Last week's discussions over a potential investment valuing Snapchat in the region of $19 billion has brought into financial focus the value of instant messaging platforms in the modern smartphone ecosystem.
The first generation of smartphone relied on the SMS standard to pass messages between handsets, but the pricing was prohibitive, and as data connections on mobiles became faster and more reliable (and cheaper than sending a single 160 character text) the switch to an internet-based system of instant messaging was under way.
In a sense the carriers were the first big losers of the IM battle. The potential of MMS was there, and the carriers were likely hoping to benefit for the same cost/revenue structure that SMS had provided with them. That was not to be.
Any IM system creates a huge amount of engagement with users, and a significant number of monetizable moments. The 99 cents annual fee for WhatsApp (after the first year, which is free) is a tiny fraction of the income potential of the app. Leveraging the user base is key, and that could involve many business models, including affiliation fees for products and services, the selling of 'stickers' and emoticon packs to users, and more.
The key factor in all of these is - just like the old days of AOL and Yahoo! - whoever controls the portal controls the experience and the user, and can monetize in many different ways when they have that control.
As search slips away to be a 'feature' rather than a 'product', many have wondered what the next 'that's the big thing' is, and the answer is IM. The mobile portal is not a landing page, but the IM client. If you can successfully monetize IM, then you monetize the mobile user - and if you can monetize the mobile user, then you have the key product for the next generation of the internet.
Next: Facebook's deal of the century, and the bargain basement offer that failed...
Pitching the instant messaging client as the portal how sensible Facebook's purchase of WhatsApp (for $19 billion - spookily there's that number again) was. It makes far more sense today than it did just over a year ago. At that point many wondered why Zuckerberg was spending so much money on a mobile application. Now, it appears to be one of the biggest bargains of the modern connected world.
It's also clear why Zuckerberg and Facebook chased down Snapchat and looked to purchase the company in late 2013 for a reported $3 billion (it's also believed that Google offered Snapchat $4 billion, which was also turned down). That $3 billion felt crazy high at the time. Not any more.
Snapchat is the dirt in the oyster at the moment. It is one of the largest IM platforms without a major 'affiliation'. If Facebook were to hold Snapchat (as well as WhatsApp and Instagram) it would have a powerful claim to messaging in the second decade of the twenty-first century.
Apple of course has iMessage, baked into both iOS and OSX, which provides a siloed experience for Apple users and quietly shepherds users to remain with Apple's hardware.
So far, Google Hangouts is the weakest of the major players. Mountain View has missed the first wave of acquisitions of SMS replacements. Snapchat's volume is going to look very attractive, and if it becomes more disruptive (as I expect it to be) then Google could be looking at Snapchat to be its second player in the IM game. Facebook will see a property that could allow a competitor more leverage in the messaging space, and Microsoft is surely circling as well.
Meanwhile as an 'indie' Snapchat becomes ever more valuable to the competition, it drives up its own value, its own earning potential, and of course this virtuous cycle gives it the opportunity to resist the competition.
The Instant Messaging space is a vital one, with only a few players realistically chasing billions of users and untold profits. I'll be watching them all very carefully this year, here on Forbes, to see where it all ends up.
(Now read how Facebook dominates your smartphone with apps to stifle the competition).
