The Mobile Messaging War: And the Winner is …

The mobile messaging and telephony world has gone bonkers. Technology and application mashups, sky-high valuations, crazy acquisitions … the tech world hasn’t seen anything like this since the dot-com bubble. The only thing missing is that the public markets have yet to join the party.

But just you wait. It’s coming. I can feel it. Once this round of consolidation is over, the only two types of companies left standing will be those destined for IPOs and those destined for oblivion. In any case, the sheer amount of activity over the past year has been impressive, to say the least.

First ephemeral messaging app Snapchat snubbed Facebook’s $3 billion offer and went on to raise several rounds of funding, including up to $20 million by Kleiner Perkins at a $10 billion valuation. The company has no revenues, but rumor has it that CEO Evan Spiegel is showing a business plan to select VCs. We’ll come back to that later.

Then Facebook snatched up WhatsApp and its 500 million plus monthly active users for a whopping $19 billion. Japanese ecommerce giant Rakuten bought mobile messaging app Viber for $900 million. And Alibaba led a $280 million round in Mountain View-based Tango, valuing the messaging and free-calling app at $1.1 billion.

Meanwhile, San Francisco-based Twilio has a unique value proposition, providing developers with APIs that enable just about any form of communication to be embedded into business applications. The company has raised four rounds from a who’s who of VCs and was rumored to be considering an IPO last year.

Then there’s Tencent’s WeChat in China, Japan’s LINE and Korean-based Kakao. And BlackBerry Messenger, which provides secure messaging, voice and video calling services for enterprise customers.

Not to mention that all these companies compete with Microsoft Skype, Google Voice and Apple Messages and FaceTime.

Did I leave anyone out? Probably hundreds. It reminds me of those heady days when Mark Cuban sold to Yahoo for almost $6 billion and people actually thought there was a market for Webvan and You know, just before every tech investor on Earth learned the true meaning of irrational exuberance.

The question is are we heading down that same road, or do at least some of these valuations, acquisitions and the IPOs that are sure to follow make any sense? I think there is a little of both going on here. And I do think we can figure out just how this industry trend might unfold by learning from the past.

The problem with the Internet bubble was two-fold. First, it was built on the ludicrous premise of infinite demand for Internet infrastructure and bandwidth. Second, every company with dot-com or optical in its name was suddenly worth billions.

Today, there is a similar underlying assumption that the millions of users of these free messaging and telephony apps can someday be monetized. While there clearly are subscription, advertising and other plays, it’s not at all clear that the total incremental market will add up to anything close to the sum of those stratospheric valuations.

Another way to look at this is to consider the early search engine market. Yahoo acquired Alta Vista and Inktomi in a desperate attempt to bolster its search capability. A $6.7 billion merger created Excite@Home. There were plenty of other deals, but it was Google’s search advertising business model that nobody saw coming.

Who could have foreseen that a search engine coupled with the right business model could generate so much cash? Besides Google (NASDAQ:GOOG) and Baidu a handful of self-sustaining companies – namely Amazon (NASDAQ:AMZN), eBay (NASDAQ:EBAY) and Alibaba (NYSE:BABA) – emerged from the relics of the dot-com bust to disrupt the global commerce market.

To me, that explains the real play here and why so much capital is being literally thrown at all these messaging startups.

There’s something to be said for VCs placing big bets on which companies may emerge from the current mashup to disrupt the mobile communications market and become new powerhouses. And there’s also an argument to be made for the likes of Facebook, Google, Alibaba, even AT&T to play defense against disruption by new competitors.

And while most of these messaging apps are dressing themselves up for acquisitions by big players by pumping up their user base and ignoring monetization, I think they’re missing the real brass ring opportunity: the combination of the right product and the right business model, as in the case of Google.

Lest we forget that a $100,000 check to Larry Page and Sergey Brin by Sun cofounder Andy Bechtolsheim came to be worth over $2 billion.

It sort of makes you wonder about Snapchat’s mysterious business plan. Maybe Spiegel’s got something up his sleeve that got Kleiner Perkins to write a $20 million check for less than one percent of the company. Maybe there’s more to the messaging app than meets the eye. Or maybe Twilio is the big play.

One thing’s for sure. A lot more VCs and companies will throw a lot more money at this space. There will be a big shakeout before it’s all said and done. There will be IPOs. And it’s just possible that a new mobile communications powerhouse will emerge. When I figure out who it is, I’ll text you.