The good, bad and ugly

Facebook could add up to $800 million to its revenue by launching a Skype copy. By doing so, Facebook could disrupt the mobile industry even more.
With over 1 billion users, Facebook is the world’s largest communications provider. It’s a platform where people communicate by voice, text and data.  At $175 billion it has a larger market cap than any mobile operator, save for China Mobile or Vodafone.

While Facebook offered $19 billion for OTT provider WhatsApp, four times this amount is lost by the mobile industry worldwide every year as users switch to OTT services. Facebook could take this disruption further by entering the Voice over Internet Protocol (VoIP) market.  Strand Consult sees VoIP as part of Facebook’s natural evolution, and further, that Skype could be one of the first victims of Facebook’s entry to the VoIP market. If you can talk to friends in Facebook, why would you need to use Skype?

In the 10 years since its founding, Skype created nothing less than a paradigm shift in the market for international voice traffic, and it associated customers to a very disruptive price:  free. A number of international calling players, both mobile virtual network operator (MNVO) and VoIP players, entered the market after Skype.  Lyca Mobile and Lebara Mobile are two MVNO examples. The net effect of these upstarts was that they forced network operators to lower prices for fixed line and mobile international calls in order to compete.

Google Talk and MSN were the VoIP entrants, but Skype prevailed as the clear winner.  Microsoft, unable to compete with Skype in VoIP, acquired the company in May 2011 for $8.5 billion, a price that was many times Skype’s revenue and a premium for Skype’s unique market position. It is important to note that having the most users does not mean having the most revenue.  Skype does not necessarily collect the cash flow it disrupts. Microsoft does not disclose the revenue of Skype, but it’s likely that the service is a loss leader for the company. But there is no doubt that Skype lowers long distance prices across the board.

Launching and MVNO would increase revenue and profitability for Facebook and be a game changer in the mobile industry.

Skype

Strand Consult has analyzed Facebook from an MNVO perspective and concludes that the company would be a success if it entered the market.  The analysis is detailed in its report “The good, the bad and the ugly sides of Facebook“.  Only two questions remain, to what extent will Facebook look beyond advertising as a source of revenue, and which operator will succeed to win the Facebook MVNO contract.

Buying mobile phone service from a mobile virtual network operator has become commonplace around the world.  Virgin Mobile, Simyo, and Lebara are some examples. Just as airline companies offer tickets to wholesale companies for remarketing, mobile operators lease their infrastructure to independent companies that make their own discount mobile brands.   The practice has been successful to win many customers away from network operators, so much so that network operators now acquire MNVOs and run them as a part of a multi-brand strategy. In Strand Consult’s analysis and report on the company, Facebook has an even greater opportunity for monetization beyond advertising, that is in monetizing its communications services directly. With the WhatsApp acquisition, Facebook acquires this payment facility, as WhatsApp users pay one dollar per year for the service.

MVNO is a logical step for Facebook the world’s largest communication platform.
One billion users already consider Facebook as their de facto telephone book for friends and family and use the platform for communicating by SMS, text, image and video. Adding mobile voice and data to this mix would not a stretch. Not only does Facebook launch new products all the time, but the ability to be an MNVO can be completely outsourced to a mobile operator.

Read the full Research Note

There is no doubt that Facebook is a ticking time bomb under the mobile operators’ business model.

You can read more about all this in our report The good, the bad and the ugly side of Facebook – A report that describes how Facebook affects the mobile industry strategically, operationally and financially  We discuss the opportunities and challenges of Facebook and suggest ways for mobile operators to respond.  Already a number of the world’s leading operators have purchased this report

Learn more about the report and the challenges that operators have with Facebook.