FAQ: The WhatsApp Moment and Demonetisation

December 04, 2016

Note: This is an opinion piece written in the form of a Frequently Asked Questions (FAQ) document. All the “answers” provided here are merely the opinion of the author.

What is the WhatsApp moment?

At the TiE LeapFrog event in last year August, Nandan Nilekani started his lecture with a provocation: “are we at a WhatsApp Moment in finance?” He explained how in 2009, the peer-to-peer messaging space was “disrupted” by WhatsApp. Not because it pushed people to sign-in to all other websites and services using a WhatsApp account, the way Google and Facebook was pushing. Not because it pushed people to keep buying special SMS packs, the way the telecos were pushing. But because WhatsApp embraces an already existing unique digital ID – the mobile phone number – and used it to connect people to each other – using the address book as the already existing social graph – and offered messaging service at minimal (data) cost. Furthermore, Nandan shared that in “rural India”, they call WhatsApp nothing but “Free SMS.”

Highlighting this power of free service coupled with a familiar and well-established ID, Nandan described how WhatsApp grew steadily and expanded massively to overtake all the messaging services, even when taken altogether, in terms of the number of messages every day. This is what Nandan means by the “WhatsApp moment” - when a new entrant to the market offers a product/service that competes with and wins against all the incumbent companies. Further, the WhatsApp moment consists of this new entrant offering the product/service in a new form, or in a new modality, that expands the very imagination and experience of the product/service concerned, and facilitates new forms of value to be generated and captured.

Messaging, thanks to WhatsApp, became part of the social media. That is, the infrastructure of messaging built by WhatsApp allowed it to record and analyse the social connections between its users, and the strength and dynamics of such connections. More specifically, the WhatsApp moment unbundled messaging service from telecom sector and desktop-first (till then) social network companies. Messaging became a separate market, with new emerging players – some of which were linked to incumbent social media and software companies (say, Skype and Google +) but not all (say, Telegram and Signal).

So what is a WhatsApp moment?

A WhatsApp moment is this moment of unbundling of an industry, that is when a specific function/product/service offered in the industry as part of a specific sector, complete with its own sets of rules and norms, gets transformed into a separate, autonomous, but linked sub-industry of its own. Once unbundled from the previous industry, this linked but autonomous produce/service enjoys a period of business when it is neither constrained by the rules and regulations of the industry it has previously been part of, nor a new legal regime has been established to govern the new sub-industry.

Now unbundling of industries did not start or end with WhatsApp. So what is special about this WhatsApp-style unbundling of an industry? Two things.

Firstly, WhatsApp was bought by Facebook in 2014. This 19 billion USD acquisition remains the largest exit ever of any IT company funded by venture capital. The WhatsApp moment, thus, does not end with unbundling, but with rebundling – the re-integration of the unbundled product/service back into a different parent industry. In this process, peer-to-peer messaging moved from being a service dominated by telecommunication companies to one controlled by social media companies.

Secondly, WhatsApp was not acquired by Facebook for its very profitable operations. In 2013, the year before it was bought, WhatsApp suffered a net loss of 138.1 million USD. Facebook bought WhatsApp because of its user base, and the possibility of converging user data collected by WhatsApp with that collected by Facebook. The unbundling of messaging into a sub-industry independent of the telecommunication sector offered a rather large range of possibilities to Facebook when it comes to exploiting and extracting value from the user data collected by WhatsApp in the past and that it continues to collect.