“Over-the-Top” Messaging Takes Advantage of Network Effects
Oftentimes, whether a person chooses to purchase and use a product can be influenced by others using the product. As we learned in class, this is called a network effect. A direct or positive network effect occurs when a good or service becomes more attractive as the number of users of that product increase. This can be applied to many different aspects of society today. Whether it is social networks, the telephone or fax machines, many products or services gain value as more users are motivated to use it. These products will have no value to a user if no one else is using them.
This concept can be applied to text messaging. Text messaging has a direct benefit to a user only if he/she knows others who are using it. Today, a majority of people use text messaging and there are many different text messaging services offered. So, the question here becomes not whether people use text messaging but which service they prefer to use. While standard mobile operators such as Verizon and T-Mobile offer messaging services, these services are often expensive and lack key features. “Over-the-top” service providers on the other hand are providing text messaging services with better features at little or no cost. These clear benefits explain why the conversion rates from Telecom services to OTT services are so high. In addition, the direct benefit principle and positive network effects that we have learned in class can further explain this situation. As more and more of a user’s friends are switching to OTT services, there is a direct benefit for the user to switch as well. This causes the OTT services to have a positive network effort by definition.
One major service of OTT services is Whatsapp and it has gained popularity over the years. Whatsapp is a messaging app that takes advantage of the growing smartphone users and is offered on multiple platforms. It allows users to send unlimited text, image, video, and audio messages free of cost using their current data plan. In the article, Rasmussen states, “Whatsapp has been installed over 100 million times on Android devices around the world” as of November 6th. This does not include all of the platforms that Whatsapp is offered on. Whatsapp’s growing popularity has started to worry Telecom service providers about a year ago as their revenue from messaging services is declining. Yet Whatsapp is still being used widely today. Not only have Telecom service providers refused to reduce messaging prices but they have also not shown efforts to improve features on their existing messaging services. As Whatsapp works to improve its features, will it eventually replace all operator messaging services? Let’s wait and see.
Source:
Rasmussen, Paul. “OTT Messaging Adoption May Marginalise Europe’s Operators.”FierceWirelessEurope. FierceWireless, 6 Nov. 2012. Web. 11 Nov. 2012. <http://www.fiercewireless.com/europe/special-reports/ott-messaging-adoption-may-marginalise-europes-operators>.