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Facebook's Revenue Dreams For WhatsApp Are Under Threat -- From Old-Fashioned SMS

This article is more than 5 years old.

For much of the past decade telecommunications giants like AT&T, Verizon or Vodafone were on the back foot. Social media companies like Facebook and Twitter freely ran their services for billions of people on their infrastructure, making fat margins on advertising and siphoning away a controversial but important source of revenue: SMS fees. 

Telcos may finally be getting their revenge. Their revenues from hosting business messages through SMS are getting larger.

Around two thirds of businesses in Europe are looking at using SMS for the first time to communicate with customers, according to a survey that questioned 686 businesses in the region earlier this year and was conducted by Commify, a messaging service for businesses that focuses on SMS. 

These are messages that come from businesses instead of friends and family, such as a salon inviting you back for 10%-off hair appointment, a dentist reminding you about a checkup or a train company suggesting an early arrival to pick up travel tickets.

Such messages straddle a line between marketing and information, but overall more businesses are using them in the interests of customer engagement, Commify says, and they're picking a technology that's a quarter-of-a-century old over WhatsApp and Facebook.

The reason is simple: ubiquity. WhatsApp may be on hundreds of millions of smartphones, but it’s not on every single one. “SMS is still the only way to reach 100% of the world’s phones,” says Commify’s chief executive, Geoff Love.

Commify did not ask the businesses it surveyed what their plans were for online channels, but Love insists the trend is moving in favor of SMS overall, and points to how telcos are already dominating the market.

A separate study from research firm MobileSquared showed that mobile operators are taking the vast majority of global revenues from hosting business messaging. In 2017, mobile operators generated $8.95 billion in such sales, more than three quarters of total. That slice of the revenue pie is set to grow for traditional operators, the research said, to nearly 84% in 2022. 

Consumers trust SMS as a business channel, says Love, and he predicts mobile operators will grow into that role more over time. “We'll see the SMS channel becoming more business-centric, with people using IP channels for chatting with friends and family.” 

So-called commercial messaging was a controversial subject internally at Facebook in the years after it acquired WhatsApp for $19 billion. The company was under pressure to monetize its new, globally popular platform and WhatsApp’s founders were against advertising. 

When WhatsApp cofounder Brian Acton suggested a base-level metering model to Facebook management, where WhatsApp could charge each business a tiny fee for every message, it was put aside as difficult to scale to higher revenues, according to an interview Acton gave Forbes earlier this year. Acton resigned from WhatsApp in late 2017. 

WhatsApp’s rollout of commercial messaging has been a slow and cautious journey over the last three years. It has run trials on the platform with businesses like Wish and Uber, and in August of this year finally announced that it was widening the gateway for its business messaging customers to “hundreds.”   

But the simple lure of ubiquity will be what WhatsApp struggles to fight in the competition for business customers. A prime example was in Acton’s interview with Forbes earlier this year, when he demonstrated how commercial messaging can and should work with a message that he’d received on his phone from a local Honda dealer.

The message had come through on SMS. 

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