By Eunice Shin, Managing Director, Manatt Digital
Social media has changed the game. Arguably, nothing has quite disrupted the media landscape to date as profoundly as social media technology has. And there has been no other time in history when that has been more apparent than now. In the past few months, and even more so in the past few weeks, the major social platforms have green-lit original programming and now are competing with the media and entertainment world not only for users’ time spent on apps, but for time spent in consuming long-form content.
While there may have been some ambiguity around the video strategy for social platforms to date, the recent deals in investing and committing to content have made it clear that social media wants to play at the distribution game. Facebook, Twitter, Snapchat and even musical.ly—they all want in. How does this shake up the competitive landscape? How will it further change the way audiences consume content? What does this do to the once-was-new skinny bundle? And to the online streaming giants that are apparently at the top of their game? It’ll be super interesting to watch how teams form in the coming months. And what’s even more interesting will be the next big moves social media makes in positioning themselves as content discovery tech, and what that will do to the game for content owners and distributors across the board.
And if all this isn’t dizzying enough, added to this overall dynamic is the power of the messenger apps, which to most of the world outside of the U.S. are the be-all and end-all for communication, connectivity and commerce. And if you aren’t familiar yet with social chatbots, you need to get smart on their evolution and the ways they’re being used to deepen engagement and influence. All this and more in our monthly newsletter. Enjoy!
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The Growth of Messaging Apps: The Opportunity for Marketers
By Ned Sherman, Counsel and Director, Manatt Digital
With more than 3 billion users worldwide, messaging apps have surpassed social networks in both reach and retention. The most popular services have evolved into expansive ecosystems with their own developers, apps and APIs, and they are being used not only for chatting and exchanging photos with friends but to connect with brands, play games, watch videos and browse products, creating a big opportunity for marketers and businesses.
What are the most popular messaging apps?
As of January 2017, the most popular mobile messaging apps worldwide, based on number of monthly active users (Statista 2017), are:
WhatsApp: 1 billion active users
Facebook Messenger: 1 billion active users
QQ Mobile: 877 million active users
WeChat: 846 million active users
Skype: 300 million active users
Snapchat: 300 million active users
Viber: 249 million active users
LINE: 217 million active users
The opportunity for marketers
There are several characteristics of messaging apps that make their users particularly appealing to brands and marketers, including size, retention, usage rates and user demographics. Combined with the fact that their users skew young, these characteristics make messaging apps an important channel for brands, advertisers and publishers to reach the most coveted consumers of our age: Millennials and Generation Z.
What are brands doing on messaging apps?
Here are a few examples of how brands and marketers are using messaging apps:
- Hyatt: Facebook Messenger
Hyatt is one of the first brands to use Facebook Messenger for customer service, allowing users to have real-time conversations with the hotel by simply searching for “Hyatt” in the app’s search bar.
“The addition of Messenger to our around-the-clock social care efforts was a no-brainer,” said Dan Moriarty, director of digital strategy and activation for Hyatt, who was quoted for an article in Digiday. “It’s just one more channel in which we get to have meaningful conversations with guests and help them be their best, on the road and right away.”
- Taco Bell: Snapchat
Taco Bell has been on Snapchat for more than three years. One of its most successful campaigns was the creation of a sponsored lens that turned consumers’ heads into a giant taco shell to celebrate Cinco de Mayo. The campaign cost $750,000 and resulted in 224 million views in one day, making it one of the most successful campaigns on Snapchat to date. Ryan Rimsnider, senior manager of social strategy for Taco Bell, said that his team spent six weeks working directly with Snapchat to create the lens, according to AdWeek. “We’ve had the vision internally at Taco Bell for quite some time and finally had the right moment to execute,” he said.
- Chatbots and the future of messaging apps
The intimate and immediate nature of messaging apps is what makes them such an appealing platform for users and marketers alike. What’s expected for messaging apps in the future? Most see chatbots as a part of the answer, pointing to platforms’ focus on using chatbots to monetize the attention of users as a sign of what’s to come. Facebook, for example, offers advertisers access to users through Messenger, giving them additional opportunities to convert consumers, and has plans to develop more powerful and engaging bots (2017 Tech Trends: Chatbots Will Reshape Messaging Apps, Wall Street Journal). For more on chatbots, see Mary Ermitanio’s article below.
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The Evolution of Chatbots
By Mary Ermitanio, Manager, Manatt Digital
A chatbot is a service that is automated by some previously defined logic and sometimes artificial intelligence (AI), and can be found in messaging services such as Messenger, Kik and Slack. In its most basic form, a chatbot is the text version of a typical automated customer service routing process. On the other end of sophistication, it is Siri or Alexa, both in text and audio form. It is a personal assistant, sales associate, therapist, DJ and anything else you want it to be.
The concept of chatbots isn’t new. Its cousins, social bots and the older Internet bots, have been around since before messaging platforms, crawling the web, participating in chat rooms and social media, and as SMS. In 2013, there were already Twitter bots (e.g., a fake journalist—a discussion still very relevant today) that were more influential than contemporary icons such as Oprah. Also related, natural language processing tech has been available via Watson, Siri, Google (Google Now) and Alexa.
Why are chatbots trending?
Fast-forward to today, these bots still exist, but a new wave of chatbots is garnering a lot of mainstream attention resulting from the explosive growth of messaging app usage, combined with fatigue in app downloads in general. Why download another app when you can get the same service on a platform you are already on? Developers also see this and are turning their attention to chatbots as a new revenue stream. In 2015, we saw dozens of chatbot services for SMS, including Text Riley for home buyers and renters and Magic for personal assistance on just about anything. Today, messaging apps are hugely popular around the world, with Facebook Messenger leading in the U.S. at over one hundred million active users per month. This is an incredible opportunity for existing platforms to grow their ecosystem of services and for brands and developers to reach consumers in a more personalized way.
The growth of chatbots can also be attributed to access to more tools. In 2016, tech giants, messaging platforms and new tech startups made bot-building tools available for developers. Since then, consumer brands have been experimenting with the various types of interactions that they can have with users on yet another new channel, including customer service or shopping assistance. By late 2016, Kik users and brand bots had already exchanged almost 2 billion messages. There were 33,000 bots on Facebook Messenger as of April this year.
How are chatbots used and monetized?
Chatbots are analogous to—and perhaps more accurately, the next iteration of—mobile apps, both in potential use cases and monetization. Online publishers, such as TechCrunch and Forbes.com, have launched their messenger bots to push out new stories. Consumer brands are using chatbots to provide customer service, including providing product information, enabling product discovery and completing transactions. For example, Unilever’s Nexxus launched a “hair concierge” chatbot to help women find answers to hair-related problems. Talent and influencers promote conversations, events and products using chatbots built by services like Stashimi (a client and portfolio company of Manatt). Currently, developers and brands can monetize via referral links, in-app transactions, e-commerce and charging per session.
Where is it going?
The majority of the bots in the market don’t really employ artificial intelligence and function more like interfaces for structured workflows and interactions. A significant difference between today’s bots and tomorrow’s will be the use of machine learning, enabled by more efficient computing power. Whereas most bots today respond based on predefined rules, more bots in the future will increasingly be self-taught using historic data, such as movie dialogues, social media feeds or search queries. We are already seeing early iterations of this. Launched in 2016, Microsoft’s infamous “Tay” was a brief experiment in intelligent Twitter bots. Tay was eventually shut down due to racist and sexist statements it made based on its interactions on Twitter, a lesson that continues to serve as a warning for developers. Facebook’s artificial intelligence research team recently showcased a bot that can negotiate on a user’s behalf, a proof of concept for more-powerful bots in the future.
It will also be interesting to see how the paths of voice-activated apps on platforms like Siri converge or diverge with text-based chatbots on messenger services. There is an interesting opportunity for companies to develop multiplatform AI brands that are available across these platforms.
While there has been a lot of activity and interest in the space, chatbots haven’t exactly caught on with the masses yet, and brands and developers still have a lot to learn. There also hasn’t been a big marketing push by brands and platforms. At the F8 developer conference this year, Facebook doubled down on chatbots and will be launching bots for group chats, where many users spend a majority of their time. As new discovery mechanisms and increased marketing help drive adoption, the revenue potential will continue to grow and new use cases will be defined and refined to fit this new medium.
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Snap’s M&A Reveals Strategy
By Jacob Carlson, Manager, Manatt Digital
Snap’s post-IPO journey has included a number of initial challenges, including strong competition from Facebook and its Instagram product offering. However, Snap is building for the long run, not short-term profits. People forget that Facebook’s stock dipped to below half its IPO price before recovering and climbing to over $150 per share today. In looking at Snap’s recent M&A activity, we can see how the company is planning for the future with an eye on increasing shareholder value and long-term growth.
Snap can also rebound with a focus on the future and a holistic strategy to compete and beat its competitors in the marketplace. For as much as Snap wants to call itself a camera company, its competitors span the social, media and entertainment, and technology spheres. These competitors also have deep pockets and are not afraid to play second-mover to anything Snap creates.
One of the key ways that Snap has found, and will continue to find, opportunities to innovate is through M&A activity. We can look at some of the company’s most recent deals to understand how it is going to effectively compete with the likes of Facebook and Twitter for users and ad revenue. Innovation and speed to market are key to boosting the stock price as Snap builds toward long-term sustainability.
Vurb (August 2016)
Vurb was a mobile search technology that drove personalized recommendations and integrated third-party data into its search services. Its new way of looking at search was supposed to build more dynamic and relevant results based on user activity.
Snap acquired Vurb for a reported $114.5 million. While Snap’s motivation for acquiring a mobile search company was unclear at the time, it appears the technology may be a long-term strategy to help users navigate within the app and discover content via Memories or other functions. The acquisition was structured to incentivize the Vurb team to join Snap, so it was essentially an acquihire.
Snap and Facebook are at opposite ends of the spectrum in terms of content and discovery. While Facebook is able to take advantage of all the user data and activity from Facebook, Messenger and Instagram, Snapchat is essentially a closed ecosystem with little content discovery outside of sponsored channels and personal networks. Vurb’s team could provide a way for Snap to enable better content discovery from various aspects of Snapchat’s platform, and to develop new opportunities to bring user recommendations and activity to the larger Snap community.
Flite (December 2016)
Flite was a San Francisco-based ad-tech company that helped create, track and monetize creative digital ad campaigns.
As with Vurb, this acquisition, for undisclosed terms, was viewed as another acquihire in advance of Snap’s impending IPO. The Flite team’s experience lent itself to building out ad-buying technology for Snapchat’s ad API. This was an area in which Snapchat was lagging behind its competitors, including Facebook, and the acquisition of Flite’s team was a way to advance its capabilities. While most reporting has focused on Facebook’s copying of Snapchat’s functionality, the Flite acquisition is a clear instance of Snap self-identifying a gap in its ecosystem and filling it via a strategic acquisition.
Cimagine Media (December 2016)
Cimagine Media was an augmented reality technology company that helped users visualize potential purchases in their real-life locations.
Cimagine provides a capability that could offer real value to Snap in the marketplace. As Snap realizes its need to continue to innovate to create value for shareholders, acquisitions like Cimagine will help the company achieve its goals. The $30–40 million transaction should allow Snap to eventually make its way into the competitive AR commerce space. While there are a number of players trying to figure this out, the social engagement implications are massive. If Snap can become a first-mover, it will be able to realize some short-term value for shareholders before the eventual competition with Facebook, Pinterest, Twitter and others takes shape.
Geofilter Patent via Mobli (April 2017)
Mobli’s geofilter patent was a coveted asset that received interest from both Snap and Facebook. Mobli was an Instagram competitor that did not succeed, but it did create a server-side filter based on geolocation. That technology has become a key point of content creation and discovery on Instagram and Snapchat, putting the owner of the patent in a place of strength from a litigation standpoint.
This patent had significant value for Snap and its competitors, as filters and location-based content are a big part of their respective offerings. As is true with any patent, there is room for competitors to work around it, but Snap was willing to pay a significant premium to own this opportunity. For a company with a market cap of over $21 billion, even a $7.7 million price tag is worth it for a single important patent.
Ctrl Me Robotics Inc. (May 2017)
Ctrl Me was a boutique company that custom-rigged off-the-shelf drones for high-end camera attachments for major Hollywood buyers.
This was yet another acquihire, this time to obtain Ctrl Me’s CEO, Simon Nielsen, for $1 million. Snap obviously liked Nielsen’s drone expertise and felt that his experience could play a role in Snap’s road map. Combined with Snap’s basis in augmented reality and its need to innovate, this acquisition was a small bet on the future of drone prevalence. If drone usage begins to scale, Nielsen’s ability to help Snap navigate the ecosystem for integration opportunities could pay off. It’s tough to envision a B2C model that scales appropriately for Snap to realize a major market presence, but an enterprise solution combining AR and drone technology could be an interesting proposition for companies in a vertical such as logistics.
Placed (June 2017)
Placed helped advertisers understand the ROI on physical visits to retail and commerce stores in response to digital advertising campaigns.
This acquisition, somewhere in the reported range of $125 million to $200 million, sheds light on Snap’s long-term strategy when viewed against previous transactions. With Placed’s capabilities, Snap can now provide better insights to advertisers by showing ROI on ad campaigns launched via Snapchat and the potential boost it provides to in-store visits. In essence, Snap can charge a small premium to show direct engagement ramifications for brands and advertisers. This quality-over-quantity strategy will be useful for Snap as it differentiates itself without relying on monthly active user volume.
Zenly (June 2017)
Zenly was an app that allowed users to find friends’ locations using GPS tracking that ran in the background. Its always-on functionality allowed users to stay in touch and make plans with friends, using insight into their proximity to each other.
With Snapchat’s recent launch of Snap Maps, this reported $200 million to $350 million acquisition helps Snap provide innovation that shareholders are looking to see. While the consumer-facing benefits are evident, the advertising capabilities are what make this technology intriguing. It opens up an opportunity for additional sponsored ad revenue and location-based ad inventory. Combined with the Placed acquisition, the acquisition of Zenly may be an additional way for Snap to track and monetize ROI for in-store visits based on ad campaigns.
Facebook has been a key competitor for Snap, but Snap has a continued opportunity to differentiate itself going forward. With the combined powers of the transactions listed above, Snap can be a first-mover for the coming integration of AR and commerce. In combining the capabilities of Flite, Cimagine, Placed and Zenly, Snap now has the initial tools to create an AR commerce marketplace with integrations for brands, advertisers and retailers, all interacting with consumers on a social platform. If Snap can harness the available data that should be pouring in, it can initially be the go-to platform for the new world of AR commerce.
Snap won’t be the last entrant into the AR commerce space, but its ability to add value for shareholders will go a long way toward building a sustainable business. Snap will need to continue to evolve and find new areas for growth, but the company’s credibility with a targeted demographic is difficult to replicate. The fact that it is competing and succeeding in a space dominated by relatively few companies is remarkable on its own. However, Snap has an opportunity to become a diversified company with a long-term future. Its M&A activity going forward will continue to indicate whether it is on the right track.
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