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Google, WhatsApp and the quest for the instant message market

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Late last week a rumour surfaced on the Digital Trends website that Google was in the process of negotiating a deal to purchase the popular messaging app service WhatsApp for $1 billion.

On Monday, Neeraj Arora, WhatsApp’s Head of Business Development, told AllThingsD that they are not holding sales talks with Google.

Google said they would not comment on speculation.

WhatsApp is a fascinating company. It was founded in 2009 by Brian Acton and Jan Koum, two former Yahoo executives who saw a massive gap in the instant messaging market.

WhatsApp is a cross platform, instant messaging application that allows users on smartphones and some feature phones to send messages, images, videos, audio notes and even location information between each other. The traditional SMS limits users to sending a message of no more than 160 characters and is expensive. WhatsApp on the other hand uses data and costs are negligible compared to SMS.

The app is available for iOS, Android, Windows Phone, and Blackberry as well as for Nokia Symbian phones. The app is one of the most popular downloads in most countries across the world with millions of downloads to date. In some stores it is free but it costs around $.99 per year in most stores.

In the same way that Skype revolutionised the traditional phone call, WhatsApp has done the same thing to SMS. Network operators in some markets have seen as much as much as 25 percent annual decline in SMS messaging. SMS has always been seen as high profit and the “bread and butter” of mobile network operators.

Today WhatsApp has over 250 million users who send over 10 billion messages a day. Now you can understand why network operators are concerned.

Interestingly, in South Africa according to an industry source, WhatsApp has grown on the Vodacom network from two million to five million users in just the last three months. Based on rough calculations, it is not impossible to believe that at least one in five people are currently using WhatsApp in South Africa alone.

I was busy looking through my contacts list on my phone and over the last two years I have seen my contacts on WhatsApp grow from roughly 10 percent to over 60 percent off all my contacts and growing.

The instant messaging market has other competitors. There is Blackberry’s BBM, there is an app called Viber which also allows users to make calls to other users, there is Skype which also allows users to make calls and send messages. Samsung’s ChatOn is another popular messaging service and WeChat is growing fast in some markets.

Apart from Skype the others are tiny in comparison to the user base that WhatsApp has.

Now back to the rumour mill…

There’s a battle going on in the instant messaging market between Microsoft, Apple, Google and Facebook.

  • Microsoft acquired Skype in May 2011 for $8.5 billion.
  • Apple’s iMessage service works in similar way to WhatsApp but only allows messaging to other iOS users.
  • Facebook has one billion users who all have access to Facebook Messenger.
  • Google has Google Talk which integrates with a Google account and works well on web platforms.

It is no secret that instant messaging is a weakness in Google’s strategy. Google Talk started off as a web platform and works well on Android platforms but has a weakness when it comes to feature phones and integration into other mobile platforms. It also does not have as high usage with younger users.

There is also talk that Google is planning to announce a new unified messaging service called Babble that will tie together Google Talk, Hangout and Google+ Messenger.

It would make sense for Google to buy WhatsApp and it would not surprise if we do hear of an acquisition. It certainly looks like Google and WhatsApp are courting, and WhatsApp is doing some kind of a money dance for more dollars.

WhatsApp and Google may be denying that they are in talks, but there has been not been an official statement from either company denying emphatically that they are talking.

I could be wrong, but my bet is they will settle on around $1.5 billion, and that will happen sooner than we think, probably in the next few days.

Not bad for a company that was started less than four years ago and has no more than twenty employees and a few servers to manage over 10 billion messages a day.