Late last night, the rumor mill revved up with talk that Google is in late stage discussions to acquire mobile messaging app-maker WhatsApp for approximately $1 billion. We can debate all day whether that deal will ultimately close, or whether it even makes sense. But I’d like to propose a different thought, namely that it’s Yahoo, not Google, who needs be writing this check – or a similar one.
Led by its latest CEO in the spotlight, Marissa Mayer, Yahoo is in the midst of an attempted brand turnaround for which adding a leading mobile messaging platform would be a huge step in the right direction. Several strategic boxes could checked by such an acquisition, including the addition of a social or communications graph, the beginnings of an increasingly critical foothold on mobile, and a means of attracting and engaging with younger users who are all but absent among its current audience.
“WhatsApp recreates a connections graph among its users. The questions you have to ask are, does Yahoo have a graph, do they need one, and, if so, what kind?,” a former Yahoo head of product told PandoDaily today under the condition of anonymity. “It seems that Yahoo doesn’t have a graph at the moment, nor do they have a great mobile play. To acquire both things at the same time would be rather interesting.”
Yahoo has shown little interest or ability to enter the mobile race through its own operating system or device strategy, nor has it introduced its own app store. And while the company has multiple standalone mobile apps, including email, messenger, search, a browser, and several content verticals, none are category leaders. The ability to know who a user communicates with and what content they consume is paramount to effectively communicating to that user and to keeping them engaged with your platform.
“Messaging has far and away the highest engagement and retention rates of all apps on mobile,” says Greg Woock, co-founder and CEO of WhatsApp competitor Pinger. “That’s the reason why so many people have argued that it needs to be cornerstone of any Web leader’s go forward strategy.”
One of Mayer ‘s favorite phrases of late has been “daily habits,” which she uses in describing Yahoo’s strategy of focusing its product roadmap around the activities users do daily. There are few things more habitual than communication, and despite the multitude of mobile apps dedicated to entertaining, informing, or improving us, it’s still central to the purpose of most connected mobile devices. And while Yahoo may still be the world’s No. 2 largest email provider, from everything I’ve seen personally and heard from people who watch the space closely, its usership seems to be more trailing-edge than leading-edge in terms of tech-savviness.
This is not to mention the fact that messaging apps, social media, text messaging, and video chat are quickly replacing email as the communication channels of choice for the majority of those under 30 years old. Mobile messaging is the future, and is a race in which Yahoo desperately needs a horse.
“Email is still an important channel for a large number of people, but long term, today’s 20-year-olds are tomorrow’s workforce and parents, and they’re spending their time elsewhere,” said the former Yahoo exec. “They really need to find a way to stay in front of this trend and to capture mindshare effectively.”
As I argued previously when suggesting Apple acquire Dropbox, the impact on PR and sentiment cannot be ignored in transactions such as this. Yahoo is desperately trying to regain relevancy in the minds of consumers, current and potential employees, Wall Street, and media alike. A headline grabbing acquisition with true strategic value would give the company a lift among all these constituencies. And while Mayer may think overpaying for the buzzy app of a 17-year-old wunderkid was such a move, the reality is that this couldn’t be further from the truth.
Google and Yahoo wouldn’t be the first Web giants to make messaging and communications the central part of their product strategy. Microsoft demonstrated its commitment to the category with its $8.5 billion dollar Skype acquisition, having since used the platform to unify communications across its desktop, mobile, and gaming products. Similarly, as Facebook has looked for a stronghold in mobile, it’s increasingly positioned messaging as its core service. Yahoo could learn from both of its close competitors.
Mobile messaging is a highly fragmented market, with a number of large and highly-engaged platforms today both in the US and Internationally. In the US, this includes market leader Pinger, WhatsApp (which is also well positioned in Europe), TextPlus, MessageMe, Kik, and Viber, among more than a dozen or so legitimate contenders. Internationally, the leaders include South Korea’s KakaoTalk, Naver’s Line in Japan, Nimbuzz in India and the Middle East, and Tencent’s WeChat in China.
In determining which of these apps would make the best fit within Yahoo, it comes down to their alignment with the company’s above stated needs of adding a social graph and engaging with new user demographics. This would be anything but a technology acquisition, meaning that while the Asian entrants might have the most compelling product, Yahoo would most likely target a North American leader. At that point, the primary question would come down to demographic alignment. In other words, which app is most popular among the demo that Yahoo hopes to target in the future, or needs the most help in accessing. Without data available it’s hard to answer this definitively.
The challenge for Yahoo in completing such an acquisition would be its limited cash position – $2.67 billion as of December 31, 2012, compared to Google’s $48 billion – and the relatively low appeal of its equity compares to other top suitors. Pinger’s Woock believes published rumors that Facebook previously kicked the tires on WhatsApp while considering an acquisition of its own, and he has no doubt that Google is currently doing the same. With both companies able to pay cash or offer attractive equity compensation, Yahoo could quickly be priced out of the most sought after targets.
We are firmly in the post-PC era. Yahoo, like every other Web leader needs a means of keeping mobile users engaged while deepening relationships with the next generation of consumers. The difference is that Yahoo is further behind than Google, Facebook, and even Microsoft in this regard. If the purple company wants to reassert its relevance, a mobile messaging acquisition is an important place to start.
“I think this space will see more acquisitions and consolidation as more people realize that the future of mobile is communication.” Woock says. “If you don’t have a play there, you’ll be left out in the cold.”
[Image courtesy Mariah Dietzler]