Facebook’s announcement this week that its messaging platform WhatsApp had hit the 1 billion user mark was certainly a headline grabber. OTT (Over The Top) messaging apps are eating into the power of SMS and swiftly becoming some of tech’s hottest property.
In 2013, OTT apps generated revenue of $22.7 billion which is expected to rise to $45.2 billion in 2017. Users see the benefits of both cost and features. To send a gigabyte of data by SMS is significantly more expensive than through an OTT provider using a data plan. Secondly, OTT messaging offers a better all-round package with additional services such as group chat and status updates.
Virtually every start-up mobile messaging app received investment in 2015. Yahoo fought off competition from SnapChat for the app MessageMe, Microsoft acquired start-up Talkeo and Google acquired smart messaging service Emu. Investment has also been rapidly forthcoming. Imaging messaging service Snapchat raised another $500 million from investors in May and Chinese developer Telecent poured $50 million into WhatsApp rival Kik.
Yet for investors, monetising messaging apps offers many challenges. Chinese provider WeTalk has perhaps had the most success by integrating business services such as transferring money and booking appointments alongside its texting model. Facebook has urged for patience with WhatsApp as it looks to emulate this. Whether it is successful remains to be seen.
Despite these challenges, we do not expect the pace of M&A activity to slow down any time soon. The real attraction of mobile messaging apps is their growth potential. WhatsApp reached its eye-watering billion user milestone in just seven years. Messaging apps allow investors to substantially increase capital, as history shows financial valuations of these companies have almost always moved upwards. Where the next innovation comes from, nobody really knows. Yet, in a market segment that shows no signs of slowing down, the battle will surely only intensify.