The market is composed of three segments: VoIP (such as Skype), IP messaging (such as WhatsApp), and also a share of social networking advertising revenues. In contrast to the telco communications market, however, the OTT communications market remains very small.
OTT vs Telcos
Even by 2020, OTT will only account for 3.1% of the total communication market. During this time, the telco communications market is expected to see a CAGR of -1.3%. It is the opinion of IDATE that OTT communication services have not significantly adversely impacted the telcos; rather, it is a case of the telcos seeing a decline in market values, while OTTs are growing their market value by themselves.
In fact, more influential factors, such as the economic climate, internal competition and regulations are affecting telco market values significantly more than OTTs. For example, France was seeing intense internal competition before 2009, when WhatsApp appeared, making voice and SMS no longer a cash cow. In other countries such as Spain, SMS and mobile voice were already on the decline through the economic recession, and cheaper OTT alternatives simply accelerated the already declining telco revenues.
Furthermore, both VoIP and IP messaging are more of a paid model, and do not generate much market value, since more than 60% of OTT communication revenues come from social network advertising, which can be seen as additional value in communication.
All the same, there is strong interest in the VoIP and IP messaging markets, as the acquisitions and investments in this market continue in both consumer and business OTT markets. High-profile acquisitions include the acquisition of WhatsApp by Facebook and Viber by Rakuten; 2017 saw Microsoft acquire LinkedIn, adding to that of Skype.
This all forms a part of the platform strategy, where by the aim is not to generate revenues directly from these services, but to see them as useful tools to increase user base and reach, which in turn can be used for monetisation through different means. (e.g., advertising, paid games and commerce). The likes of WeChat and LINE are successful in terms of revenue generation through the combination with games and commerce, while the likes of Facebook are embracing the platform strategy by using Messenger, WhatsApp and Instagram as sources for more personal data, for better targeted advertising. The LinkedIn acquisition by Microsoft concentrates on the business side, which also sees Skype progressively integrated within Office Suite products. 2017 saw the IPO of Snap, which resisted attempts to be bought by Facebook in 2013; but in a similar fate to Twitter has been struggling financially, and in November 2017 WeChat bought a 12% stake in Snap. This raises the question of whether small communication providers are destined to be bought as tools by the giant platforms, with innovations being copied by such giants anyway.
IDATE DigiWorld sees five main telco strategies in response to the rise of OTT communication services: blocking, bundling, partnerships, telco-OTT and RCS. These strategies are studied in further details in the report.