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SMS Marketing Industry News

Mobile Messaging Mergers & Acquisitions – 2016 Review

Nov 30, 2016

Mobile Messaging Mergers and Acquisitions

As 2016 comes to an end, this year marks one of the most active years in mobile messaging M&A history, given that we’ve seen the following mobile messaging M&a transactions during 2016.

That makes a total of five mobile messaging M&A transactions that occurred in 2016, and that doesn’t even include companies like Twilio going public. What’s interesting to note is that while it’s easy to lump all mobile messaging M&A activity into one category, we’re actually seeing three different types of mobile messaging M&A activity happening in the mobile messaging industry. To better help our readers understand these three different types of M&A activity, and why they’re happening, we’ve put together the following summary of M&A activity in the mobile messaging space.

 

#1 SMS Aggregators Acquiring Other SMS Aggregators

Every year since OpenMarket acquired MX Telecom back in 2010, there’s been steady M&A activity in consolidating SMS aggregators. An SMS aggregator essentially serves as the connection point between SMS platforms like Tatango, and the wireless carriers. SMS aggregators make the majority of their revenues by charging SMS platforms a small transaction fee per text message that is sent to the wireless carriers. With the majority of the operating costs associated with an SMS aggregator being fixed, the best way to increase profits for an SMS aggregator is to increase their volume of transactions. An easy way for an SMS aggregator to increase their volume of transactions is through M&A, which is why you’re seeing so many of these types of deals recently.

 

#2 SMS Aggregators Acquiring SMS Platforms

Why are we seeing so many SMS aggregators acquiring downstream SMS platforms like Vibes, Outspoken, 4INFO, etc? The reason is that over the last few years, especially with the introduction of companies like Twilio & Nexmo, the ability to make money off just transactions (text messages) has gotten extremely tough. This is because most SMS aggregators are selling the same product, with little to no differentiation. When this happens, usually there’s a pricing war, with a race to offer the lowest pricing, which eventually decreases everyone’s profit margins when selling those products. That’s why SMS aggregators are acquiring SMS marketing platforms, so that they can sell more than just transactions to their customers. By acquiring a platform, an SMS aggregator can sell software, services, strategy, etc.

 

#3 SMS Platforms Acquiring Other SMS Platforms

In most industries, it’s very common that as the industry matures, the industry sees a wave of consolidation. This is no different than what is happening right now with SMS platforms. During the early 2000’s, it seemed like everyone and their mother was starting a text message marketing company, with each SMS platform trying to differentiate themselves from the others. Some SMS platforms raised a ton of venture capital, some bootstrapped their operations, some focused on servicing small business, some on servicing enterprise businesses, some provided just the software, while other provided more of an agency offering around text messaging.

By about 2013, most SMS platforms were either thriving, or failing, which brought about the first wave of consolidation. This wave of consolidation saw SMS platforms that were thriving acquiring those that were failing. Usually, these failing SMS platforms were acquired because they had one or two key clients that the acquirer wanted, or some sort of technology.

I believe we’re now into the second wave of consolidation in the mobile messaging industry. This new wave of consolidation is happening in my opinion as investors are projecting the eventual merger of mobile messaging and email communications onto a single platform. The problem right now is that no SMS platform is the dominate player in the industry, which means no SMS platform is generating the types of revenues that are attractive for an acquisition by an email service provider (ESP). This has enticed investors to give money to companies like Waterfall (filed to raise $7,594,999 late last year, with another $650,000 in debt in August of this year) and Mobile Commons (owned by Upland Software – Public Company), to go out and acquire other successful SMS platforms, essentially to try and grow their revenues through M&A activity.

The one downside to consolidating SMS platforms is that with each acquisition, customers are usually forced to migrate their campaigns to the acquiring platform. This is done so that the acquirer is able to acquire the platform’s revenue, but not the costs associated with the upkeep of that platform. This transition period can be tough, but it’s just par for the course when an industry like this consolidates around a few dominant platforms.

 

What do you think, are we in the second wave of a consolidation in the SMS platform space? Does this type of consolidation help or hurt consumers, and how so? Let us know in the comments below. For reference, below is a list of M&A activity in our industry over the last 6 years.


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