The Personal Data Economy and its supporting innovations
Businesses are dependent on marketing (since the mid-1950s) to find the right products for their customers, ideally for each customer individually: one-to-one marketing. For long time the notion of one-to-one marketing has been largely a myth and the holy grail for marketers particularly in consumer packaged goods industry. One-to-one marketing is almost here and this change is driven mainly by three new technology based innovations that emerged less than 10 years ago: online social networks, mobile Internet devices and Big Data.
In developing countries in particular, more people use mobile devices to access Internet than PC. In India that inflection point happened in mid-2012.
In summary, affordable mobile Internet devices have accelerated the use of online social networks allowing people to share information about themselves or things of interest to them at a pace never achieved before. New Big Data analytic technologies allow to extract insights from this large volume of data that can be leveraged by businesses to make better decisions and deliver one-to-one advertisement to their customers, dramatically changing the way business is done is many industries.
What has been driving WhatsApp' success?
Mobile phone saw the fastest growth ever for a technology and in particular in Africa. But phone calls were still expensive for the poorest and telecom companies started offering SMS (Short Messaging Service) for a cost of typically less than one hundredth of a one minute voice call. So SMS became most popular with poor populations.
But the cost of a SMS was still very high, it was actually a rip-off! If you consider that a one minute phone call represents about 500,000 bytes of information depending on the codec you are using, an average SMS of 20 characters only uses 20 bytes, i.e. 25,000 times less, yet the telco company would charge you only 100 times less!
The success of WhatsApp is also due to the availability of low cost feature phones that incorporate access to Internet (3G/EDGE or WiFI when available, non-HTTP/non-web socket data channels) and are capable of supporting third-party software like WhatsApp through platforms such as Java J2ME. This led to fast penetration of WhatsApp in emerging markets like India, Africa or Latin America. A recent survey found that 55% of mobile messaging users in India use WhasApp. Last year Nokia announced a low cost ($72) mobile phone with a WhatsApp button to access the free texting service. The cost of those feature phones is easily offset by WhatsApp free texting services replacing the "high" cost of SMS.
Why did Facebook acquire WhatsApp?
In business, the biggest challenge is to find customers willing to buy your products or services. There is a cost (market research, marketing, promotion, sales force, etc.) associated with that challenge: it is the Cost to Acquire Customers (CAC). That cost then needs to be put in balance with the ability to monetize those customers, i.e. how much money can that acquired customer potentially spend with you over his/her lifetime: the Lifetime Value of a Customer (LTV). Many businesses fail because their CAC exceeds their LTV. CAC obviously varies across industries and could vary from few dollars to thousands of dollars per customer.
The fast growth rate of Whatsapp was a major threat for Facebook and the acquisition cost was growing accordingly. So there was not much of a choice and others before like Google tried to acquire WhatsApp but the synergy was probably best with Facebook as we will see. Facebook can now merge the list of their customers with those of WhatsApp and combine the information collected about their users in Facebook with WhatsApp's information making their data even more valuable.
What could be the impact of this acquisition in Africa?
It should not ignore the local advertising culture and invest in raising awareness with a traditional media campaigns (billboards, media ads, etc.) which are still efficient in Africa. That is how Line a messaging company in Thailand was able to take over market leadership from WhatsApp.
Africa is the next frontier for many businesses. The "Fortune at the Bottom of the Pyramid" and the fast economic growth rate of the past decade has put Africa in the center of attention of many global companies looking for new growth markets to compensate for the anemic Western world market. However, the lack of data in the continent is a challenge. Shanta Devarajan, the World Bank’s chief economist for Africa, struck a dramatic tone in his address to a conference organized by Statistics South Africa, calling the state of data collection on the continent “Africa’s statistical tragedy.”
WhatsApp may soon become the largest private data data collector in Africa. While they have a "no advertisement" policy, Facebook doesn't. Consumer goods companies can't wait for it.
But WhatsApp can also become a cheap and efficient tool for data collection, I mean a tool to reach people and ask for information. Several companies entered that business in Africa: Open Data Kit, Camfed, EpiSurveyor, TextIt. However for it to work WhatsApp will need to open their system (through an API) which is not the case today, probably to protect itself from spammers.
Another potential mover is the recent announcement by IBM to make its Watson cognitive system that famously won the contest against Jeopardy champions, available in its research lab in Nairobi. So more data collection capabilities combined with access to advanced Big Data technology may break the data-analysis chicken and egg problem in Africa.
Communication is required for any economic development to take place. There is strong evidence that big data can play a significant economic role to the benefit of not only private commerce but also of national economies and their citizen. WhasApp can deliver both improved and affordable communication and data collection to the benefit of Africa if used appropriately.
Seeya later alligator...