Motion AI: #fantasyportfolio Investment #1
[Most of us in the Silicon Valley have fantasized about being a VC. I’m completely guilty of that desire. After reading Aaron Batalion’s post on “thoughts on one way to start now”, I’ve been inspired to write about startups that I believe represent interesting and (hopefully) profitable investment opportunities (backed with actual analysis, rather than stuck-in-my-head musings). In a future post, I’ll write about my investment thesis, “proving” that there’s some method to the madness! Let me know if there’s any format/layout that you think would work better: right now, I’m partially going off the template of Seqouia’s 2005 investment memo regarding Youtube.]
Overview
Motion AI (https://www.motion.ai) “gives anyone the ability to easily build and deploy chatbots on a variety of different mediums”.
Problem: Chatbots are difficult to deploy and manage.
- Creating chatbots requires significant technical knowledge, particularly when relying on natural language processing (NLP) to parse customer input.
- Chatbots require infrastructure (e.g. Amazon Web Services), adding another layer of technical knowledge and organizational complexity.
- Lack of a single dominant messaging platform forces developers to port their chatbots to multiple platforms and APIs (e.g. Slack, FB Messenger, SMS).
Solution
People looking to deploy chatbots create accounts on Motion AI. Customers can either purchase a pre-defined chatbot from Motion AI’s Bot Store or define their own chatbots using a visual editor (organized as a flowchart — see the image below).
Motion AI also handles the infrastructure, management, analytics, and porting of a chatbot to multiple platforms. For more tech-savvy users, Motion AI also provides an API that can further customize a chatbot or combine a chatbot with other services (e.g. NLP tools). Customers are billed according to usage, usually measured as messages sent to a chatbot.
Market Potential
In the past three months, chatbots have been touted as “the next frontier”. Some speculate that these bots “could one day leapfrog apps as a dominant means of digital communication and commerce”. VentureBeat finds three trends driving chatbots’ growth:
- Messaging-as-OS, where messaging is the predominant usage of smartphones and where — in Asia — people regularly use messaging platforms (WeChat, LINE, Whatsapp) for payments, scheduling, product ordering; in other words, much more than just sending messages to friends and family.
- Reluctance to download apps.
- Popularity of “conversational interfaces”, where interactions with products and services are through conversation, rather than button-pressing, swiping, or other mechanical manipulations. Examples include Siri and Amazon Echo.
Microsoft (Tay), Facebook (Project M), and Google are among the giants investing heavily into chatbots. Magic, Operator, Kik, Assist, and Slack are some of the startups involved with or based around chatbots.
Rough guess on a current lower bound of global market size: US$1.2 billion per year. Market size will probably skyrocket, given the trends listed above and that the current market size is driven only by China. Chatbots can rapidly eat into the market of phone-based customer service (multi-billion dollar value in the US, even after removing the telemarketing component).
Breakdown: RMB30.44 billion (Tencent Q4 2015 revenue) * 19% (proportion that is ad revenue) = RMB5.78 billion; RMB5.78 billion (Tencent Q4 2015 ad revenue) * 48% (proportion of ad revenue that comes from WeChat) = RMB2.77 billion; RMB2.77 billion (WeChat Q4 2015 ad revenue) * 70% (estimate of WeChat ad revenue that comes from official accounts) = RMB1.94 billion; RMB1.94 billion (WeChat Q4 2015 ad revenue from official accounts) ➡ US$294 million; US$294 million (per quarter) ➡ US$1.18 billion (per year). WeChat “official accounts” have mass-message and chatbot functionality by default (click here to see examples of how people interact with official accounts). In addition, revenue of chatbot startups in the US (Magic is valued at US$40 million in 2015, Operator raised a $10M Series A with no valuation stated, also in 2015) is nearly negligible.
Team
Current team size of 4. Repeat entrepreneur CEO with two past companies with demonstrated traction (David Nelson). Two full-stack engineers, though both are lacking extensive programming experience (from a resume standpoint). Team did not work together on past companies.
Investment Rationale
Clear Monetization: Motion AI has four monthly usage plans that unlock a higher maximum chatbot limit and a higher maximum messages per month limit. The starter plan (limited to two chatbots and 1,000 messages per month) is free, with other plans at US$15, US$50, and US$100 per month. More intensive users can contact Motion AI for custom plans.
Additional monetization options include: 1) charging for greater chatbot complexity (i.e. allowing only a certain number of functions and rules per chatbot until payment must be made), 2) injecting advertisements in the dialogue of free chatbots, and 3) charging for analytics and reporting tools.
The Bot Store — where templates and pre-made bots can be purchased — is another source of revenue.
Fundamental Advantage in Customer Base: Motion AI’s customer base consists of people seeking to deploy chatbots, typically for commercial purposes. Such individuals can include entrepreneurs and owners of offline businesses. By enabling people with limited-to-no programming knowledge to deploy chatbots, Motion AI can potentially capture more users than competing products/tools/API suites that require technical aptitude.
One-Stop Solution: Motion AI handles multi-platform deployment, infrastructure, monitoring, and analytics. Convenience and elimination of integration requirements remain value-adds for technically savvy customers.
Validated Business Model: Think of Motion AI as “Shopify for chatbots”. Shopify’s success at simplifying e-commerce deployment suggests, as an analog, that Motion AI’s value propositions and business model are plausible.
Investment Risks
Competitors: Direct competition for accessible chatbot deployment are Kore, Pandorabots, and Rebot.me.
Kore is another one-stop solution for chatbot development and deployment, but lacks the visual editing component that is part of Motion AI. Kore is also marketed and priced towards enterprise applications. Their attention is split between enterprise bots and their own messaging platform. Probably the most threatening competitor.
Pandorabots provides a variety of tools for developers, including speech interfaces and content libraries. Basic use of their tools is free, as they use these tools to push their professional services (e.g. employee training, code review). Pandorabots is not a one-stop solution and requires high technical ability.
Rebot.me is a simple chatbot creation tool that lacks any commercial functionality or complexity. The chatbots on Rebot.me are developed by defining possible questions and the respective answers, which could be hacked together into a basic information-display chatbot, but not much more.
Large competitors offering chatbot APIs are Microsoft, Facebook, Google, and Apple. These competitors could create visual editors for chatbots, but will be inherently limited by being restricted to their own platform. Also, it is unlikely for these companies to build tools for non-technical developers (away from these companies’ core competencies; acquiring these extra users likely results in negligible income for these companies).
Phone-based customer service has a relatively higher start-up cost, scales more expensively, and is limited in the types of interactions that can occur (e.g. unable to direct people to websites, or send people images).
While WeChat has simplified chatbot deployment, this feature still requires some technical expertise to use and they have not been successful in expanding beyond China (only about 10% of their users lives outside China).
Timing: Motion AI might be too early. Large companies are investing heavily into development of the chatbot ecosystem, but actual commerce driven (outside China and some other emerging markets) remains low. Magic, Assist, Operator, and other chatbot-based startups currently remain below the US$10 million revenue mark (none of these have surpassed even a US$50 million valuation and a 5x revenue multiple is already generously low for a tech startup in the current market).
Recommendation
Motion AI’s most recent (and only publicly-known) funding was a $700,000 seed round in December 2015 at a $4 million valuation. A few months from now, Motion AI will be in the typical position for a Series A round. Though I can’t find information on any company metrics or financials, the typical Series A (for startups based in the US) in the past month has been around $6–10 million with a few significant outliers around $25 million, though it’s unclear for what percentage of equity.
[Would be interesting to show basic statistics of each round in recent months, perhaps with a breakdown by category, from CrunchBase, but alas, that’s at least $999/mo more than I can afford].
I recommend investing in Motion AI’s potential Series A round (as of June 15, 2016). Here are some valuation pluses and minuses from information we can glean:
+ Clear and direct monetization method (presumably some revenue)
+ Hot industry with lots of investment
+ Strong initial release (user interest): #1 spot on Product Hunt and among the top 100 all-time
+ Repeat entrepreneur as CEO with some past successes
— Limited assets, unclear IP
— Inexperienced team
— Uncertain industry size and timing
[Thanks for reading and I hope you gained some ideas while going through the post! If you have any feedback or further questions, please let me know.]
