Yo! Is $1m. raise for ‘gimmick’ app a sign of tech bubble?

Israeli team has raised a huge amount of money for an app that basically does nothing but ‘poke’ friends

Yo! in action (Photo credit: Courtesy Yo!)
Yo! in action (Photo credit: Courtesy Yo!)

Yo! is a new app created by an Israeli team working in San Francisco that does one thing: when you click on the name of a contact, it sends them a “Yo!,” a word akin to “Hey there” or “What’s up?” — and nothing else. For this, app creators Moshe Hogeg and Or Arbel were able to raise a million dollars in funding.

It’s clearly a gimmick, and a “goofy” one at that, according to Israeli start-up expert Eran Laniado. That doesn’t mean that tech investments are in a bubble that is set to pop any moment. “Sure, huge investments that cannot be justified economically were abundant during the bubble years” of 1997-2001, Laniado told the Times of Israel. “But the fact that some goofy ventures manage to raise capital does not necessarily mean that there is a tech bubble.”

At first glance, Yo! looks like a joke, with tech expert Robert Scoble calling it “the lamest app around.” Scoble is apparently speaking for many in the tech community, to judge by reactions on dozens of websites. In fact, according to sources in Silicon Valley, Yo! actually started out as an April Fool’s joke, taking eight hours to code. Speaking to Business Insider, Arbel himself, who created the app, called it “a stupid idea.” Why the word “yo”? Because “it can mean anything,” said Arbel. “’Hey’ means ‘hey,’ but ‘yo’ can mean everything. It’s the perfect word. There’s no other word that can be used as much.”

Apparently, many people agree, because days after release through the App Store and Google Play, over 60,000 people had downloaded the app.

Yo! is a study in app minimalism, said Arbel. There are no subscriptions to fill out, no texts to write and no emoticons to choose. It’s super simple, and meant to be that way. “There’s nothing to open, there’s nothing to distract you,” Arbel said.

Yo! is unique for its single-purpose functionality, but that functionality is nothing new, said Laniado, managing director of Israeli business advisory firm BMN!, which works with dozens of veteran tech companies and start-ups in Israel. “It is similar to Facebook stripped off all of its functions except ‘Poke,’ a function that allows users to let their friends know they are there, without actually sending them a message.” As such, said Laniado, Yo! is clearly a gimmick but with a little work, it could be much more. “Users lose interest in gimmicks quickly. But if this app decides to be a little more than that, and add, for example, more types of communication (emoticons, text), well, isn’t this what Facebook and WhatsApp are all about?” With that, he added, the chances of Yo! becoming another Whatsapp is clearly a long shot.

That’s why, Laniado believes, talk of the end of the “new Internet bubble” is premature. That such an app was able to garner any funding at all, let alone a million dollars, has led many tech commentators to decry the “tech investment bubble” that many believe is set to pop. The current situation, detractors say, is akin to the huge run-up in valuations of Internet stocks in the late 90s, running through 2000 that brought the NASDAQ’s amazing growth to a crashing halt. Valuations of shares on the tech-heavy index doubled in value between 1999 and March 2000. The subsequent fall in stock prices bankrupted tech start-ups and investors alike.

With Yo!’s million dollar raise, as well as the huge amounts of money that apps like WhatsApp — recently acquired by Facebook for $19 billion — have sold for in recent months, it’s tempting to believe that the bubble is repeating itself. The term “bubble” has appeared in numerous pieces about Yo!. But fundamentals are still fundamentals, said Laniado. The NASDAQ, he said, “is still lower than its early 2000 peak, and today’s tech sector’s price-to-earnings ratio is below its historical one.”

Although companies today are able to raise large sums of money for seemingly dumb ideas, as they did during the bubble years, there’s a big difference. “During the dot com bubble, raising hundreds of millions of dollars for a fresh start-up with very few customers and no revenues was possible. Today, large investments are correlated either to breakthrough technologies or to ventures that already have significant number of users or revenues and strong business models,” Laniado said. He cited WhatsApp as a good example of this. “Facebook acquired 470 million active users [twice as many as Twitter has]; the users are very active; and there is a very strong network effect” among users, he added.

“The bottom line is that as long as investments in gimmick types ventures are not widespread and do not involve leading VCs and huge sums of money; and as long as valuations are linked to solid metrics, such as number of active users, sustainable business models, etc., it is not a tech bubble.” Still, it is, as usual, buyer beware, Laniado added. “There will always be some entrepreneurs who know how to sell anything, and there will always be unprofessional investors to pour money there.”

Click below for a video about Yo’s growth:

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