Facebook Inc. (FB)’s purchase of WhatsApp Inc. for $19 billion is heightening the allure of other fledgling businesses, some of them little known in the U.S., that specialize in letting users send messages.
At least one company, Tango, has fielded takeover advances, according to Eric Setton, Tango’s co-founder. Naver Corp.’s Line has received an offer from Softbank Corp. for a stake in the company, people with knowledge of the matter have said. Other messaging applications include Kik, KakaoTalk and SnapChat, the photo sharing tool whose parent rebuffed a $3 billion offer from Facebook last year. BlackBerry Ltd. also operates a messaging service called BBM.
Possible buyers include Microsoft Corp. and Google Inc., said Brian Blau, a social-media analyst at Gartner Inc. Both had expressed interest in acquiring WhatsApp, people with knowledge of the matter have said. The appeal? Gaining millions of users, sometimes in other parts of the world, who are addicted to sending messages and other information via mobile device. Another draw: seeking to keep up with Facebook, Rakuten and Tencent Holdings Ltd., which owns WeChat, popular in China.
“If you’re a technology player today, and you’re in the communications business, then you need a way to capture people and bring them into your ecosystem,” Blau said. “Virtually anybody in the technology space that has a pillar product around conversations and connecting people together could be a potential buyer.”
Facebook Chief Executive Officer Mark Zuckerberg’s deal to buy WhatsApp, with its 450 million users, was unveiled five days after Rakuten Inc.’s $900 million acquisition of Viber, another messenger app.
“The WhatsApp deal is incredibly exciting news -- it shows how much attention there is for this space,” said Setton, who is also Tango’s chief technology officer. “Exciting tech companies get approached constantly.”
BlackBerry rose as much as 9 percent the day after the WhatsApp deal was made public. The purchase price implies a valuation of about $3.4 billion for BlackBerry’s BBM service, which has 80 million monthly users.
Apart from Softbank’s approach, Line has received at least one other offer for all or some of the company, prompting it to slow preparations for an initial public offering, according to two people familiar with the matter, who asked not to be identified as the information is private. The Tokyo-based company, which has about 340 million users, may be worth as much as $14.9 billion, according to BNP Paribas SA estimates.
Mitsuhiro Kurano, a Tokyo-based spokesman for SoftBank, and Fumiko Hayashi, a Tokyo-based spokeswoman for Line, declined to comment. Nam Ji Woong, a spokesman for Naver, said he couldn’t immediately comment.
Tango.me has 180 million users and features video, voice, texts, games and photo sharing. If the $42-per-user price Facebook paid for WhatsApp is any guide, Tango.me would be valued at $7.56 billion. Tango.me is valued at more than $1 billion, a person with knowledge of the matter said.
Setton declined to discuss valuation for Mountain View, California-based Tango. He also declined to name suitors or discuss timing of approaches.
Potential buyers of messenger software startups could also include technology companies such as Yahoo! Inc. and Apple Inc., major phone carriers or infrastructure providers like Comcast Corp., Gartner’s Blau said. Microsoft is looking for consumer applications that will help its mobile products gain traction, while Google would be interested in adding data on user behavior from messaging to make its products better, he said.
Spokesmen from Microsoft, Yahoo, Comcast, Apple, BlackBerry and Google declined to comment.
Messaging applications can help a buyer make headway in different geographies. WhatsApp is popular in Europe and India, for instance. Line is dominant in Japan, while WeChat is prevalent in China. KakaoTalk, which generated about $200 million in 2013 revenue, is installed on 93 percent of smartphones in Korea. The company is pursuing an IPO in 2015, Sonia Im, a spokeswoman for Kakao, has said.
Dorothy Jean Chang, a spokeswoman for Kakao, declined to comment on the prospect of a takeover.
The services have become a hit as customers have switched to smartphones with better Internet access and started to rely on data services to communicate, rather than paying for text messages.
Ted Livingston, CEO of Waterloo, Ontario-based Kik Messenger, said messenger programs are finally emerging from obscurity and will command high valuations. Kik has more than 100 million users.
“It just became really real -- really fast,” Livingston said. “When it was hypothetical it was like, one day WhatsApp will be worth a lot of money. Now they’re worth a lot of money. The stakes of winning this race have really been validated.”
The popularity of the applications is also costing phone carriers, forcing them to consider strategies that include buying them, according to Blau. Providers around the world -- from Vodafone Group Plc (VOD) to America Movil (AMX) SAB and Verizon Communications Corp. -- will lose $32.5 billion in texting fees in 2013 due to the trend, according to research from Ovum Ltd. That figure is projected to reach $54 billion by 2016.
Instead of charging per message, apps such as Kakao and Kik make money through distributing games and letting users buy designs for stickers they send their friends in conversation. WhatsApp is free for the first year, and then a dollar a year after that. The $19 billion valuation cost Facebook $42 for each of the application’s 450 million users.
Messaging apps succeed because they were built directly for the mobile platform, and companies that started out on desktop, including Facebook and Microsoft’s Skype, will need them to bolster services and boost users, according to Andreas Stavropoulos, a managing director at venture capital firm Draper Fisher Jurvetson.
“The arrival of every new computing wave has resulted in new winners in communication-focused applications,” said Stavropoulos, who also on Tango’s board. “So it’s no surprise that mobile device domination is crowning new winners again: either text-replacement apps like WhatsApp, SnapChat, Kik, or social platforms like Line and Tango.”
To contact the reporter on this story: Sarah Frier in San Francisco at email@example.com