14 Feb 2014

Why a Japanese Retailer Bought Viber


Today, Japanese e-commerce company Rakuten announced that it had acquired the messaging app, Viber, for $900 million. While this may seem like an unusual fit, this quote from the Rakuten's CEO explains it all.

This is a no-brainer. Messaging apps are taking over the world and, while search is one of the strongest platforms, what is happening in communications is very, very important. We have content and games and commerce and markets and services, but they need the ability to reach out and talk to customers wherever they are. With this, we can make buying more secure, but also more human. Today, to survive, I think you have to have a messaging app, because that is where consumers are active. 

The last line of the quote is really the key to understanding this acquisition.

The rise of smart mobile devices has precipitated a shift from competition within categories to competition within user contexts. The resulting business models, with separate value creation from monetization strategies, have given birth to inter-industry competition. For example, WeChat, a free messaging service monetizes by becoming a distribution platform (e-commerce). As a result, it is on the path to disrupt both paid messaging (SMS) and standalone e-commerce companies.

One of the most significant expense items for an e-commerce company is the cost of customer acquisition. Since messaging apps already have an engaged user base, their cost structure has the potential to be far more efficient. Rakuten seems to have caught this trend fairly early and is attempting to use Viber to implement a similar asymmetric business model to boost their e-commerce business.