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Home / Business

Liam Dann: WhatsApp and Beatles make Spark the right move

Liam Dann
By Liam Dann
Business Editor at Large·NZ Herald·
23 Feb, 2014 04:30 PM6 mins to read

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Messaging service WhatsApp already has 450 million users. Photo / AP

Messaging service WhatsApp already has 450 million users. Photo / AP

Liam Dann
Opinion by Liam Dann
Liam Dann, Business Editor at Large for New Zealand’s Herald, works as a writer, columnist, radio commentator and as a presenter and producer of videos and podcasts.
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As tech giants outbid each other to stay ahead, timeframes for profits are out of line with pace of change.

It might be worth $23 billion because it's the new app the cool kids are using but I can confirm WhatsApp has already lost some of its street cred. I've signed up.

Embarrassing as it is to admit, I hadn't even heard of WhatsApp until the news broke last week that Facebook had shelled out mega bucks for the messaging service. Turns out it already has 450 million users.

How could I be so out of touch? I feel like an ageing hippie who's just had the arrival of punk rock explained to him. So I've dutifully cut my hair and thrown out my flares, so to speak. I've joined the WhatsApp generation.

Sadly, it is currently about as useful to me as the telephone was to the first bloke who got one.

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But perhaps a year from now, when the service asks me to pay up my first $1.29 fee, I'll have a few more people in my WhatsApp contact book I can chat with.

What puzzles me, though, is that it seems unlikely I'll be connecting to anyone I can't already message on Facebook or Twitter, or email, or text.

But hey, those things are going the way of the carrier pigeon if you can believe the value that Mark Zuckerberg has put on this new service.

Sometimes it's a bit depressing to think that all the major technological advances of the last 20 years or so have just been new ways to chat to each other . Where are the flying cars?

Never mind. I'm starting to sound like I'm a techno-cynic. And I'm not. I can see just how dramatic the transformation of every sphere of business is going to be in the next 20 years. From media and communications to retail and accounting, this internet revolution is just getting started.

But Facebook's purchase of WhatsApp brings out the old fogey in me. It's not even that I'm critical of the service itself. I'm happy to accept that it is all the amazing things that it is alleged to be. It might even be the "killer app" that finishes off the traditional telco model, the final nail in the coffin of the current revenue model for voice calls and texts.

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It is coincidence that the WhatsApp deal was done in the same week that Telecom NZ decided to change its name and accelerate the shift to becoming an entertainment provider. But more broadly the two moves are connected.

Telecom's chief, Simon Moutter, sees where the world is headed. He made it clear last week that he isn't prepared to hang around and cling to ever-decreasing returns as the old telco model dies. Good on him. He's keeping Telecom - or Spark - in the game.

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That name isn't so bad. Yeah, you can spell it backwards for a giggle. Presumably it is meant to represent the ignition of something new. It has associations with innovation and intelligence (bright spark) and it is easy to remember.

None of that really matters in the end as long as the new Telecom does a good job. If we like what it represents a name quickly becomes part of the furniture. The Beatles, with its dated pun, is a pretty lame band name if you think about it. But it rolls off the tongue and has come to represent something everyone loves. As a name Spark certainly has more going for it than WhatsApp (another pun that will quickly date) or Twitter, which still sounds silly despite its widespread adoption.

The other advantage Spark has, for the time being, is an old world business that still delivers cash - revenue and profits, buying him time for the company to make this big transition.

Profits seem to be completely out of fashion in the tech world and that's always a reason to be a little wary of the hype .

The Facebook purchase of WhatsApp is the biggest internet deal since the TimeWarner AOL merger, worth US$124 billion in 2001.

That was the high water mark of the great dot.com bubble.

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While the tech analysts are praising the Facebook move for its strategic value it is important to remember that being right about the future doesn't always translate to business success.

Markets don't rise and fall with the Spock-like intelligence of the technology innovators.

Will investors wait for the grand futuristic vision of this move to deliver a profit. Who knows?

They may be waiting some time.

Right now WhatsApp could sign up every human on earth and it would still take years to earn enough revenue to match the price that's been paid - just revenue. Nobody is talking about profit.

Which is fine, if you believe WhatsApp is secure in its longevity.

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But that's where my scepticism kicks in. I'm just not convinced that, a decade from now, 2014's hot communication app will be the one my kids are using to message me when they're trying to get me to pick them up from a party at 2am.

It doesn't seem any more likely than the prospect that they'll be listening to my current favourite band.

They'll be using some other super cool app on their smart glasses or whatever device has embedded itself into the fabric of our being.

Facebook's model seems to involve being first to buy that one too and the next one and the next.

They have to or Google or Apple will.

Like the big industry giants of the 20th century - car and oil companies, soft drink and food companies - there is increasing consolidation on the internet towards a world ruled by a small handful of global giants.

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Where does this end for investors?

Facebook has plenty of firepower - its market cap is up around the US$170 billion mark.

But at the prices the tech giants are paying to stay ahead of each other the model doesn't seem sustainable. The timeframes for profit are wildly out of line with the pace of technological change.

When do shareholders actually earn some money from dividends? Even Apple is only just starting to share some profits with investors.

Without profits, investors can only make money from trading on growth. So, despite the obvious utility of these products, how does this differ from the 17th century tulip bubble or any of the other great bubbles of stock market history?

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