Yahoo Acquires Video-Chat Start Up: Is it Enough to Compete With Google?

Shares of Yahoo! Inc. (NASDAQ:YHOO) closed up 2 percent on Tuesday after news broke that the company acquired ONtheAIR, a 5-man web start up with an innovative video-chat product.

What is OntheAIR and Why is it Good for Yahoo?

ONtheAIR was launched about 9 months ago with $880,000 in seed funding spearheaded by Scott Banister and True Ventures. The team of ex-Google (NASDAQ:GOOG) and Apple (NASDAQ:AAPL) software engineers set to work building a video-chat product designed to compete in crowded space, and has clearly gained some attention.

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The distinguishing feature about ONtheAIR’s product is described on the company’s CrunchBase page: “ONtheAIR allows anyone who is watching a live stream to video chat with the host in front of the audience. OnTheAir’s streaming video platform powers radio call-in shows for the digital age.”

It continues, “Viewers can text chat with each other and the host, or click a ‘Call In’ button to alert the host that they want to join them ‘on stage.'”

The group will join Adam Cahan and the mobile team at Yahoo and try to build out a product that can compete with Google+ Hangouts and Apple’s FaceTime…

It wouldn’t be surprising to see a version of the product integrated with Yahoo Messenger. Yahoo has indicated that its strategy heading into the future will mean more direct competition with Google, and a video-chat service would do just that.

Yahoo’s fall from glory has been well documented in the past few years, and the acquisition of ONtheAIR seems to be a smart pick by CEO Marissa Mayer in an M&A space traditionally dominated by its competition. Why build it when you can buy it and help it grow?

CHEAT SHEET Analysis: Trends Support the Product

One of the core components of our CHEAT SHEET investing framework explains that companies riding macro trends ten to outperform those that don’t. Think of the investing proverb, “A rising tide raises all boats.” The level of investment that companies like Google and Apple have put into their video-chat products clearly indicates growing demand. As technology develops and one-on-one video conferencing becomes a standard feature on computers and smart devices, consumers are going to want to find a way to leverage even more communication out of the feature.

TechCrunch reported in March that the type of video-chat solution ONtheAIR is providing could “change how celebrities, journalists, and politicians communicate with the public.” One-on-one is great, but one-to-many is better. While a communications revolution is still in the future, Yahoo’s acquisition definitely puts some weight behind this product and will help build out Yahoo’s software ecosystem.

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