Investing In Messaging Apps: A Study

Fuelled by mobile internet and smartphone growth, the messaging app market has grown really fast over the last 5 years. Of course, the market is now huge, and investment is all about risk assessment; supply is growing, and quality is, to put it mildly, variable but recent high-profile deals, that we’ll come back to later, tell us that investors are definitely not shying away from this market.  

Obviously, since we decided to build a new messenger, our own opinion is that new apps do stand a pretty good chance of making it to the top if everything is done well and goes well. Of course, we did our own homework on messaging app investment to find answers to the big questions; ‘who, how and why?’ when it comes to investing in this niche sector. Now we’re ready to share what we learned with you.

So, Who Is Investing?
The quick and simple answer is… pretty much everyone from IT giants like Google, Microsoft, Facebook, Yahoo, Atlassian and Foxconn, to global e-commerce leader Alibaba and major investment firms like General Atlantic and Dragoneer. Successful products generate dollar revenues ranging from the hundreds of millions to the billions.

A good example is Atlassian. At first, this company first invested in its own projects, HipChat and Stride, but then chose to give them up and instead put its money into Slack. Details about the deals behind the Atlassian-Slack strategic partnership are a closely guarded secret, but everyone knows that we’re talking hundreds of millions of dollars here. Another example is e-Chat. Its most recent Whitepaper version 2.0.2 announces the company’s pretty ambitious plans for further investment rounds. These are based on projected capitalization of over $3-5 billion within 1-2 years. Of course, the highest-profile deal in the last 5 years was Facebook’s $19 billion acquisition of WhatsApp. Snapchat did quite well too, raising $1.81 billion in the Series F funding round.

Other investors known to have added messaging apps to their portfolios include venture capital funds, banks, fintech companies and mobile network operators; we know that Sequoia Capital has invested in WhatsApp and Tiger Global Management, Tencent & Foxconn have all backed India’s first homegrown messenger, Hike. Some raw but promising products get lucky and successfully attract angel investors. Another option for early-stage start-ups is to try their luck with crowd-investing and crowdfunding platforms like Kickstarter.

On the subject of private investors, WhatsApp co-founder, Brian Acton, invested $50 million in the Signal app last March, and the Russian businessman, Roman Abramovich is believed to have invested in the Telegram messenger.

How?
These days, some messengers choose to create their own cryptocurrency and pursue initial coin offerings (ICO). When it comes to volatility, these investments pose a lower risk than direct cryptocurrency investment. Curiously enough, Japan’s most popular messaging app, Line recently launched its cryptocoin but decided not to conduct an ICO. Back in 2016, Line was year’s biggest tech IPO deal. A year later, Snapchat followed suit, and very successfully too!

Roughly speaking, an ICO is a way to raise funds fairly quickly, though an IPO can raise a lot more. According to PricewaterhouseCoopers, the number of ICOs in 2018 is already double the number for the whole of last year, and that’s due in no small part to messaging apps.

This can be explained by the fact that the procedure for an ICO is much easier (for example, you don’t have to file a registration statement with the USSecurities and Exchange Commission) making it much more time and cost-efficient. If a product offers an economically viable crypto asset or currency idea and has enough users who believe in it, an ICO is clearly the way to go.

Why?
Some might say that the messaging app market must have reached saturation point by now and that those roaring IPOs like Line and Snapchat’s are no longer a trend, but just one-off deals. We did, however, hear sceptics saying the same things 3 and 4 years ago; but the market is still growing and showing no sign of decline, while the number of app products has tripled. Interest in messengers remains stable thanks to the wide range of marketing opportunities they offer along with an impressive set of tools.

Messengers that offer users little or no data protection provide unhindered access to target audiences making them a gold mine for the targeted marketing and advertising industries. When it comes to apps that offer enhanced data protection, which makes user targeting impossible, there is still good marketing value in other techniques like product placement and direct selling.

One other fact shouldn’t be overlooked; messaging apps are rapidly evolving into all-purpose information exchange and communication hubs, taking over mobile communications (calling and texting), other functions that traditionally belonged to web browsers, as well as email and social media.

We believe that as AI technology keeps progressing, messengers will soon be doing a good deal of what used to be the job of web browsers. Machine-assisted searches for information about products and services will be integrated with messenger functionality rendering old-fashioned data searching and web surfing practically obsolete.

All the numbers we came across tell us that messengers will be one of the fastest-developing IT industry sectors for some time. For instance, Barclays Capital has projected that WhatsApp and Facebook Messenger advertising will generate around $11 billion for Facebook by 2020.

With so many messengers on the market, no one will ever be able to say that all customers needs have been taken care of once and for all. The market is continuously evolving offering practically untapped potential for further, ever improving products.

What Are Investors Looking For?
Naturally, one thing investors expect is to make a profit. These days, profit, as we see it, lies with products that offer a combination of reliable personal data protection and high functionality. Another important thing for investors is good project scalability potential. For instance, it’s known that Silicon Valley companies only invest in projects of at least a $50-million-dollar market value with potential future values that are substantially more, somewhere in the region of billions.

While they are on the rise, messaging apps can cater to the most ambitious investment expectations. This market hasn’t reached its peak yet, and no one can even imagine when it will or what the figure will be. It is also important to understand that investors aren’t just funding a project or idea, but a team. Inevitably that means team competence will always be a significant factor when it comes to attracting investment.

So based on all that, the ideal messenger from an investor’s point of view would be tapping a $50 to $100-million-dollar market segment and demonstrate good prospects for growing into a mainstream product. It would also have great potential for scalability and offer competitive personal data protection, all of which is precisely what we are aiming for with Aegees.

Bottom Line
All that said, our vision of investment prospects in Aegees is that it is well placed to pass the initial offering stage with flying colours and continue into funding rounds C, D, E and beyond. The tech market climate suggests that messengers are going to be on major investors’ shopping lists for the next 5 to 8 years.

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