Let Thy Kingdom, Koum
Let thy Kingdom Koum!
Some of the spectacular changes in business models happen because of new technology. Let us look at the Indian IT revolution. The availability of skilled software engineers with English language proficiency was the foundation of India’s IT services innovation. What ignited the spark though was telecommunications. It made Indian engineers electronically portable across geographic borders. It added a new word to the English dictionary “offshoring”.
Offshoring enabled the preservation of the cost arbitrage of Indian engineers. Earlier, “body-shopping” played on cost arbitrage as well. But landing resources in the US had several add-on costs. The Indian software companies had to pay for the airfare to the customer site in the US. They had to pay for the accommodation, daily allowances, a salary and taxes that were reasonable considering the living costs in the US. All these eroded the arbitrage spreads. But as soon as the engineers began delivering services from a remote site like Hyderabad or Calcutta, the arbitrages were undiminished by relocation costs. That portability was enable by telecommunications.
In the early days of the cellular or mobile phones, a lucrative revenue source for the telecom companies was the Short Message Services (SMS) or text messages. Instead of calling, people would text a message either to one receiver or multiple receivers via bulk texting mode.
However, subscribers were keen to avoid paying for text messages. Programs became available to send text messages from desktops via the internet. But while the sender used the internet, the receiver got the message via his cellphone service provider.
Smartphones connected to the internet were simply exploding. Now you could send text/voice messages and photo attachments via the internet by-passing cellular networks. It devastated a very profitable revenue source for the phone companies.
The study by Ovum has estimated that the text traffic of internet and social media messaging was equivalent to $32.5 billion in 2013 alone and the figure is estimated to reach $54 billion by 2016. One may, of course, argue that the text volumes have run wild because the texting services are practically free. If there was a price tag, the volume would have been lower. But the text volumes priced at prevailing rates of phone companies is simply staggering. Instant messaging enables users to conduct two-way or multi-way live chats. Thus applications like WhatsApp, Viber and the WeChat are spreading like a prairie fire.
All these applications cannot win . The users are unlikely to use multiple applications all at the same time because the applications are not inter-operable i.e. they do not talk to each other as yet. Thus, unless you are a WeChat owned by Tencent which is rooted in a solid, loyal block of Mandarin-speaking fans, you may become an also ran quickly. The more subscribers an app has, the greater is the universe to which one user can reach out. When it reaches a tipping point, it is “winners take all” because you are getting the biggest universe for free and you are the most desirable.
That explains why Facebook paid $19 billion in restricted stock and cash for WhatsApp. WhatsApp is easy to install and intuitive to use and has 450 million active users projected to grow to 1 billion. A simple math will tell you that Facebook has valued each user at $42 whereas the annual subscription for WhatsApp today is only 99 cents.
What enabled this messaging revolution? WhatsApp started in 2009. Its founder Koum saw the wave of messages rising as web-connected smartphones exploded in the market. Cheap smartphones that teenagers used to communicate to each other began the boom.WatsApp started with them but was quickly mainstreamed.
WhatsApp is so addictive that in North America 72% of users are active on it every day. There was no marketing –users connecting with users and social media fuelled the growth of the subscriber base. But there was a second enabler whose full potential is yet to be understood. We are seeing just the tip of the ice-berg.
In the new world, you do not need to have the huge investments in real estate and infrastructure of an Infosys or a Google to father a start-up. You need a breakthrough idea and bright engineers who will convert that idea into a software product or an application.
Instagram which went for $1 billion had 16 software engineers. WhatsApp has between 32 and 44 software engineers. They do not have a fancy campus which boasts of the best catering and the swankiest gym. They bought loads of computing power on the cloud and each software engineer supports 14 million users spanning the globe. As Hercule Poirot would have said if he was alive today, “The game-it has changed, Mon Ami. It is again the little grey cells.”
Google was known even the other day as the best picker of talent and the most far-sighted employer that blossoms innovation. Compared with WhatsApp it is looking like a lumbering giant. Did you know that Jan Koum,an immigrant from Kiev, Ukraine actually worked for Google and they let him go? Facebook and Twitter does not look smart either. The co-founder of WhatsApp Brian Acton was rejected by both Facebook and Twitter when he had applied for a job. What a heavy price they had to pay! Google tried to buy WhatApp for $10 billion and failed. Facebook succeeded but ended up paying twice as much.
In the world of cloud, mobility, smartphones and innovation-the pantheon is going to see a big change. The gods of desktop and internet will be replaced by new gods straddling the cloud and mobility. The old gods with treasure troves of gold will assume new avatars and will buy “innovation” at a heavy price. And the Kingdom of God will be dominated by break-through innovators like Koum. Let thy Kingdom Koum!