WhatsApp Deal a Kik for Messaging Startups

NEW YORK (The Deal) -- Facebook's  (FB) blockbuster, $19 billion purchase of WhatsApp has focused attention on the increased value of mobile messaging.

Buying WhatsApp has both offensive and defensive elements, as UBS  (UBS) analyst Eric Sheridan noted. Facebook gains a popular messaging platform with more than 450 million users per month, which Facebook founder and CEO Mark Zuckerberg said he expects to eventually hit 1 billion.

Zuckerberg also keeps WhatsApp's horde of subscribers out of the hands of competitors such as Yahoo! (YHOO) or Google (GOOG).

A range of global upstarts provide variations of mobile messaging over the Internet.

Hong Kong-based Tencent operates messaging apps WeChat and Weixin, the latter focused on the Chinese market. Subscribers can make audio and video calls, and exchange photos.

Combined, WeChat and Weixin had more than 270 million users at the close of the third quarter, growing nearly 125% from the same period a year earlier. Tencent, which trades on the Hong Kong Stock Exchange, reports fourth-quarter numbers on March 19.

Dutch messaging company Nimbuzz has 120 million users and gains 4.5 million per month, according to its website. The company has backing from Mangrove Capital Partners and South African media group Naspers. The company offers free voice and video calls over its broadband app, but charges for calls to phones.

Line Corp. of Tokyo has 340 million users for its free call and messaging app and said it expects to reach 500 million users this year. "Line has really been pushing games," SNL Kagan analyst Seth Shafer said. Within the games, users can purchase extra lives, or turns.

Line also sells stickers that subscribers use to adorn messages. Some have featured star soccer players in Mexico.


Founded in 2009 at the University of Waterloo in Canada, Kik Interactive Inc. has more than 100 million users. The company has integrated a Web browser into its app. Zynga  (ZNGA) has developed some games for the company.

Kik closed a $19.5 million investment in April 2013, and has received funds from Foundation Capital, RRE Ventures, Spark Capital and Union Square Ventures.

Mountain View, Calif., social media company TangoME Inc. has 160 million members for its calling and messaging app. Its backers include Draper Fisher Jurvetson and Qualcomm's (QCOM) venture arm, among others. The company closed a $40 million round in April 2012.

Tango launched a partnership with Spotify AB in Oct. 2013 that allows users to share music.

While companies have experimented with games, ads and other ways of monetizing their services, SNL's Shafer noted that only WhatsApp has introduced an annual fee.

The introduction of games could make messaging companies attractive to some suitors, he added.

The strategy for making money from messaging apps is a work in progress. Still, more deals may follow if Zuckerberg's bold move makes other large Internet groups feel defensive.

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