Why Google Has Launched Allo?

The recent launch of Allo from Alphabet’s  (NASDAQ:GOOG,GOOGL) Google indicates that the competition in smartphone messenger space is heating up. However, the strategy for this launch indicates that Alphabet is not only competing for a casual user’s mind share but also trying to target the communication app for  savvy enterprise clients, who wish to remain connected with their colleagues to collaborate on various projects. Currently, Facebook’s Whatsapp messenger leads in the casual messaging space with over one billion users, while Slack is the go-to tool for enterprise communication. In this note, we explore the latest offering from Alphabet and the strategy behind the launch.

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Allo – The Intelligent ChatBot, Features And Concerns

Unlike the traditional messenger app or Whatsapp, Allo integrates Google’s machine learning capability with Google Assistant to provide a user with immersive chatting experience. The app not only suggest a reply to the last message but also learns from the user’s behavior to adapt its suggestions over time. Furthermore, due to the integration of Google Assistant, it is possible for the app to come up with suggestions (for nearest places to visit etc) or answer user queries from within the app.

However, a number of concerns plague the application. Firstly, according to various news sources, most of the messages will be routed through Google’s servers and these messages will be stored for training its machine learning algorithm and possible retrieval. This is a cause of concern as it seriously jeopardizes users’ privacy. Secondly, Allo does not support the traditional rich communication service that is widely used in SMS services. This results in an inefficient communication channel as any user who has not installed Allo will be shown extraneous characters in the body of text. Thirdly, Allo, like Whatsapp, uses phone numbers as its login info and it can’t use the same account across multiple devices. To top it all, there is no desktop client or web browser extension and the user cannot use his/her PCs to seamlessly communicate.

A Possible Strategy Behind Allo

The monetization strategy for this app appears convoluted, as Whatsapp is offered for free.  In contrast, WeChat- the popular messaging app in China – is being monetized through an array of features such as advertisements, games, online payment functions and in-app purchases.   Its estimated revenue per user was $7 in 2014, according to Nomura. ^[1]

Initially, Google plans to capture eyeballs and mindshare of users that are plugged into its ecosystem of applications such as Gmail, Google Docs, Google Maps, etc. Initially,  this will not result in any cash flow for the company. Still, we believe that once the adoption rate for the app has improved,  Google can target its growing user-base to pitch this application to enterprise clients as a viable solution for communication. (According to various sources, the application has been downloaded by over a million users.)  This would result in a direct showdown with Slack and the proposed enterprise messaging/communication app from Microsoft. The company can then look to monetize the organic interactions between businesses and users alike as the first step toward generating revenues.

While this story is still unfolding, the future for this application remains uncertain. It is a possibility the Google might shut this service down, like it did with Google Glass, if the service fails to gain necessary traction. We will continue to track the progress of this service in the future and provide an adequate update in the coming months.

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1. WeChat is nothing like WhatsApp- and that makes it even more valuable, Quartz, February 2014 [↩]