Many developers turn to the tried-and-true mobile advertising business model when faced with the task of turning a free app into a product that makes money.
Not so with Tango, a video chat service that has taken a new approach to finding sources of revenue.
Tango sells users of its free app animations they can incorporate into their video chat sessions. The first animation is free, and after that users can upgrade and buy a pack of animations for $1.99 a pop. Customers can also pay for cloud-based storage of their video messages. The most recent five video messages are stored for free, and customers can purchase storage for an additional five messages for 99 cents.
In the intimate world of video chat, where users communicate primarily with only their closest friends and relatives, "ads don't play a role," says Eric Setton, co-founder and chief technology officer. "We really want to make sure we're not in the way of your communications with these people."
The company's alternate approach to monetization has not gone unnoticed by investors. Yesterday, Tango announced it landed $40 million in Series C funding in a new round led by Qualcomm's venture capital arm and Access Industries. Setton's family members also participated in the round along with individual investors Draper Fisher Jurvetson, Michael Birch, Andy Bechtolsheim and Bill Hambrecht.
The cash brings Tango's total funding to nearly $100 million.
The animations and video storing options have proved popular with Tango's users since they became available in December. The success of the products has prompted the company to launch a new publishing platform and a storefront that makes it easier to release new animations and other content.
It also recently tested out a video greeting product, which it may eventually offer as another premium service.
Tango has gained steady traction in the marketplace amid heavy competition from other video chat providers like ooVoo and fring. It was the first to offer video chat for Windows Phone, beating out Microsoft-owned Skype, and is also available on the iPhone, Android smartphones and computers. It is also pre-loaded worldwide on Nokia's new flagship phone, the Lumia 900, and has partnerships with Samsung, HTC and LG.
Since its launch 18 months ago, 45 million people have signed up for Tango. The company says 10 percent use the service every day, and 44 percent are active users.