Twitter (NYSE:TWTR) announced on Tuesday that it has acquired online marketing firm ZipDial -- its first acquisition in India. Full disclosure: I wanted to dislike this deal as I have developed a small bias against Twitter (as a member of the financial media, I find its ubiquity a bit overbearing). However, the more I read about it, the more I became convinced this was a canny move that could have a significant impact on the company's development in India -- soon to be its second-largest market -- and across emerging markets.
What does ZipDial do?
ZipDial developed "missed call" marketing in response to a simple observation: Indian mobile phone users often do not have smart phones per se, or are very frugal with their data use due to the cost of data packages. ZipDial's platform enables users to call a number associated with a product, company, or sports event, which call disconnects automatically after one ring without any charge to the user. This "missed call" is all it takes for users to register their participation in a contest or sign up to receive special offers, coupons or sports updates, etc (again -- crucially -- at no cost to the user).
What does that have to do with Twitter?
ZipDial is a powerful marketing platform, enabling consumer brands to reach a large number of potential customers; furthermore, since a missed dial is "opt-in," the resulting pool of "subscribers" is self-selected (and, therefore, more likely to lead to some sort of profitable interaction). That logic has already seduced a number of blue-chip clients, including Procter & Gamble, PepsiCo, and Walt Disney.
That in itself ought to be interesting to Twitter, since online advertising is its largest source of revenue. However, ZipDial can do more for Twitter: they have already paired up to enable Indian mobile phone users to call a number in order to receive tweets from a specific Twitter account as SMS messages -- users don't even need a Twitter account. (Similarly, ZipDial has collaborated with Facebook (NASDAQ:FB) to enable users to "like" a Facebook page without logging on to the social network.)
As Twitter's market director for India and Southeast Asia, Rishi Jaitly, wrote in a blog post announcing the acquisition [my emphasis]: "Our primary mission, bolstered by this acquisition, is to help every Indian with a mobile device get a great, relevant Twitter experience."
What is the opportunity?
India became the third-largest Internet market globally by number of Internet users last year; similarly, data from eMarketer suggests India in 2014 also overtook the U.K. to become Twitter's third-largest market, with 17 million users. This year, it looks set to overtake Japan. (For reference, Facebook broke through 100 million users in India last year.)
In dollar terms, the immediate picture is less rosy: With a total advertising market of just $7 billion (of which just $1 billion is online), according to figures from research group Magna Global, India is a laggard compared to the U.S. ($168 billion) or even China ($50 billion). All the same, Twitter, with ZipDial's help, now looks well positioned to help close that gap.
How great is this deal?
Is ZipDial a great acquisition? It certainly looks like an interesting business that has pioneered a novel solution to a constraint mobile phone users face in India and other emerging markets, namely the cost and availability of data packages for mobile devices. ZipDial is a private company, and Twitter is not releasing financial details of the transaction, but technology blog TechCrunch reported the value of the deal in a range of $30 million to $40 million. Given the scale of its primary market and that of its wider addressable market, and the fact that ZipDial has already attracted a roster blue-chip clients including Procter & Gamble and PepsiCo, that figure doesn't look in any way problematic.
I continue to believe that Twitter is a niche application that will never achieve Facebook's ubiquity; nevertheless, with its acquisition of ZipDial, the chirping blue bird might have stolen a step on its larger rival in the long-term race for online advertising dollars in emerging markets.
Alex Dumortier, CFA has no position in any stocks mentioned. The Motley Fool recommends Facebook and Twitter. The Motley Fool owns shares of Facebook and Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.