Tango Challenges Apple, Yahoo in Smartphone Video-Chat Market

With a newborn baby to show off, Eric Setton was looking for a way to do video calling on the go. And he wanted to be able to reach people on any smartphone or network, which his iPhone’s FaceTime application can’t do.

So Setton and business partner Uri Raz created a videoconferencing app called Tango that connects phones from different makers, across any network, carrier or geographic boundary. The software has caught on with users. More than 1 million people downloaded the app within its first 10 days.

Their company, also called Tango, is capitalizing on the surge of smartphones with cameras, along with consumers’ growing comfort with videoconferencing. About 7 percent of U.S. adults with mobile phones have made some form of video call, according to a survey by the Pew Internet & American Life Project. In total, about 23 percent of Internet users have done videoconferencing, Pew found.

“The fact that Tango did 1 million downloads in 10 days, from a cold start with an unbranded app, is very respectable,” said Peter Farago, vice president of marketing for Flurry Inc., a San Francisco firm that analyzes mobile-application use.

Tango has since reached 2 million downloads, less than a month after the software made its debut. Compare that with Foursquare Labs Inc., the mobile service that lets users broadcast their whereabouts to friends. The New York company took about a year to get its first million members.

How to Make Money?

The Tango app is free to download. The Palo Alto, California-based company may eventually make money by offering premium services, said Setton, who serves as chief technology officer. Some companies with free apps rely on advertising, though that isn’t likely to work with video calling, he said.

“We think it is very important to say video calling will remain free forever,” said Setton, 31. “We will monetize it at some point.”

One hurdle to Tango’s growth: More people will need phones with a camera that faces the user. Most devices have the camera lens on the back side. Over a three-month period ending in August, only 9 percent of new phones sold in the U.S. had cameras on the front and back, according to NPD Group Inc. in Port Washington, New York.

Apple Inc. helped popularize front-facing cameras with the June introduction of the iPhone 4, along with its FaceTime videoconferencing software. In October, the Cupertino, California-based company said it has sold more than 19 million devices that can use FaceTime in the past four months. Apple also unveiled a version of the program for the Mac, making it easier for computer users to communicate with people on iPhones.

Open System

FaceTime currently works over Wi-Fi connections, rather than mobile-phone networks, and only with Apple products. In contrast, Tango lets iPhones communicate with other smartphones -- including models that use Google Inc.’s Android software, such as Samsung Electronics Co.’s Galaxy S. And it works over phone networks.

“When FaceTime came out, for us it was the most amazing thing that could happen,” said Setton, who has a doctorate in electrical engineering from Stanford University. “Apple has the power to create these types of markets, and we saw this as really helping us and educating a lot of the market.”

Tango, which has raised $5 million in funding, will also have to compete with Sunnyvale, California-based Yahoo! Inc. That company added video chatting to its Messenger service for computers last year, and updated the feature on Oct. 11 to let mobile phones use it.

Sprint Service

Sprint Nextel Corp., meanwhile, lets users of its HTC Evo and Samsung Epic make video calls with an app called Qik. Sprint, the third-largest U.S. wireless carrier, declined to say how many of its customers use the service.

Videoconferencing has existed in some form for decades. The first video telephone debuted in Germany in 1936. That service, available in post offices, allowed callers to view each other on 8-inch square screens. In the U.S., Bell Labs demonstrated its Picturephone at the 1964 World’s Fair in New York. By 1993, AT&T had sold more than 20,000 videophones.

All of these efforts eventually failed because the costs were high, quality wasn’t great and the systems weren’t widely available.

With the advent of the Internet and broadband speeds, the industry overcame those hurdles. Now, anyone with a webcam can connect with someone else online for a cheap video chat. Skype Technologies SA has built an entire business around the idea.

‘Mass-Consumer Phenomenon’

“It’s at the moment where it might move from the very early-adopter stage to a more mass-consumer phenomenon,” said Lee Rainie, director of the nonprofit Pew project. Pew’s survey on videoconferencing, conducted in August and September, was the first one the research group has done on the subject. “People are becoming more comfortable around it.”

Skype, based in Luxembourg, added a video-calling option to its Internet-phone service almost five years ago. By the first half of 2010, about 40 percent of Skype-to-Skype calls were made over video. That amounts to 35.4 billion calling minutes. While the company doesn’t currently offer video calls over mobile phones, “this is a very active pursuit for us,” said Jonathan Christensen, a general manager at Skype.

Cisco Systems Inc. also has gotten into consumer video calling, though not on mobile phones. The company, which dominates the market for networking equipment, introduced a videoconferencing system last month that lets people hold video chats from high-definition, Internet-connected televisions. The system, called Cisco Umi, will be available in November. It costs $599, with a monthly fee of $24.99 for unlimited calling, video messaging and storage.

‘Premium Price Tag’

That price brings you a better experience than you get with mobile apps, said Ken Wirt, Cisco’s vice president of consumer marketing.

“We know it’s a premium experience, and it comes with a premium price tag,” he said. “If you like video in low resolution where you just see someone’s face, and the call drops half the time, imagine how much you’ll like it on a big screen, with real high definition.”

Another avenue for video chatting is Google Talk, a feature in the Gmail e-mail program. The service only works on computers for now, although the company says it has contemplated a mobile version.

Yahoo’s service communicates with iPhones and personal computers, and the company is developing a version for Android, said Andreas Nordin, a product manager for Yahoo’s Mobile Messenger. Getting the software to work on all different devices is key to finally winning over mainstream users, he said.

“There has to be a critical mass,” Nordin said. “You have to be able to call your mother or girlfriend or children wherever they are.”

To contact the reporter on this story: Ryan Flinn in San Francisco at rflinn@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.