In late July, top Dutch carrier KPN (KPN) reported another grim quarter and slashed its dividend from €0.50 to €0.35. The carrier once again cited steep erosion in text-messaging volumes as a drag on sales and earnings. SMS has been a goldmine for operators over the past decade because the simple mobile phone messaging service yields profit margins greater than 90%. The Dutch operators kept SMS pricing higher than most European markets — and the country is now the ground zero of the SMS volume decline trend.
But Austria — another small, affluent European country bordering on Germany — still reported 13% growth in SMS volumes during the first quarter this year. In nearby France, SMS volumes are also still growing. Why are the European texting trends all over the map, even among neighboring countries?
KPN has publicly cited WhatsApp as one major reason for the Dutch decline in text-messaging volumes. Recently, the operator attempted to levy an extra charge for WhatsApp users, only to be slapped down by the Dutch parliament.
WhatsApp is particularly dangerous because of a combination of appealing group-messaging and file transfer features, which make it a richer platform than SMS. As the ultimate network effect poster child, WhatsApp first tends to become moderately successful for a year or so in most markets… then it suddenly spreads like the bubonic plague as consumers spread the infection to their friends and family.
This did not happen in the Netherlands, where unusually high SMS pricing turned WhatsApp into an overnight success well before the rest of the Europe. In the Netherlands, WhatsApp became a top-five app in November 2009 right after its debut — but in Austria and most other markets it had a longer fuse. Dutch consumers went so wild over the messaging service that since April 2010, WhatsApp has spent most of its time as the No.1 app.
It is no coincidence that in April 2011, KPN started warning about surprising SMS volume erosion and announcing major layoffs.
In Austria, WhatsApp did not hit the top five until November 2010, and July 2011 was the first month that WhatsApp hit No.1. France looks the same — WhatsApp spent most of the 2010 outside the top 10 and it wasn’t until June 2011 that the app topped the French download chart.
In both France and Austria, the app remained successful for a long time without turning into a national obsession. Until it did; WhatsApp has been the No.1 app in both countries nearly every day so far in August.
WhatsApp’s blockbuster success in Austria and France has trailed the Dutch market by one year, so does this mean that it will start eating into Austrian and French SMS volumes during the second half of 2012? We are about to test that hypothesis.
