TextPlus raises $18M as daily usage grows 350% since April

By Michael Carney , written on October 16, 2012

From The News Desk

Beyond the magic of the latest photo sharing app and angry hippos social game, smartphones are first and foremost communication devices. Users rely on them for messaging and voice calling, and the war to deliver alternatives to standard carrier services is intensifying.

TextPlus, one of the largest and fastest growing companies in the space, has raised an $18 million series D round of financing to take the fight global. The round was led by The Raine Group, a global merchant bank notable for advising SoftBank on its recent acquisition of Sprint. Existing investors, Kleiner Perkins Caufield Byers, Matrix Partners, and GRP Partners also participated in the round, which brings the company’s total financing to date to $46 million.

The three year old, Los Angeles-based company has over 40 million installed users – primarily in North America – across iOS, Android, and Windows Phone. The company offers these users an app-based alternative to carrier phone and messaging services, including an alternate phone number, available over 3G, 4G, and WiFi. Messaging and calling to other textPlus users is free, and out of network calling to traditional phones is extremely inexpensive.

TextPlus’ users are extraordinarily engaged, sending nearly 50 billion messages in total, and each spending an average of 75 minutes per day in the app, a figure that’s grown grown 350 percent since April, from approximately 17 minutes per day at that time.

This rapid growth is due to the fact that users genuinely save over carrier calling and texting plans, a figure the company calculates to be $1,000 per year average savings per user. Approximately 50 percent of the company’s users are on non-phone connected devices, such tablets and iPod Touch-like media players, a figure that’s declined from 70 percent earlier this year. None of this is surprising, given the WSJ’s report a few weeks ago that cell phones cost the average US household more than $1,200 per year and are directly eating into discretionary spending budgets.

In addition to paid out of network voice calls, the company monetizes messaging users and in-network callers through display advertising. The ads are generally non-intrusive and are typically positioned as “Free messaging brought to you by [X brand.]” Users seem to associate calling and messaging with paid service, according co-founder and CEO Scott Lahman, and as a result the company hasn’t seen any negative feedback in this regard.

With its recent growth, the company that employs more than 100 has crossed into profitability and is eyeing global markets.

“The tremendous growth and success of our business in just the US and Canada tells us we’re well on our way to realizing our goal of becoming the world’s leading mobile communication destination,” says Lahman.

Over the next six months, textPlus will begin offering localized versions of its product in key international markets and begin the process of opening offices in London, Beijing, Tokyo, Barcelona, and other strategic locales. Lahman, and his textPlus co-founders Zack Norman, and Austin Murray previously built and led a similar global expansion of JAMDAT Mobile which IPO’d in 2004 and eventually sold to Electronic Arts in 2006 for $680 million.

In each new country, textPlus will need to establish what are called “Over the Top” (OTT) partnerships with local carriers to allow its users to make and receive phone calls. While each market will be different, such arrangements are actually more common internationally than in North America, according to Lahman, meaning the company should have little trouble getting the access it needs.

TextPlus is often mistakenly compared to messaging products like WhatsApp, but as a telecommunications company that can offer its users new phone numbers, its most analogous competitors are Google Voice and Skype. Thinking of it this way reframes the playing field, but also makes clear the size of the opportunity.

More than the others, textPlus is a mobile-first company, which makes a difference in the way its users think about the product. Further, as a standalone company, it is able to develop cross-platform solutions in a way that Google Voice, for example cannot.

As much as it’s becoming a phone company, textPlus was built on its messaging product – hence the name – and this emphasis is unlikely to change. “Communication has gone asynchronous,” Lahman tells me. “I think you have to lead with messaging, and that has been very successful for us.”

As part of the financing, textPlus acquired LA-based startup Jarvus, maker of an app that helps people capture and share experiences, events and moments together. In what appears to be an acquihire, the company’s CEO Chris Vaughn and CTO Raymond Jia will join the textPlus team to lead business and product development. In other housekeeping news, textPlus’ parent company has dropped the name GOGII, and renamed itself to match that of the app.

TextPlus is competing in a hotly contested space against deep pocketed challengers. That said, its got the leadership, partners, and resources to stake a real claim as a serious contenter in the global communications space. In its next phase of expansion, the company’s business is about to get infinitely more complicated and the former JAMDAT crew will get a chance to prove their merit as operators, much like The Raine Group, KPCB, Matrix, and GRP will get to back up those claims of value add that I’m sure were made during investment negotiations. Given what they've already accomplished in such a short time, there appear to be a number of reasons to bet on them pulling it off.

[Image source, Joanna Goddard]