Alibaba buys stake in Silicon Valley messaging app

Updated: 2014-03-21 13:15

By Michael Barris in New York and Meng Jing in Beijing (China Daily USA)

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Tango, a Silicon Valley start-up company that makes a messaging app, said it raised $280 million in a round of venture financing, with the bulk of the investment coming from Chinese e-commerce juggernaut Alibaba Group Holding Ltd.

Alibaba's $215 million investment - announced days after it said it would hold a highly anticipated New York initial public offering that could value the company at $200 billion - will give it a minority stake and seat on Tango's board. Coming on the heels of Facebook Inc's $19 billion acquisition of Whatsapp, the deal illustrates the lengths to which Internet companies will go to enter the competitive field of mobile communications.

"The platform approach I believe is the winning strategy," Tango co-founder Erikc Setton said. "We've now seen it in a number of key markets, with Kakao in Korea or Line in Japan." Tango's offerings of games, multimedia sharing and other content are seen as eventually taking market share away from Whatsapp, which offers purely text and voice communications, Setton was quoted by Reuters.

Alibaba, which has been on an investment spree of late, sees Chinese rival Tencent - and Tencent's WeChat messaging/e-commerce platform - as a serious threat. Alibaba recently introduced a WeChat competitor called Laiwang, but the service has struggled. Tango's service counts 200 million registered users and 70 million active users with its greatest popularity in North America, the Middle East, Taiwan and Singapore, according to the company.

Alibaba buys stake in Silicon Valley messaging app

The companies declined to specify how much the investment values Tango, although the figure is believed to be more than $1 billion. In 2012, when Tango last raised money, it was valued at around $300 million. Alibaba invested $215 million while the remainder of the funding came from Tango's prior investors, which include Access Industries, Draper Fisher Jurvetson and Jerry Yang, a co-founder of Yahoo, Tango said.

Tango has offices in Mountain View, California, Beijing and Austin, Texas.

The investment was disclosed in a blog written by Setton, the startup's chief technology officer, and co-founder and Chief Executive Uri Raz on Thursday.

The two executives wrote that they were looking forward to moving into new growth areas in social networking and content. "We know that we can't do it on our own, and, for that reason, we couldn't be more excited to announce our newest investor, Alibaba Group," they wrote.

Despite the fact that Tango has no business in China, its millions of users spread across the US, Europe, the Middle East and Asia will bolster Alibaba ahead of what would be the largest US IPO ever, while strengthening the company's presence in the mobile communications field.

Zhuo Saijun, an analyst with the Beijing-based Internet consultancy Analysys International, said with the investment in Tango, Alibaba will be able to tell a better story to investors. "Because Tencent's WeChat enjoys a dominant position among mobile chatting apps in China, Alibaba desperately needs to find a strong target to fill its gap in this area," Zhuo said.

No product is as strong as WeChat, which has 600 million registered users in China, so Alibaba has to look for candidates in markets outside China, he added. "There is the possibility that Alibaba will introduce Tango to the Chinese market or bring in the company's technology or patent into China," Zhuo said.

Jane Zhang, principal research analyst with Gartner Inc, a US information technology research and advisory firm, echoed the view, saying Tango is not only a messaging app but also a content platform with video, social and gaming, which could bring business expertise to Laiwang, Alibaba's own mobile messaging app.

Despite some cash-burning promotions, Laiwang, which was launched last year by Alibaba as a weapon to compete with Tencent's WeChat, has so far failed to turn many heads. The app, which has more than 10 million users, lags far behind WeChat.

Apart from its unfulfilled ambitions regarding mobile chatting, the investment in Tango could potentially help with the expansion of Alibaba's overseas online commerce business.

Annie Xu, US general manager for Alibaba, told the Financial Times the group was exploring how it could expand its cross-border work.

While Alibaba's core business remains in China for the foreseeable future, she said, it is also looking at ways it can use its access to Chinese customers and wholesalers to facilitate more commerce.

Senior executives of Tango confirmed that as part of this financing, Michael Zeisser, head of an Alibaba investment team in the US, will join Tango's board of directors.

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(China Daily USA 03/21/2014 page1)