With Apple throwing in iMessages and Facebook rolling out Messenger, it’s hardly surprising that group messaging app GroupMe went for an exit while it could.
Skype bought the New York-based company for a rumored price north of $50 million (according to Betabeat) or $85 million (according to AllThingsD). Both prices would represent a decent exit considering that GroupMe raised nearly $11.5 million in two rounds from Khosla Ventures, General Catalyst, Betaworks, SV Angel, First Round Capital and Lerer Ventures. That would likely be 2-3X for the Series A investors in less than a year and very good for the founders Jared Hecht and Steve Martocci, who only launched the product in May of last year.
The most obvious points are that —
GroupMe was facing an increasingly competitive landscape, so an exit at the right price makes perfect sense: With Apple’s iMessages launching in iOS5, Facebook Messenger, and the carriers moving toward an all-you-can-eat SMS model, GroupMe was increasingly going to look like a tiny, unmoored ship competing against aircraft carriers in a storm.
GroupMe was usually ranked between #50 and 100 in the relatively competitive social networking category on iOS and had fewer than 500,000 installs on iOS. Despite its hype, it likely had a small user base. It was also pre-revenue and had yet to sort out a business model. Pairing with Skype gives them an edge in distribution with the Luxembourg-based company’s 145 million users per month.
Skype wants to improve engagement with its mobile products: Given that the initial versions GroupMe and Beluga were built very cheaply, Skype could have built its own messaging experience for very little. However, they decided to go the build instead of buy route with an established brand. Skype had $142.5 million in cash and cash equivalents on its balance sheet at the end of 2010 so a deal worth slightly more $50 million in cash, equity and earnouts would be easy for them stomach. Skype has also taken the acquisition route before to enhance its mobile offerings; it bought Qik to support mobile video.
The broader ramifications are —
Don’t cry for Twilio: At the beginning of this year, it looked like Twilio had built itself a nice, little revenue stream from supporting the underlying infrastructure for many group messaging apps like Beluga and GroupMe. The standard rate was $0.01 a text message (down from $0.02 at the beginning of the year), although both companies likely got better package deals. As both Beluga and GroupMe grew, they quickly surpassed 1 million messages a day near the beginning of this year, so their monthly payments to Twilio were probably not insignificant.
But after Beluga got bought by Facebook, the social network decided to rely on its own carrier relationships and SMS hooks for its Messenger app (which was Beluga reborn). Skype, which also has hundreds of carrier relationships, will probably do the same. That means two big group messaging customers will effectively drop from Twilio’s folds.
However, Twilio is diversified with other big markets in supporting click-to-call links in online directories and global call centers. Also, they recently did something Skype should have probably done ages ago. The company launched a way for third-party developers to create Skype-like experiences in their apps with a new Voice platform.
The deal brings another layer of complexity to the Skype-Facebook relationship: Skype and Facebook are both trying to be communication utilities even though they have different core competencies in social networking and VOIP. Their recent partnership bringing video calling to the Facebook platform delivered benefits for both — increased engagement for Facebook users and new customers for Skype should they eventually support paid voice calls. If paid calls were added to the partnership, we would expect some kind of revenue share that makes sense for both parties.
Skype’s acquisition of GroupMe now brings the company a product that competes directly with Facebook’s newly launched Messenger app.
Both messaging apps are ancillary to each company’s core business. GroupMe’s technology would probably be integrated in the main Skype app, driving engagement with Skype. The metrics Facebook is using to judge Messenger’s success is whether it increases engagement with Messages overall. And at the same time, their use cases don’t overlap all of the way. GroupMe seems better suited to temporarily organizing a group of people during a specific period time. In contrast, Facebook Messenger will tend to be used more for one-on-one conversations because it plugs into chat and Messages on the website.
What happens to the remaining independent messaging apps? Kik raised an $8 million Series A round from RRE Ventures, Union Square and Spark Capital and it’s probably larger with between 1 and 5 million installs on Android and a higher average rank on iOS. If we benchmark GroupMe at $50 to 85 million, Kik would likely want to sell for more but it’s not clear who the strategic acquirer would be. There’s also a class of older messaging apps that last raised funding four to five years ago like Gogii and Pinger that seem to earn revenue primarily off of advertising, incentivized installs and app sales. It’s not entirely clear what the exits for these companies are either.