Facebook – Almost the final frontier pt. II

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WhatsApp could be the edge Facebook needs to catch-up. 

• Facebook is finding other ways to penetrate the Indian market having had its Free Basics strategy taken down a peg by the Indian regulator in February (see here).
• I see Google comfortably in the lead in India by cleverly generating significant demand for handsets carrying its Google Play app store, even if some purchasers do not really know what they are clamouring for.
• India is a vast but very difficult market spanning a huge geography, 22 official dialects and 150 widely spoken dialects.
• Furthermore, with 900m people who have yet to experience the Internet, it represents an important growth opportunity for ecosystems that already have very high penetration elsewhere.
• In this race Google is very far ahead (see here) but Facebook still has a few tricks up its sleeve.
• Google has been rolling out free WiFi in train stations while Facebook has been conducting a pilot roll-out of 125 rural WiFi hotspots in conjunction with Bharat Sanchar Nigam, a local telecom operator.
• Unfortunately, these hotspots are not free meaning that usage of them is likely to be just a tiny fraction of what Google is experiencing.
• None of these investments are altruistic but instead any traffic generated via a free service offered by Google or Facebook will find its way back to their servers becoming data for monetisation.
• Although the revenue generated per user will be tiny, there are so many potential users, that it is a market worth chasing.
• One option for Facebook would be to subsidise the access being offered in conjunction with Bharat Sanchar Nigam in some way to ensure that it has access to the traffic.
• The other is WhatsApp.
• The first experience that many Indians are likely to have with the Internet is very likely to involve instant messaging.
• This is a service that they will be familiar with (thanks to SMS) and a service that is easy to provide with very limited bandwidth.
• This makes it the go to place to communicate with one’s family and friends and might just give Facebook a much needed leg up in its fight with Google to become the ecosystem of India.
• At the moment there is still no sign of the local ecosystems or the Chinese making a real dent in India beyond the sale of commoditised hardware, leaving the way open for both Google and Facebook.
• I continue to think that Alphabet is fairly valued at best but that there could be significant upside in Facebook once the short term expectations have been reset to more obtainable levels.