Could a messaging app be profitable? The largest ones in Asia, WeChat, Line and Kakao have generated revenues by embedding games, stickers, in-app purchasing and e-commerce capabilities into the chat. Yet most other messaging apps fail to monetize their traffic, despite the hundreds of millions of active users.

Yoav Degani, Co-Founder and CEO of Aniways wants to change that.

Messaging is universal, says Degani, because the user experience is so simple. But the moment you introduce advertising, you dampen that experience and risk losing users. So either you need to find an alternative revenue stream, or you need to create advertising that improves the user experience. Degani has opted for the later.

How can you improve the user experience of an app that already exists in its most basic form?

Degani gives the example of emoticons. We use them all the time to express tone and emotion that would otherwise take lines of text to explain. The hear-no-evil-monkey, for example, functions as a shortcut. Not to mention all the smileys: cats, dogs, aliens, angels…

However, emoticons have an ordinary appearance and a rudimentary user interface. Any standard offering of icons bears close resemblance to the first clip-art images, and even if you have an extensive sticker collection (the virtual kind that costs real money) you’ll need to scroll through your list of hearts, kisses and diamonds to find each symbol. The scrolling alone defeats the purpose of the shortcut.

Degani and his Co-Founders Ram Greenberg and Shai Ber saw room for improvement. He and his team developed text recognition technology, so that as you type, certain words are highlighted and suggest emoticons. For example, if you type ‘Want to get coffee?’ coffee will be highlighted and above it, a selection of coffee cup graphics will appear.

Aniway's text recognition and branded stickers

One swipe to the left, you will find animations of coffee cups. One further swipe, you will find suggestions of coffee shops near you.

Aniway's suggested content

This is where the market opens up. The list of suggestions can be taken from Google Maps, Foursquare, Yelp, or any number of sites. If a business is so inclined, it can pay a premium to appear at the top (much like Google Adwords), or in its listing, it can offer promotions. There are so many combinations, says Degani. There is no one model.

Aniway's suggested content

With their beta groups, Aniways has already seen a 16% increase in user engagement with messaging services that have incorporated its text recognition. And that’s only the beginning. Analytics reveal which words appear more frequently and how they relate to users’ behaviour. Thus overtime time, Aniways can suggest content tailored to each user.

Degani has built the company on a business to business model, offering Aniways technology to app publishers as a software development kit. This SDK can be customised on nearly every messaging platform, giving developers the choice of which icons to include. More importantly, Aniways provides them with analytic tools so that they can map themselves the link between words and suggested content. These tools have already proved useful to two of their partners, Verizon, the leading US mobile operator, and Nimbuzz, one of the top ten messaging apps.

The broader space of in-app advertising has grown substantially in the last couple of years. While Aniways has developed a format specifically for messaging apps, AppLovin, a Palo-Alto based company, helps mobile apps increase revenue through data-driven adverts. For example, an advert for an online fashion store could appear in the middle of a fashion story in a news reader app. The news reader sells adverts, the online fashion store sells dresses, and both apps benefit from deeper user engagement. For traditional brands, such as Coca Cola and Burger King, Fiksu, a Boston-based company, optimises their purchases of mobile ad slots. Facebook’s new mobile app analytics tool also suggests the trend.

According to the mobile analytics firm Flurry (now owned by Yahoo), smartphone users spend an average of 3-hours a day on their devices. Such data has peaked the interest of venture capitalists like Mary Meeker. Her research shows that media consumers on average spend 38% of their time in front of the TV and 20% of their time on their smartphones. However advertisers on average allocate 45% of their budget to TV, but only 4% to mobile. This discrepancy, Meeker thinks, presents a $30 billion opportunity in the USA alone.

How is Degani playing it? For the moment, he and his team, and their office dog Chaser are staying in Israel. As they expand their partnerships, he can foresee the need to open up offices in the USA and China, but he has no intention of moving from Tel Aviv anytime soon.

The walk to the office, the close-knit team, the weather, the food- it’s too good to give up just yet.