Google, Yahoo! Emoticons Leave Money on the Table

Love those smiley faces? Investors may like them even more if Google (Nasdaq: GOOG  ) , Yahoo! (Nasdaq: YHOO  ) , and the like were to begin charging for using emoticons.

Come April, Israel-based Zlango, which launched its icon messaging service in the U.S. last fall, will do just that for its premium content -- such as its Valentine's Day pack -- and through the sale of virtual goods. The startup is also looking to create a second revenue stream through the sale of branded words.

The notion of selling advertising should resonate with Google, Yahoo! and Facebook, given that it's their sweet spot for generating revenues. An icon-based form of advertising would be an additional way to squeeze out revenues beyond a search or display mode of advertising.

What's behind the Z?
Zlango's new revenue stream will apply only to its U.S. market. In Europe and Asia it generates money through a licensing agreement of its text-messaging platform and through a subscription-based revenue share with carriers, says Zlango CEO Ron Haim.

Since entering the U.S. market in October, Zlango has attracted more than 1 million U.S. users, pushing its total customer base to 5 million worldwide.

Zlango is placing a bet that U.S. texters will be willing to click on advertising-related icons, videos, and the like to earn virtual currency, or that they'll whip out the old credit card for its virtual goods and premium content.

As for those credit cards, Haim acknowledges that Zlango's users are primarily youthful users who don't have any plastic yet, and he expects that virtual currency will probably be the way they go. He explained the various ways users can earn virtual currency -- clicking on a video clip from a third-party advertising platform, for example, or selecting an emoticon featuring a branded word -- which all ties back to advertising that in turn provides Zlango with its revenues.

Say a user wants to ask somebody out for a cup of coffee. The user could select a graphic of a standard cup of java or click on a Starbucks icon. By selecting the product-placement icon, the user could earn virtual currency, and Zlango, in return, would receive advertising revenue from Starbucks.

Product-placement emoticons = revenues?
Product-placement emoticons could potentially add a little revenue zing to the messaging offerings from Google and Yahoo! Google's emoticons have already expanded beyond facial expressions to include such things as a piece of cake, a movie camera, and musical notes. Maybe it's time to go knocking on the doors of Sara Lee, AMC Theatres, and Virgin Records.

And Google's revenues could use a little help. Although the Internet titan posted an impressive 25% jump in fourth-quarter revenues to $10.6 billion over last year, revenues per advertising click declined. Google's cost-per-click fell 8% in the quarter, compared with year-ago figures.

Yahoo!, meanwhile, lost further ground on the revenue front. In the fourth quarter, it posted revenues of roughly $1.17 billion -- a 3% decline over the previous year when excluding its network of partners.

Hook and lure
Finding a way to entice Google and Yahoo! users to click on product-placement icons may come down to offering up virtual currency points, much as Zlango is planning. But in the case of Yahoo!, maybe those points could be used for such premium services as its Yahoo! Games Subscription Program, or, in the case of Google, its Google Paid Storage.

For these Internet giants, it'll be a balance of how they could generate advertising revenue with these product-placement icons versus losing revenue from its subscription services.

Another trick, of course, is finding a way to create picture icons that aren't obnoxious to the recipients of these messages.

Users are becoming more familiar with such icons, though. PCWorld, for one, offers a tip sheet on creating a range of image-based icons, while other sites allow users to change a picture into an icon.

Foolish takeaway
With Zlango coming on the scene in April with its plans for a virtual currency platform to monetize its wacky icon emoticons and pictures, it may be time for the big boys to take note and do likewise. After all, their smiley-face messaging user bases far outnumber Zlango's.

Can't get enough of Google and Yahoo and want to stay in the know? Add them to your personalized version of the Fool's free My Watchlist service, which delivers up-to-date news and analysis on your favorite companies.

Fool contributor Dawn Kawamoto owns no stocks in the companies mentioned. But she is heavily invested in using emoticons every chance she gets when texting -- just ask her daughter. The Motley Fool owns shares of Starbucks, Yahoo!, and Google. Motley Fool newsletter services have recommended buying shares of Starbucks, Yahoo!, and Google and writing covered calls in Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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