As Snap ascended, these rival apps faltered
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Image Credits: J. R. EYERMAN/TimePix
Messaging apps offer so many of the things venture capitalists love most in the world: massive scalability, low startup costs, loyal users, and the potential to mint billions without having to turn a profit.
Snap, which lost half a billion dollars last year and is eyeing a post-IPO valuation over $30 billion, is just the latest example of an investment in the space producing eye-popping returns.
Last year, the biggest tech IPO was Line, an unprofitable messaging app known for its cute animated stickers. Before Line, there was WhatsApp, which had just 55 employees in 2014 when it sold to Facebook for $19 billion. Twitter, not really a messaging tool but sharing many of the features, peaked a few years ago around a $40 billion valuation. Tencent-owned WeChat, China’s hottest messaging and productivity app, has an internal valuation some analysts have pegged around $80 billion.
Those are just a few examples and mostly excludes valuations of assets inside larger companies, like Microsoft-owned Skype. Altogether, apps for messaging, video-chatting, sending pictures, and others with some combination of the same features have a collective valuation that could reasonably be estimated in the hundreds of billions of dollars. That reflects the fact that people all over the world use the apps constantly. Whether messaging makes money now appears to be a secondary concern.
Given how much money investors can make from these apps, we might expect to see them lining up to fund them, secure in the presumption that, even though many will fail, those that succeed will do so massively. And we might expect to see those losing bets accumulate.
What the data shows
But is that the case? Using Crunchbase data, we set out to track how much money has recently gone into companies developing messaging apps or related services based on the concept of making it easier to exchange text, picture and video with friends and followers. Initially, we limited the search to companies that raised $5 million or more and focus more on individuals than enterprise customers.
As it turned out, VCs have invested hundreds of millions in messaging companies that either haven’t raised a round for the past couple years, have folded, or don’t show evidence of expanding much beyond a niche user base. It’s probably too soon to write off many as failed investments, as they may have developed technology of value to an acquirer or may orchestrate a successful pivot. But it is safe to say these are not companies generating a lot of buzz in startup circles.
You can go here for a fuller list of messaging companies that haven’t closed a round in at least a couple years. Below are a few examples of companies that once hoped to be the next Snap or WhatsApp, and where they are now:
- Tango: The mobile messaging app raised has $360 million to date, with most of that total from its last funding, a $280 million in Series D round backed by Alibaba in 2014. However, user growth has stalled. According to industry watcher AppAnnie, Tango went from being one of the top 20 most downloaded U.S. apps to now not even cracking the top 150. Performance in other countries has followed a similar pattern. The company hasn’t raised a new round in three years.
- YikYak: Back in 2014, Yik Yak seemed to have everything going its way: a $62 million funding round backed by prestigious VCs and one of the top-ranked apps around. The service, which let people chat anonymously with others in their local area, drew millions of users. But it also sparked controversy for sometimes serving as a conduit for hate speech and cyberbullying. In December, the Atlanta-based company reportedly laid off 60 percent of its workers as usage dropped.
- TextPlus: Founded in 2007, Los Angeles-based TextPlus predates its Venice Beach-area neighbor, Snap, by a few years. But although it got started when Snap CEO Evan Spegiel was still in high school, TextPlus’s early start didn’t give it the edge. The company raised over $50 million in venture funding for its service providing free texting and calls for members. Its last round was two years ago. At its peak a few years ago, TextPlus was a top-100 U.S. app for downloads. Now it doesn’t even crack the top 400.
- Yubl: In a sector filled with speedy failures, Yubl (rhymes with bubble) still stands out. The UK-based messaging platform, backed with about $20 million in venture funding, launched and shut down all in about a year’s time. Yubl targeted younger users and offered settings for private and public conversations, as well as an explore mode.
That’s just a taste. But if for every Facebook there’s a dozen failures that wanted to stake out similar ground, we shouldn’t be surprised to see Snap break out from a host of similar firms.
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