Alibaba, the Chinese e-commerce juggernaut expected to go public later this year, has invested $215 million in the Tango messaging service. The investment was part of a $280 million round Tango raised to better compete in the nascent messaging market, which features numerous companies like WhatsApp and WeChat with hundreds of millions of users working to prove their product will become the preferred method of communication within the next couple of years.
Such large amounts of capital have become typical in this market. Facebook announced its intent to acquire WhatsApp for $19 billion in February. Rakuten agreed to acquire Viber for $900 million just a few weeks earlier. SoftBank is reportedly seeking an investment in Line, which was recently valued at $14.9 billion. These companies are changing the way people communicate, so investors and larger companies alike are willing to pay to get in on the shift.
While these services have users from around the world, most of these companies have centralized fiefdoms in certain regions. Some, like WhatsApp and Tango, are popular in the United States and Europe. Others, like Viber and Line, are popular in Southeast Asia. This can frustrate consumers with contacts around the world, as they are forced to use a variety of services to perform essentially the same function — if any service manages to remove that hassle, it stands to attract many of the people who care more about their contacts than the services they use.
This investment could allow Alibaba and Tango to create a service (or at least a couple of services) that will do just that. They face some stiff competition, as Facebook is unlikely to simply allow another company to win a battle it just spent 10 percent of its marketshare on acquiring a better weapon for, but Alibaba is just as committed to maintaining its position in the Chinese market and expanding its influence outside of the country’s borders. The fiefdoms created by these messaging companies are being annexed by the empires created by larger companies, and it’s only a matter of time before one of them comes close to world domination.
Whether or not the victor will be Facebook or Alibaba depends on how well both companies use their new pawns to maneuver around a constantly changing market. Facebook has WhatsApp. Rakuten has Viber. Alibaba has part of Tango. The battle for the messaging market is about to begin in earnest, and large companies are finally equipping themselves.
Reactions from around the Web
Re/code calls the shift to messaging apps the dawn of a new era for tech companies:
The moves essentially signal a new era for global Internet companies — one in which communication between people isn’t restricted to platforms like Facebook and Twitter, or even older messaging services like Gmail or AOL Instant Messenger.
Instead, more companies have recognized the power of tapping into users’ existing social communication networks, found within the average person’s mobile device phone book. Apps like Tango, WhatsApp and Viber all comb a user’s mobile contact list to instantly connect people to their network of friends.
The New York Times notes that Tango could help Alibaba compete in China’s messaging wars:
For its part, Tango’s expertise in building a messaging service might be able to help Alibaba do better in the Chinese messaging market. Alibaba’s homegrown messaging service, Laiwang, is struggling against the market leader, WeChat, which is owned by Alibaba’s biggest rival, Tencent.
Quartz writes that the investment is further proof of the expansion of Chinese tech companies:
The deal is yet another sign that China’s internet wars are starting to expand beyond the mainland’s borders. Tango is the latest of a string of acquisitions Alibaba has been making in the US over the past few years, including online retailer Shoprunner and other e-commerce sites. The company has also chosen to host its blockbuster initial public offering in New York, instead of Hong Kong—more proof of its focus on expanding beyond China and into the US.
Tango co-founder and chief technical officer Eric Setton tells Fortune that the WhatsApp acquisition has changed the way people view tech companies:
‘We were pretty much all done when that happened,’ explains Tango co-founder and CTO Eric Setton. ‘I think, in general, that the WhatsApp deal made everyone feel pretty good, in terms of the amount of attention on the space and the remarkable valuations everyone is seeing. The original Web generation was won over by search, but the mobile generation isn’t about search or even the app store. It’s about mobile messaging, where they’re checking 40 times per day, and that gives us the opportunity to bring them into other experiences.’
Pando weighs in
Sarah Lacy wrote about the WhatsApp acquisition shortly after its announcement and explained why Facebook was willing to pay so much for the company:
Facebook has grown into such a huge thing that we forget what the core always was: Photos. This was the reason Instagram was such a threat to its dominance. It was the next social network where the primary organizing and viral mechanism was photos. That’s why Facebook had to own it.
And guess who is the new photo leader according to recent numbers? WhatsApp. According to the company’s own numbers, WhatsApp is processing 500 million images per day, compared to 400 million Snapchat (‘snaps’) per day, which could include photos or videos. For its part, Facebook processes a comparatively paltry 350 million photos a day, with an additional 55 million per day from Instagram.
I wrote about the way some of these messaging services are gunning for Skype with planned calling features announced in February:
Inertia has proved to be stronger on the Web than experts originally expected in the late 19990s when they feared that competition for news, information, or shopping was only a click away, unlike the physical world. The fact that Yahoo and AOL are still multi-billion companies– and that anyone goes to Ask.com– is testament to that. And Skype has a far stickier lock in as a core reliable messaging utility for billions of people. It’s not a fun social way to share photos. It’s how you call your loved ones from overseas. Line and Whatsapp’s best hope may be signing up the next generation of mobile-first consumers– in other words, going after Skype’s growth not its base.
[Image via Wikimedia]