Alphabet (GOOG 10.02%) (GOOGL 10.36%) subsidiary Google recently announced it had acquired the GIF application start-up Tenor for an undisclosed sum. The use of GIFs in mobile messaging has taken off in the last few years, and Google's new asset is a bet that trend will continue.
But wait, what's a GIF?
A GIF (graphics interchange format) is a file type for images or small video clips. Sound pretty boring? It is, except that in recent years animated GIFs have found popularity in messaging and texting apps. For example, if you texted that you got a new job, I could type back "Congratulations!" Or, if I wanted to be more expressive, I could send you this Tenor animated GIF of excited Minions instead.
Tenor has quickly become a leader in GIF messaging since launching three years ago. The company reports it is the leading GIF-sharing app on mobile, and it integrates its animated messaging tools with messaging apps from Google, Facebook, Samsung, and others. Tenor will continue operating under its own name under the Alphabet umbrella.
The power of animated expression
Still confused why Google would pay for a start-up like Tenor? There are several reasons it makes sense.
Image source: Getty Images.
The first is that the things people are searching for on the internet, and the reason they're searching for them, have changed. Google says it sees millions of searches every day for GIFs that get shared with others. Thus the desire to make Tenor's content part of the Alphabet family.
"With their deep library of content, Tenor surfaces the right GIFs in the moment so you can find the one that matches your mood. Tenor will help us do this more effectively in Google Images as well as other products that use GIFs, like Gboard," said the company in its press release.
Second, Google is also in the software business. Its Android operating system is the global market leader for smartphones, taking an 85% share in 2017. Google is also building things like Pixel phones in-house now. Those are getting loaded up with proprietary software like Gboard, which is used for composing messages on other apps. Google wants to make it easier to search for and send GIFs directly in Gboard, making a more seamless experience for users. That could help the company keep its global lead as well as market its own hardware more effectively.
But, perhaps most importantly, Google may see an opportunity to monetize the proliferation of GIFs themselves. Internet search is a massively profitable business because of its advertising capabilities. GIFs carry similar potential, and Tenor has only begun to tap into that potential. It launched its first sponsored GIF campaign late in 2017. How does that work? If I wanted to go get a coffee with you, I might send you the animated GIF below, and now we're talking Dunkin'.
Talk about powerful advertising potential. Tenor and other similar apps out there are enabling product placement -- not the type inserted into movies and TV shows, but directly embedded into our communication. What business would say no to having its advertising going viral? Dunkin' Donuts won the "Best Use of Mobile Marketing" award at Mobile World Congress in February for its recent campaign with Tenor, further underlining the business potential of GIFs in messaging.
As for Google, we don't know what it paid for its quirky messaging app acquisition, but it likely was a minimal amount since Tenor is still a start-up. But with Google's track record of successfully mining advertising revenue and its ability to plug Tenor's platform into its own suite of software, this acquisition could be an exciting one for investors to keep an eye on.
