Facebook has yet to properly enable its mobile properties with advertising

Facebook has been at the forefront of the growth in mobile data usage in recent years. It is indisputably one of the big stars of mobile; one that most operators have wanted to ally themselves with to drive the sale of data plans on their networks.

Yet, by Facebook’s own admission, mobile could be its Achilles heel. That’s because, although more and more of its traffic is derived from mobile phones, it has yet to properly enable its mobile properties with advertising – Facebook’s main revenue stream. As it said in a revision of its S-1 filing with the US Securities and Exchange Commission, ahead of the its IPO this week, “We do not currently directly generate any meaningful revenue from the use of Facebook mobile products, and our ability to do so successfully is unproven.”

More than half of Facebook’s users (488 million as of March) are already accessing the social network via mobile and that proportion is constantly growing, especially now that most of its new members are coming from emerging markets, where PC penetration is low. And the more traffic gets diverted to mobile the fewer Facebook’s chances of monetizing its service. As it reported in its filing, its daily active users have been increasing recently at a faster rate than the number of ads delivered on its network, a trend it blames on the increased usage of Facebook on mobile devices.

“If users increasingly access Facebook mobile products as a substitute for access through personal computers, and if we are unable to successfully implement monetization strategies for our mobile users, or if we incur excessive expenses in this effort, our financial performance and ability to grow revenue would be negatively affected,” Facebook said in its revised filing last week.

And Facebook is not alone in finding that mobile can hold back its revenue-earning potential. The biggest online advertising business of all, Google, has seen its ad rates go down as more and more of its traffic goes mobile. In 1Q12 the search giant reported slower than expected revenue growth. Although paid clicks on its network had grown by 39 per cent, the average cost per click had fallen by 12 per cent. That’s because the huge growth in the number of ads being served on mobile browsers and apps is pushing down mobile-ad prices. Also, there are simply more advertisers bidding to get their sponsored links on PC screens than on mobile screens.

Mobile is adding to the overall digital pie, but is also increasingly cannibalizing other digital channels. And whilst advertising is a well established medium on PCs, it has still a long way to go to find its full potential on mobile.

Facebook has been in mobile for much of its existence – it launched its Platform for Mobile in 2007, a year after it opened up its membership beyond university campuses – but, to its credit, it hasn’t wanted to rush the introduction of ads on its mobile sites and apps for fear of ruining the user experience. The same fear stopped the social network from switching on ads on its fixed-Internet site until relatively late. But on mobile, ads can be far more disruptive because content has to be cramped into a far smaller screen.

Facebook’s monetization efforts on mobile are currently focused on its “sponsored stories” service, which it extended to mobile in March. This is where advertisers pay to insert posts from friends or Facebook Pages into users’ news feeds. Sponsored stories are still an unproven advertising medium, but they are less intrusive and therefore more suited to mobile than display ads.

Beforehand, it was Facebook’s answer to Foursquare, Facebook Places, that seemed to offer the social network the best chance of monetizing mobile. Through Places, Facebook wanted to exploit the unique ability of phones to pinpoint users’ location to get users to interact with places in the physical world and accept deals from retailers.

But take up for Places was poor and Facebook pulled the plug on it last year. The Check-In Deals that accompanied Places still survive, reportedly, but it’s not clear what new vehicle will be found for them. Meanwhile, Facebook also pulled the plug on its Groupon-like Deals offering (confusing, I know!), again because of lack of take up, which doesn’t necessarily bode well for the future of Check-In Deals or other offers-style services on the social network.

There’s no reason why Facebook cannot start enabling its sponsored stories with mobile location and presence data, subject to user consent of course. Facebook should continue to look for ways of exploiting the unique advantages brought by mobile to target sponsored content, ads or whatever if might be more accurately with users’ needs and wants.

Mobile will undoubtedly become the main access channel to Facebook before too long, as smartphones continue to drive the online world into people’s palms and as Facebook’s membership is increasingly drawn from emerging markets, where mobile phones are the main or only channel to digital content for most people.

Mobile is Facebook’s future. Facebook has to make sure it doesn’t also become its undoing.

Facebook is building its talent pool ahead of its imminent IPO

Social network Facebook added another acquisition to its books this week as it seeks to shore up its talent pool ahead of its imminent IPO.

Glancee is a mobile discovery firm started in 2010. The US company claims that it’s not a dating app or a social network, but is designed to bring users into contact with others that share similar interests. The focus is on location enablement, with the app running constantly in the background and alerting users whenever others with similar profiles are in the immediate vicinity.

The price tag for Glancee is not known, but it is expected to be some way below the $1bn Facebook recently paid for photo sharing startup Instagram.

As with the Instagram purchase, the Glancee acquisition should give Facebook more leverage in the mobile space and follows the idea that, as the Facebook proposition gets ‘fatter’, the company needs to refocus on core features and functionality. Mark Little, principal analyst at Ovum, said: “The Facebook proposition is becoming fat, allowing sub-propositions like photo-sharing to get lost or become difficult to access.”

Many consumers have an established online profile that follows them from site to site thanks to the ubiquity of social networking services

Over The Top providers have become the staple wildcard in almost any sector set on a collision path with mobile. By and large they are very good at what they do: connecting a user with their chosen content or service by whatever means available.

Despite all the talk of competition and co-opetition, there’s a central theme that runs through the mobile financial services space, something on which all parties agree: There is no money to be made simply by providing a new way to pay—but there is gold in the hills of a richer, more contextual purchasing experience. Much of the focus is on the replacement of the physical wallet with a digital application; virtual cash and cards accompanied by relevant coupons, adverts and vouchers.

The idea is to give bricks and mortar retailers a direct marketing channel to the consumer that can be exploited at the POS. But the recent disappearance of big brands from the high street and the uncertain future of many more—HMV, Blockbuster, Game and Borders, to name a few—reminds us of the fact that internet companies have been doing this for years.

Many consumers have an established online profile that follows them from site to site thanks to the ubiquity of social networking services. These same services track behaviour, documenting preferences and regurgitating this information to anyone who taps into the API, privacy settings notwithstanding. Consumers are comfortable with making online purchases and are increasingly happy storing their payment information with their favourite sites, or in a third party wallet application like Paypal.

The parallels between the mobilisation of commerce today and the online revolution of the 1990s is not lost on Paypal spokesman Rob Skinner, who acknowledges the same milestones on both timelines. “First people were using the technology to get online; then they were finding places where they want to go and shop; then they moved on to an information seeking exercise such as checking prices; and now they are actually using mobile devices to make purchases and orders.”

The next stage in this evolution—the mobile wallet—is where the biggest bets are being placed because it’s seen as a revenue generator for mobile players that tend to assume their experience of mobility will see off competition from alternative payment providers.

But is this really the case? Paypal has a strong presence online, as does Amazon, which has a dedicated payments division. There are also dozens, if not hundreds of white label shopping cart and checkout developers out there. The questions are how and if these services will trickle down to the mobile and become as popular in the physical world as they are in the virtual.

One argument states that consumers like choice, and will likely have several wallet or payment apps on their device. Visa’s head of mobile, Bill Gajda: “We’ll see five or six key distribution plays for m-wallets appear and consumers will probably want one or two different wallets that appeal to different demographics or uses cases. And some kind of social commerce application like Facebook will be one of them, because people of a younger demographic will draw strong links between that service and commerce,” he says.

Indeed, the socialisation (in the social networking sense) of commerce is well underway, although established online players have already identified a key distinction between macro level influences and those within the more immediate social networking circle. A recommendation from a friend counts for a lot in many situations but ratings from thousands of strangers and the ability to directly compare products and prices counts for a lot more. Consider the success of online giants Amazon and eBay, where participating merchants rely on the recommendations of the crowd and live and die by the strength of their reputation.

And in the same vein that eBay and Amazon allowed the average consumer to become an armchair trader overnight; and Square and iZettle allows those same small businesses to take digital payments; social platforms can give brands big and small the same kind of reach previously only offered by carriers and retails.

“When mobile wallets were first created, the intentions were that operators could put a stored payments type option there for buying small value goods via carrier billing,” says Stuart Neil, SVP of business development at Boku. “But Facebook has communities and fan clubs and businesses with pages and fans, so we’ve created a social commerce environment on this platform. Any retailer, no matter how small, can sell their products. We automated the process of creating a Facebook shop and to make payment easy we’ve integrated a wallet. In a remote web session you decide which card you want to use and payment is assisted by the wallet. This overcomes the inconvenience of mobile. It’s more than just an NFC wallet, it’s a remote wallet, more like a Paypal wallet.”

At MWC this year Facebook announced that it has partnered with operators around the world to minimise the number of steps needed to complete a transaction in related mobile apps and to facilitate purchases via operator billing. This minimal click solution is the Holy Grail being hunted down by all mobile payment players but, again, it’s already something that’s been nailed by the likes of Amazon and its One Click patent.

Charles Damen, VP of mobile billing and payments at MACH says: “Everybody wants the same purchase experience as iTunes, but they don’t have the platforms in place to offer one click payment. We used to leverage operators’ own billing APIs, but we now offer a billing platform to operators because operators are not geared up to develop and maintain these APIs. Google does the same—you have to integrate with their API. So being able to set up app store controls and a UI for real time transactions is very powerful.”

What all digital payment methods have in common is their contribution to the eventual extinction of cash; something that the plastic card has long been used to work towards. Today cash and plastic are similarly widespread in mature payment markets. But for the generation growing up online, plastic may prove as redundant as cash. For these young people digital currency will be the norm and their understanding of commerce will likely be informed at least in part by social games like Farmville or World of Warcraft.

Dominic Keen, CEO of Mobank Group, believes the cashless and cardless society will happen eventually and through a three phase process: “The current phase is point type payments, which are discrete and don’t require a consumer shift, such as QR tags and NFC stickers. Then we will move to m-wallets with store cards virtualised on the phone, although there will be still a place for plastic as well. Then a long time into the future cash and plastic will both disappear. But that’s a generational shift,” he says.

“Plastic is probably just a transient payment method. Money and coins are more wired into the psyche. Our grandparents physically divided money up. Now it’s half and half, and in the future it will probably be all online.”

This abstraction of currency, from coins and notes to bits and bytes, has left a gap in the market for alerts and money management services, to help users better understand their finances. Stuart Neil of Boku says this phenomenon is what drove the company to create a stored prepaid account that lives on the handset and gives the consumer enhanced control and the ability to manage their finances. “In the current economic climate people are concerned about managing their budget and keen to have greater control over what they spend,” he says.

Consumer control is an important element to bear in mind. “Consumers are ahead of the merchants, banks and issuers,” says Dominic Keen. “Operators are making a strategic error if think they can own the consumer and force them down their path of choice. The Apple and Android models allows consumers to figure out their own way [by giving access to OTT services].” Keen also makes the point there is a user demographic that might not have a relationship with a financial institution.

“There are people who use our carrier billing product that may not have a plastic card because they are unbanked or because they have not yet been given access to a credit product—the teenage market is a great example,” he says. “They have phones but they don’t have cards.”

And consumers like to have freedom of choice. The ‘pre-plastic’ world revolved around one form of money, while the advent of plastic meant several different payment methods could disperse that money. Keen argues that moving into a completely digital world means more expansion and more fragmentation on this front. “It’s like the Like move from vinyl to digital,” he says. “With vinyl you could only have so many records, but with digital you can have ten times or more the amount. So lots of businesses are trying to draw you into their own money system.”

There’s a bewildering array of options to choose from. Store cards have been around for decades and the idea of using loyalty points as a form of currency is well established. An assortment of prepaid cards like that offered by Starbucks have been introduced into the mix and we are now seeing the rise of virtual currencies driven by OTT players. Robert Broadbent, executive VP & president of the Telecom Applications Business Unit at NewNet, believes that increasingly, the concept of social commerce is attracting the attention of main stream payments and he sees an active drive “to integrate main stream payments with the emerging social commerce payment models using non-cash, non-card, but social network credit point-based payments.”

There’s everything to play for in the mobile money space, which means the winners and losers are yet to be decided. The big question is whether the stranglehold of existing payment systems can be broken. Whatever happens, we are not looking at fundamental change in the short term. The reality is that generational shifts—and this is what we are witnessing with the growth of social networking—require the time that their name suggests to make any impact.

Instagram has 30 million mobiel users

Photo sharing startup Instagram has been acquired by social darling Facebook for an estimated $1bn, or a quarter of the social network’s 2011 revenues.

The move should give Facebook more leverage in the mobile space. Instagram has more than 30 million users across its iOS and Android apps, showing off their photo portfolios. The app is already well integrated with Facebook and the likes of Twitter, and has a reputation for being easier than Facebook’s own app for uploading photos to the social site.

Mark Little, principal analyst at Ovum, believes the reason behind the high pricetag on Instagram is that “The Facebook proposition is becoming fat, allowing sub-propositions like photo-sharing to get lost or become difficult to access.”

Currently the usability of Facebook for mobile photo sharing does not match the experience offered by Instagram and many other apps that are well integrated with Android and iOS platforms. Facebook needs access to a better photo-sharing user interface to ensure it remains in control of an important type of shared content and the users that generate it.

“The price of $1bn is certainly inflated in terms of the usual revenue multiples (Instagram has no revenue) but this will have been driven by Facebook’s main rivals and so the price tag also has an anti-competitive element driven by the cash piles of Apple ($100bn), Microsoft ($52bn) and Google ($45bn). Rather than a bubble, these “inflated” prices are perhaps better described as a temporary market condition centred around a limited number of acquisition targets perceived as valuable and driven by the cash of four high-rolling Internet giants,” Little said.

In other billion dollar news, Microsoft has acquired a total of 800 patents from AOL and acquired a licence for the internet firm’s remaining patents for just over $1bn. It’s not been revealed what the patents cover exactly, but speculation says search, advertising and mapping are likely candidates, giving Microsoft more ammunition to go up against Google with.

It’s also not been gone unnoticed, in light of the Instagram purchase, that AOL has done exactly what struggling imaging firm Kodak is trying to do. Kodak, which went into Chapter 11 bankruptcy protection in January, has been trying to offload its 1,100 patents to gain some much needed cash, for some time now.

Bytemobile’s first Mobile Analytics Report of 2012 gathered data from the log files of its tier 1 carrier customers to provide insight into the forces driving the explosion in smartphone and tablet usage.

The report reveals that the average volume of video traffic on mobile networks has risen by ten percentage points since this time last year, to 50 per cent. Also, while the average subscriber uses YouTube and Facebook for roughly the same amount of time – about nine minutes per session – YouTube generates a staggering 350 times more traffic.

An iPad user generates three times the data traffic that an iPhone subscriber does, while smartphone users spend an average of 4.57 minutes per session on Twitter, 8.51 minutes per session on YouTube and 9.06 minutes per session on Facebook.

The report also shows that a majority of traffic generated by iOS devices – 83 per cent – comes from just three native Apple apps – Media Player, Safari and App Store/iTunes, at 47 per cent, 21 per cent and 15 per cent, respectively. The single most used app is Safari, which accounts for over 60 per cent of transactions between the device and the network.

Facebook via USSD (Unstructured Supplementary Service Data) uses the signalling channel as the bearer

Social network Facebook is expanding its reach into the emerging markets through a partnership with France Telecom owned Orange in Africa.

As with SMS, Facebook via USSD (Unstructured Supplementary Service Data) uses the signalling channel as the bearer and effectively allows users to access the service, regardless of the phone that they are using. So Orange users with older or very basic handsets without an internet connection or data plan will be able to update their Facebook pages through a text-based interface.

As a bonus, Orange states that many African users are already familiar with the concept of USSD services as it is a medium widely used to access account information and callback services. Orange expects that over one million customers will use the Facebook service in the first year. The first market to get the service will be Orange Côte d’Ivoire, followed by other operations through 2012.

The operator launched the service at the end of 2011 for Mobinil customers in Egypt, and over 350,000 customers connected to Facebook via USSD within the first month.

The Facebook partnership follows a similar initiative in 2011 with Google, which saw Orange’s pan-African operations seek to exploit SMS as a platform for delivering Google services to low-end devices in use across Africa and the Middle East.

The service, which gives Gmail users a quota of free text messages they can send to any Orange customer, will ultimately be rolled-out across Orange’s entire African footprint. As the SMS quota is used, an additional five messages are added each time an Orange customer replies to the initial SMS. Through this service, Gmail users can add Orange mobile customers (even if they do not have a Gmail account) to their address books and initiate chat sessions with them. For Orange customers, the service is free of charge and requires no subscription; chat messages sent from their mobile phones are billed at normal SMS rates.

Facebook, late last year, signalled its intent to tap into the developing markets with a version of its platform that can be embedded on the SIM. Card manufacturer Gemalto, which developed the offering, said the software application is embedded inside the SIM and allow users to access core Facebook features from the phone’s main screen, through a cascade of menus. Users can also receive notifications of wall posts and messages, view friend requests and status updates. A subset of SMS is used as the data carrier, allowing messages to be sent and received without user interaction.

That’s not the only big number that Facebook reveals in the S-1, however:

• US$3.7 billion in revenues in 2011 (up from US$1.97 billion in 2010)
• Advertising sales contributes 85 per cent of revenues
• 845 million monthly active users
• 483 million daily active users on average in December 2011
• 360 million users active on six days out of seven in December 2011
• 425 million mobile monthly active users
• 250 million photos uploaded daily
• 2.7 billion likes and comments per day
• 100 billion friend connections at end-December 2011

As you would expect, there’s an incredible amount of detail about Facebook and its business in the S-1, and chairman and CEO Mark Zuckerberg’s letter also provides a fascinating insight into the Facebook culture. Overall, the document makes for interesting reading.

But, taking a closer look at mobile, the S-1 reveals that mobile Facebook users are growing faster than overall Facebook users. The company expects that this will continue to be the case “for the foreseeable future”, as it continues to focus on facilitating the use of Facebook on mobile devices.

Facebook’s mobile strategy is multi-faceted, consisting of enabling its users to interact with it via USSD, SMS, MMS, mobile Internet or a free downloadable application. In a lot of cases, the interaction is also free, or at the very least it is included in the mobile subscriber’s existing messaging or data plan.

But Facebook is incurring some costs in order to provide the mobile interaction. For example, if a Facebook user opts to have SMS alerts sent to their mobile device, Facebook pays a messaging supplier (an operator or a messaging aggregator) to send those messages, meaning that the social network incurs additional costs for enabling this capability.

Also, in a number of emerging markets, Facebook has made agreements with mobile operators to enable its Facebook Zero zero-rated mobile data service, which means that the data traffic associated with mobile subscribers’ use of Facebook is free. Again, it is possible that the social network is incurring the costs of the zero-rated mobile data traffic, on the other hand, Facebook may have agreed with the mobile operator that these costs are ‘written off’, because the operator may view enabling access to Facebook on its network as a customer acquisition tool.

The ‘freemium’ business model has been staggeringly successful for Facebook as a customer acquisition tool: it now has 425 million mobile monthly active users, comprising 50.3 per cent of its total user base.  It is also likely that a proportion of these mobile MAUs are desktop MAUs as well, particularly in developed markets where Facebook users can access the social network via both the desktop- and mobile Internet. But the S-1 doesn’t indicate what proportion of mobile MAUs are mobile-only MAUs and what proportion are desktop-and-mobile MAUs.

Regardless, the social network is not currently generating meaningful revenues from its mobile users, according to the S-1, and furthermore, its “ability to do so successfully remains unproven”. Clearly, lack of revenues from mobile is not an immediate problem for Facebook, given that it is generating substantial revenue from PC-based display advertising. However, lack of revenues from mobile will become a significant problem in the future if, or more likely, when mobile-only MAUs comprise the bulk of its user base.

Facebook did allude to one potential source of revenues from mobile in its S-1: the insertion of sponsored stories into mobile users’ News Feeds (sponsored stories are either posted by brands and advertisers, or shared by brands and advertisers, with Facebook users who ‘like’ their pages). Otherwise, there is very little detail about how the social network plans to make money from its mobile user base. One possibility is that Facebook could sell mobile advertising (as well as sponsored stories); alternatively, it could enable in-app payments on mobile via its Payments platform.

Meanwhile, a paucity of revenues is not the only problem Facebook is facing in mobile: the company also admits that it is “dependent on the interoperability of Facebook with popular mobile operating systems that we do not control, such as Android and iOS.” It is possible that OS-makers and device manufacturers could make changes to their platforms that could negatively impact on the running of Facebook on their platforms, according to the S-1; alternatively they could give preferential treatment to a Facebook competitor. According to Facebook, its social networking competitors include Google+ and, at a regional level, Korea’s Cyworld, Mixi in Japan, the Google-owned Orkut in Brazil and India, and Renren, Sina and Tencent in China.

The number of mobile messages sent in 2011 will increase by 12.5 per cent on 2010

The number of mobile text, picture and video messages sent worldwide will surpass 7.5 trillion in 2011, according to research firm Ovum, marking a 12.5 per cent increase on the 6.7 trillion sent last year.

Ovum also forecasts that the SMS-based messaging market will generate revenues of $153bn over the year, eight per cent more than it generated in 2010.

However, according to Ovum analyst Neha Dharia, while the mobile messaging market will continue to grow over the next four years, it is fast approaching an inflection point in the face of competition from IP-based messaging tools.

“Consumers will increasingly choose to send messages via the growing list of internet-based messaging services that have entered the market, rather than the traditional text message,” she said.

“The trend is intensifying due to the growing presence of smartphones, low-cost data plans, and the prevalence of third-party messaging service providers on the mobile phone. To continue to drive revenues from messaging, mobile operators will need to be innovative in their approach to both the services they offer and their business models.”

The research firm stated that device vendors in particular have been successful with messaging services to rival SMS, with RIM’s BlackBerry Messenger, Apple’s iMessage and Nokia’s Ovi Messaging tools that have all proved popular amongst consumers and are capturing a share of mobile operators’ SMS revenues.

Dharia also stated that social messaging is growing in importance, as social networking sites are providing new ways for users to communicate with their mobile phone and transforming the content of the message.

Facebook has championed its messaging service, which allows users to share photographs and other media, while Twitter has triggered discussions over hot topics and current affairs, and claims that 40 per cent of tweets come from mobile devices.

According to the report, mobile operators should expand their messaging portfolio and add their own internet-based messaging option to claw back lost market share, while ensuring that they do not to replicate exactly those already in the market place.

Assuming that Facebook Messenger provides a compelling messaging experience, it has the potential to achieve a greater reach than BBM, WhatsApp, KakaoTalk or the as-yet-unlaunched iMessage. According to Facebook, it has more than 250 million active mobile users, and these users are twice as active as non-mobile users of Facebook. In addition, the company has partnerships with 200 mobile operators in 60 countries.

This larger addressable market is a key differentiator between Facebook and other messaging application providers. Facebook already has a massive installed base of users, on both the mobile and the PC, to which it can promote Messenger, which will be available to subscribers to download for free.

The company says the overall Facebook messaging experience will be faster with the Messenger application, which will definitely be seen as an advantage by Facebook Mobile users who are also heavy users of Facebook Messages. Facebook Messenger will also enable “free” messaging (over IP), group messaging (courtesy of Facebook’s acquisition of Beluga), and integration with the phone’s address book so that Facebook Messenger users can send messages to non-Facebook Messenger users via SMS.

Facebook Messenger’s integration with Facebook Messages and the phone address book, and its inclusion of Beluga’s group messaging capabilities, gives it a potential edge over the other messaging applications, and may be a key factor in inducing either churn among the existing users of these applications, or in encouraging adoption by new users.

One potential drawback of Facebook Messenger is that Facebook Mobile users will have to download and install Messenger as a separate application on their smart-phones. The application may not be appealing enough for existing Facebook Mobile users to do that en masse. Even though Facebook does have the advantage of a significant installed base of mobile users, it will face the same challenges as its competitors with regards to growing the penetration of Facebook Messenger.

With regards to Facebook’s mobile operator partners, these will likely also benefit from the way in which the new Messenger application will work, in that messages will continue to be delivered via e-mail notifications and texts. That means that the mobile operators will still generate data and SMS traffic, and revenues, from their subscribers’ use of the Messenger application. In order to use Facebook Messenger, mobile users will need to have a smart-phone, a mobile data plan and a messaging plan with their operator. Facebook Messenger may well be a factor that encourages mobile subscribers to upgrade their devices and plans.

As to whether Facebook Messenger will have a significant impact on carriers’ SMS traffic and revenues, it’s too soon to tell. While the penetration of smart-phones (which enable applications) is growing quickly, all devices enable SMS, and it is the ubiquity of SMS and its interoperability across networks and devices that will ensure that SMS continues to play a key role as a messaging bearer.

It is also possible that Facebook Messenger may help Facebook to shift the cost of SMS notifications and messages in markets outside of the US at least, back onto the mobile user. Facebook has not revealed the commercial arrangements that exist between it and its 200 or so carrier partners, but Informa believes that the company is probably bearing the cost of SMS notifications, buying SMS at wholesale rates either directly from the carriers or from a messaging transactions network. If Facebook Messenger requires users to pay to send SMS messages to non-Facebook Messenger users, then that is a cost that Facebook no longer has to bear, and it is also retail (rather than wholesale) revenue for the carrier.

It is possible that Facebook Messenger will contribute to the cannibalization of mobile operators’ SMS traffic and revenues, but it may also, perversely, contribute to the growth in mobile operators’ SMS traffic and revenues, because Messenger users will be able to send SMSes to their phonebook contacts from within the application.

Without doubt, Facebook Messenger has immediately become a leading contender in the mobile messaging applications market. Indeed Apple may already be too late, with iMessage. The smaller start-ups will find it difficult to compete without some significant differentiation. BBM will continue to thrive, but remain niche. Carriers are the only other players for whom Facebook Messenger does not necessarily represent a significant threat. Informa believes that this is because Facebook understands that it needs to work with the carriers in order to reach its customers on mobile.