, shared his predictions for 2016. One of them is of particular interest to me. Here is his prediction:

Facebook will officially enter China. The progress Facebook has made in its quest to connect the world is really quite amazing. Every day, over one billion people connect to the service, representing over 1/7th of the globe’s population. That said, Facebook will never fully achieve its goals without operating behind the great firewall of China. To date, the Chinese government has blocked Facebook traffic in China, clearly concerned with the free, unregulated speech that occurs on the site. Mark Zuckerberg now sits on the board of trustees at Tsingua University and has given two famous speeches in Mandarin on Chinese soil. Unlike Google and eBay before him, he’s playing the long game, proving his trustworthiness and interest in China in authentic ways. I’m guessing 2016 will be the year his hard work pays off, with Facebook finally becoming a sanctioned service in China.

I can confirm Facebook is more than serious about China. I have fielded more questions from their market research teams on China than any other subject they inquire about. I’ve spent more time giving presentations on the Chinese social media market and behavioural trends in China than any other market to their teams. Facebook is competing in many markets around the world I study, yet the one they want to know the most about is the one they are not yet officially in. Quite telling.

Glenn’s firm is also very active and knowledgeable in China. Many of his partners are the Who’s Who of Chinese investors. They know this market deeply and it makes this prediction one to take seriously. My interest in this happening is purely educational. I study China deeply every quarter, tracking behaviour, buying trends, e-commerce trends, market sentiment, and a slew of other topics. Given what I know about consumer services in China, I am fascinated to see what happens if Facebook does enter that market. Can they even compete there is a question we must seriously wrestle with. I’m not convinced they have much unique to offer the market, however. I’d love to see what happens if they do enter it. That being said, I do have some data related to Facebook in China worth looking at.

Many in the West may not know this, but many tech savvy consumers in China are adept at using VPN services to access services blocked in China. These consumers pay for a service that basically makes it look like their IP address is coming from outside of China, generally from the US, so they can access services like Netflix, Twitter, Google, and Facebook. Every quarter when I survey global consumers and ask what social networks they have used in the last week, my consumer panel in China returns answers on Facebook. While small, Facebook is accessed weekly by roughly 2.8% of Chinese respondents in Q3 2015. Compare this to the overwhelming leader and Facebook’s true Chinese barrier, WeChat, which is accessed weekly by over 80% of respondents. However, this number has been declining.

Unquestionably, there is some mindshare of Facebook in China, however, it is fading. The environment in China is completely different competitively than anything Facebook has been up against. Yet, they are attracted to the size of the market and the revenue potential. WeChat has an ARPU of near $8 currently and Facebook only has ARPUs in that range in the US and Europe. Facebook’s move to integrate more features into Messenger is a clear attempt to use many of the core features of WeChat and bring them to other markets. Yet, local China internet companies have grown to serve the market and I see Facebook having a difficult time filling holes.

However, if for nothing more than educational reasons, I’d love to see what happens if they are successful and China lets down their wall for them. It may also bring hope to other foreign companies who have had a hard time entering China.

What Snapchat May Tell us About the Future

Snapchat is an interesting app to discuss on many levels. Silicon Valley seems to be in love with it when in reality, certain truths about the company and service stand in the way of its long term future. I’ll discuss several of those issues, however, I believe Snapchat highlights a number of trends which serve as great case studies for the future.

Niche Social Networks

You may or may not know Snapchat is a niche social network. It has roughly 100m active users. 70% of them are female and under the age of 25, mostly well under the age of 25. I’m fond of saying Snapchat is a social network for teenage girls and the boys who want to flirt with them. Perhaps it is everything Facebook wanted to be but for High Schoolers. From a range of data points I have research on social network usage, there is little evidence Snapchat has meaningfully expanded their active user base this group.

The problem for Snapchat is they don’t realize they are a niche social network. They want to be a big social network that plays a significant role in the future of media. They are creating discovery channels where you can see short videos from brands. However, those brands are telling many of us, behind the scenes, that what they are doing on Snapchat is not working. This is due largely to the behaviors and motivations behind Snapchat. Teenage girls and boys are not using the service to stay in touch with brands or discover products and consume advertising. In fact, should Snapchat get desperate and push this in extreme ways and aggravate these users, I bet they find an alternative medium and quickly.

There is nothing wrong with Snapchat only being a social network for teenagers and primary US-based ones. There may or may not be a business model but, in my opinion, by chasing the broader audience, they may end up hurting their service in the long run and alienating their user base.

I believe there is a future for niche social networks and I believe they can be extremely valuable businesses. The first step, however, is to recognize this is the case and chase a smaller number of more profitable users with your service. Smart companies will chase high engagement and high ARPU over high user bases. This is ultimately something I believe Twitter should focus more on as well.

Social Networks May Be Regionally Specific

Outside of a rare few services like Facebook that are global (except in China which makes it questionable as to how global it is or not) I believe we will see a trend towards more regionally specific social networks. This is absolutely true of messaging apps where WeChat dominates China, Kakao talk dominates South Korea, and WhatsApp dominates parts of Europe, India, and many countries in Africa and the Middle East. There is really no such thing as “global” messaging apps nor are there “global” social networks

As I said, Snapchat is predominantly a US teenager phenomenon. Again, there is nothing wrong with this, except to game play a scenario where that is all it is in the end. I believe we will see many social networks which are not just niche but also regional only. There are dozens of these in the US, but I see this happening in China, India, and Indonesia.

Social Networks May Be Generational

This one may fascinate me the most. I’m beginning to believe that some social networks may have very short life spans — like MySpace. We learned a great deal from MySpace about Millennials and Gen-Xers and a primary take away for me is how fast the flock can move. MySpace played a role in a point in time and that was it. We can consider it a fad. But it played a role in the adoption cycle of social networks. Similarly, Snapchat may only appeal largely to a specific generation and perhaps even only for a time. I’m beginning to think this current generation may outgrow Snapchat during their next life phase.

As I have further traveled down this rabbit hole, I’ve been wondering to what extent technology is generational. Some technology will span generations, like the iPhone, where others like Snapchat may only appeal to a segment for a period of time in a particular life stage. This has a great many implications to tease out if it proves true.

Ultimately those are three areas I’m exploring using Snapchat as a baseline for this thinking.

Facebook’s Next Billion

Today, I thought I would use some interesting tidbits from Facebook’s earnings to highlight some of the broader themes I have been writing about. Those who read my analysis often know my conviction is the next growth cycle of new internet users will be very tough to monetize. Companies with a “free but advertising supported” business model looking to grow their bottom line in this market — Facebook, Google, etc. — will have to make adjustments to keep their revenue lines up and to the right. One particular slide in Facebook’s results show this clear as day.

Notice the ARPU difference between some developed areas and Asia Pacific and Rest of World. Now, keeping in mind a theme I have been writing about that all the user growth will come from Asia and Rest of World for Facebook. Meaning, they will be adding to their customer base more rapidly those users with much lower ARPU than they will new users with higher ARPU. Re-visiting this chart is helpful in visualizing where the new user growth potential will come from.

If we are to project out a few years and re-examine this slide, it is extremely likely the ARPU coming from Asia Pacific and Rest of World will be much lower, possibly 50% lower than it is today. This is likely to drive Facebook’s overall ARPU down quite a bit unless they do what I believe all companies in their position must do — monetize their existing base more effectively. This seems to be exactly what Facebook’s management is signaling.

I have no doubt Facebook will add another billion plus users to their network and family of apps. I also have no doubt Facebook is not done acquiring things that will help them add more users. Snapchat still seems like a logical pickup, even though from user data I’ve seen, Snapchat feels extremely over-valued. But Facebook wants whatever apps absorb a large percentage of time. Apps that garner many minutes a day of usage is something Facebook will want to own.

It seems more rich media and visual experiences are the next step for Facebook to deepen engagement and better monetize their base to go along with new customers. To the chart above, I’d be fascinated to see if, in a few years, Facebook’s overall ARPU from transactions increases. A major theory of mine is monetizing the transactions side of the equation has more upside in this next phase of mobile than does advertising.

I’m using this Facebook example to make a broader point since it brings a case study into clarity. We are dealing in hard numbers now. We know how many humans have smartphones today. We know where the most profitable ones are and how many. We know the monetization models that work within the existing user base and we know ARPU differences between operating systems, platform bases, and regions. It is unlikely much changes with what we know in this regard. What we don’t know is much about the next billion plus users. This is why more efficiently monetizing existing users of platforms, software, and services is a mainstream agenda for many today. The opportunities and business model may be something entirely different with the next billion plus so business model flexibility and diversity will be key.

The Power of the Social Graph

With Facebook, Twitter, Pinterest, Snapchat, Meerkat, Periscope, and so many other companies in the social landscape making news lately, I’ve been thinking about something that doesn’t get talked about much — the “Social Graph”.

I’m going to share what I think about the social graph in the hope it is a helpful framework for our readers as well. It is my conviction a heavily curated social graph is and will be one of the most powerful, convenient, and useful things in the digital world. Especially related to content creation and consumption.

I first experienced this with Twitter. For the record, I’m exceptionally bullish on Twitter. Twitter is like the air waves that broadcast TV and radio ride on in my opinion. I’ve spent a great deal of my time carefully curating sources of information of use to me through Twitter. Twitter acts as my filter of all the noise out there. I use Twitter, not as a social network, although no other network has befitted me more professionally than Twitter, but as a curated filter of information, since a primary role of my job as an analyst is to make sure I do not miss anything that happens in the tech industry. Prior to Twitter, I’d spend my mornings sifting through tech blogs and news sites to make sure I didn’t miss anything. When important news broke, I generally found out via email from someone who saw it first or from a reporter who called me to ask my opinion of what just happened. Thanks to Twitter, this has all changed. A heavily curated Twitter feed, or Twitter list in my case, allows me to narrow the sources of information to the essentials I choose. A quick scroll through my “tech list” and I’m caught up since my list is made up of people who break news, add insight or commentary, or companies who make the news. In the world before Twitter, I wasted a great deal of time staying on top of things. Now my time can be allocated to other equally important things. I have no idea how I did what I do before Twitter.

I also realize I’m different than most people both in interests and job function. I happen to not only be a source, or content producer/broadcaster on Twitter but also a consumer. I know most people are consumers, but this is where the social graph becomes key. Once consumers curate their sources of information, Twitter acts as a broadcast medium, or air waves for content, and helps them streamline how they receive content of interest. This is where the value lies. Once you have a heavily curated social graph, notifications get extremely powerful.

Once a heavily curated information source is developed, notifications enable something that did not exist before. If you think about the limitations of broadcast radio or TV, it is all based on scheduling. What notifications of a heavily curated social graph allow is a content producer to have a captive audience whether or not they are looking at a screen at that time. This paradigm has huge potential and we are only scratching the surface of notifications in this way.

Think about this. Your address book is a heavily curated social graph. Getting texts is a better example than phone calls in this analogy so let’s focus on that. Usually when you get a text message, you know who it’s from. So most people take a moment to pause what they are doing and view the notification of the text to see who it is and what they want. Now, extend this to content sources of interest. I assume a news or sports junkie does this today with apps that notify them of breaking news related to topics of interest. With a notification, the value of the information becomes unbundled from the app itself. I don’t need to unlock my phone, open the app, and take any steps to engage. I’m already engaged even if I’m not staring at the screen, because I have predetermined (via my curated social graph) what I want to be notified of and what I don’t.

There is a high level of maturity required of the users for this to work. However, that is a level I believe will happen among mainstream consumers as they realize the value of notifications. Curating what to be notified of and what not to be notified of is an evolution I believe will happen both in software, with the capability to further customize our notifications, and on behalf of the user.

A few examples. I certainly don’t want to be notified every time someone in my tech list tweets. Even though I get many hundreds of people mentioning me (wanting to start a conversation with me), I still value these notifications due to the interactions. However, I would like to be notified specifically whenever Benedict Evans or Horace Dediu tweets a chart. I know this level of granularity or intelligence around notifications does not exist yet but I am optimistic it will evolve. The power of this curated social/content graph plus notifications is to grab me as a captive audience even when I’m not engaged with a screen.

And as you can imagine, it is within this framework the idea of the smartwatch starts to get interesting.

Research: Understanding Twitter’s User Habits

One of my focus areas from my consumer panel research is what consumers do, not just on their devices in terms of activities, but with the software and apps as well. I run regular panels on most the major apps to understand usage trends. Twitter is interesting because it is very different than Facebook. I’m not sure how many people realize Twitter is not really a social network but a broadcast medium. This becomes quite clear when I look at the usage patterns between Facebook and Twitter (a subject for a future research report). While active accounts is the current metric to judge Twitter by, understanding the “active” part of their user base helps us find more insight into what the service is and how it is being used.

When I look at where Twitter ranked in terms of monthly visitation among the other top 75 brand websites/apps, they are 8th in our global consumer panel. This was of a panel of over 30,000 global respondents and my data lines up with Alexa’s ranking worldwide as well. Interestingly, my data shows more people visit Twitter on their PCs than their mobile devices, but by a thin margin right now.

Twitter’s heaviest users are in the United States. Their earnings announcement also points out how they monetize this region more right now. No big surprise here since Google and Facebook also monetize their US user base. While I have this data broken out by region as well, globally, Twitter’s most active users (those who say they use it more than twice a day) are males 25-35 followed by females 16-25. Followed closely by males 16-25, females 25-35, then males 35-45. After that, the age demographic usage falls off a cliff in our panels. Meaning Twitter’s sweet spot is a user of either gender between 16-35. This data is quite different than the same data I have on Facebook where nearly every age group has very high percentages indicating they visit the site/app twice a day or more.

I have access to research on Twitter users I’ve charted below. This is a global view but, keep in mind, Twitter’s heaviest users are in the US. This chart lists the results of Twitter users’ most common actions, weighted numerically. A 10 is a use case done very frequently and a 1 is a use case done very little.

A few observations on this data. The first is how the actions users say they do most frequently are actually more in line with a social network than a media consumption tool. Despite how myself or others view the upside of Twitter as being a media consumption/real time information network, users seem to be using it like they would a social network. The way Twitter makes money depends heavily on people coming to Twitter with other interests than talking to their friends. Therefore, searching trending topics” and “reading a news story” being in the top five of use cases is a positive sign. However, contrast this with similar research I have on Facebook users where “read an article” is the second most common task done on Facebook. Facebook, while still a social network for many users, has essentially become what it seems Twitter needs to be–a destination to consume/discover media.

Where Does Twitter Go From Here?

Ultimately, I’ll be watching this data to see if habits begin to change. As more people get on Twitter and the service starts to cater to content discovery (the kind that can be monetized), we will see if user habits start to line up more with how Twitter can grow to make more money. It’s key to understand Twitter is unlikely to ever be as big as Facebook. Facebook and its assets, Instagram, WhatsApp, etc., is the kind of service that can appeal to nearly ever mobile consumer on the planet.

Twitter monetizes their heavily engaged users. Today, those are customers in the US. As Jan Dawson points out, Twitter’s monetization levers seem clear.

Ultimately, it is the usage patterns I find fascinating to observe. As these begin to more closely align with Twitter’s monetization strategy, we will begin to see more of the upside of the service. It may also be a chicken and egg scenario, where making these adjustments makes the service more appealing to new users.

Facebook vs. Google in 2015

As I look forward to the next few years through the lens of the “mobile first world”, I find a number of interesting things about Facebook and Google to tease out. The next phase of mobile will bring an additional two billion people on the internet for the first time via a smart phone. While this is a huge number of people, they will also be low value customers. So the question is, who is best positioned from a platform standpoint to serve this next two billion?

As I point out in this report, Google faces a very tricky problem. they have likely peaked and earnings numbers this year will highlight it. Google’s revenue numbers have been very closely tied to new internet users. However, in the past, new internet users were worth more to Google than new internet users connecting today and over the next few years. Inevitably, Google is acquiring lower value customers at a more rapid rate. Which means the ASP of an ad unit will go down as Google cannot make as much money from this booming lower-end audience. I am extremely skeptical of Google’s position in this next phase of mobile.

Facebook has a similar issue attempting to monetize the lower-end audience in this next phase. However, Facebook (and assets like WhatsApp and Instagram) are better positioned than Google because it is a demand driver of smart phones at this tier. Consumers in rural China, India, Africa, etc., are not lining up to get Google Maps or a Gmail account. They are, however, being driven to connect to get on Facebook, WhatsApp, Instagram, etc.

As we dive into what consumers in this next phase of mobile care about, it becomes clear Facebook’s services are better positioned than Google’s. Whether or not this will always be the case, it will be at least for the near future. Those who are getting online for the first time don’t care about an app store with a million apps. They aren’t browsing the web yet and they aren’t purchasing much of anything online. Their needs are very simple. Education apps, for example, do exceptionally well in this market. A rural farmer in India gets online for the first time and starts selling his sheep on Instagram. For those in this next phase of mobile, a smart phone means a chance at a better life and to up their standing economically, learn, and connect to others. At the core, this is not all that dissimilar to developed markets except that, for them, it is their first time on the internet.

There is another angle that makes me think Facebook is better positioned than Google for this next two billion. Facebook can be a “one platform to serve all” where I feel Google can not. Google is going to have an extremely difficult time keeping Android interesting to their first billion users AND their second billion users. The primary reason for this is because the next billion Android customers will want and need completely different things than their first billion. A “one size fits all” Android solution is not going to work to satisfy the needs of their most demanding and most profitable customers versus those who are getting online for the first time with their first computer. Completely different set of customers.

Facebook, on the other hand, can serve the full spectrum with their solutions. They have proven they can and are executing admirably. This does not mean there are no major hills for Facebook to climb but it does mean their foundation is stronger than Google’s.

As a growing number of consumers get online with their first smart phones costing less than $50, it is difficult to see clearly who makes money on this audience. It will, without doubt, be companies who are services companies and not hardware companies. Which is why I look at areas where services are in demand and valued, and that is where I see Facebook being better positioned than Google.

Lastly, it is also unclear whether or not Android is going to be the dominant platform for the next two billion. There is a very good chance it is something else. Firefox OS for example, enables very low cost hardware closely tied to web services. What Microsoft is doing with Series 40 on the Nokia 215 is also interesting. Maybe Samsung gets smart and takes Tizen down to this level in an attempt to get first time smart phone buyers. It sounds crazy to even mention this, but perhaps Android over-serves the needs of the next two billion.

With this first phase of mobile complete, a lot of my time thinking about mobile is dedicated to the next two billion. The obvious point I keep returning to is how dramatically different the market for the next two billion internet users looks from the first. Massive challenges, but also great opportunity for those who get the recipe right.

How Facebook Could Become the World’s Largest Telecom Provider

When Facebook bought WhatsAPP for $19 billion it shocked even the most seasoned veterans here in Silicon Valley. Most of us analysts questioned how they came up with this valuation. We then started trying to dissect this deal and figure out why Facebook decided to pay so much for this messaging company. There have been thousands of articles written about this acquisition as analysts and media have tried to make sense of this move by Facebook. The fact that WhatsApp had 450 million users was easy to see as the main reason since it could help Facebook get to their next goal of adding another billion users to their social media platform. It was also clear that WhatsApp could add another platform layer to Facebook’s infrastructure that could eventually become an ad vehicle as well.

Although this is the largest price anyone has paid for a company of this nature, one thing I have learned about acquisitions here in Silicon Valley is that a lot of valuations are based on future opportunities and not necessarily tied to current or even projected earnings by itself. Most of the great ones are highly strategic and bring unseen value to the company in ways that most cannot even grasp at the time of the investment. I suspect there is even more behind this acquisition.

One of the more interesting features of WhatsApp is its VOIP calling feature. I use it all the time when I am on Wifi to bypass my telecom carrier to cut down on minutes used via my current voice plan. And here is the best part. It cost me $1.00 a year to call anywhere in the world and talk as long as I want. An even more interesting data point is that WhatsApp already has 450 million “VOIP” customers compared to Microsoft’s 200+ million on their Skype platform. While I also use Skype, especially when I am abroad, the way the VOIP feature is seamlessly integrated into the WhatsApp message application. Which has become an important messaging medium for me when connecting with family and my staff, makes it even easier than having to fire up my Skype App to make my VOIP calls.

Although many WhatsApp users are also Facebook users, the fact remains that WhatsApp still gives Facebook millions of new users to connect to and at the same time got a powerful communications platform that allows them to innovate with and make it part of Facebook’s services. But what many have not realized is that WhatsApp has now given Facebook the opportunity to become a major VOIP provider and could even pave the way to for them to become the world’s largest telecom provider someday.

This idea has been on my mind since I heard of this news last week. Since I am a heavy user of their VOIP calling service it got me wondering if this was not at the heart of this acquisition. Facebook itself is a great communications platform in its own right. But for many, especially in emerging markets, voice calling is still at the center of the way they actually communicate. What if Facebook could also become an MVNO at the local country level and become the major telecom supplier especially in emerging markets and end up providing a of one-stop fully integrated communications medium and telecom platform.

Mark Zuckerberg is highly focused on bringing billions of people online and what better way to do this than by creating a social, messaging and VOIP platform for these markets and then providing the pipes and very low cost links to make this happen. Mark will push to try and get the local telecoms to be more aggressive in their data pricing and reach. If he can’t, he could be the one to do it via an MVNO (in emerging markets) play and use ads and services from these local markets tied to their social and messaging apps to subsidize the telecom piece if needed.

This scenario is not too far fetched. Adding an MVNO layer could help Facebook achieve even greater WW reach and eventually become the world’s largest telecom provider in the process.