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With Livetext, Yahoo tries to reach millennials

Yahoo LiveText screen shown at a Yahoo event, July 29, 2015 in New York.
Jessica Golden | CNBC
Yahoo LiveText screen shown at a Yahoo event, July 29, 2015 in New York.

In the race to avoid being left behind in the mobile revolution, Yahoo is turning to messaging to reach today's youth.

But the company is starting from way behind, and analysts say it may be difficult considering the number of similar services including Snapchat, Twitter's Periscope and Facebook Messenger, which already thrive in the market.

"It's hard to capture the minds of consumers that are using other products," said Michael Goodman, director of digital media at Strategy Analytics. "It's a lot higher of a hurdle than introducing a new product in the marketplace."

On Wednesday, Yahoo unveiled a new app called Livetext, which in some ways is a modern update of its Messenger service. Users can initiate audio-free video conversations with peers, and talk by texting during the live-streamed chat. After the session is over, the entire conversation disappears.

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"We wanted people to have real conversations, and a real conversation is ephemeral in nature," said Adam Cahan, Yahoo's senior vice president of mobile and emerging products, during the unveiling. "Phone calls seem like setting up an appointment."

Cahan cited Livetext as a new form of texting, and denied that the company was using it to compete against Snapchat and other existing messaging app services. While he said Yahoo is focusing on building an audience for the app right now, he acknowledged the future potential for monetization given the demand for mobile advertising.

He said the company talked to hundreds of youth consumers to develop the product, which took about six to nine months to complete. Some of the technology was based on the MessageMe app, which Yahoo acquired in October 2014.

Yahoo has been trying to chase Gen Z and millennials, especially as advertisers increasingly attempt to reach these demographics on online destinations.

It purchased the social media platform Tumblr for $1.1 billion in 2013, and unveiled a slate of youth-targeted digital programming at its 2015 Digital Content NewFront presentation, including an electronic dance music DJ competition "Ultimate DJ," car series "Riding Shotgun with Michelle Rodriguez" and "Thug Kitchen," which is based on a popular website.

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"A lot of companies are needing to millennialize, and this is a step in that direction," said Nicole DeMeo, chief marketing officer at mobile ad technology platform Glispa.

Strategy Analytics acknowledges there is room for growth in the mobile messaging industry. It estimates that the number of over-the-top mobile message users is going to reach 2.8 billion by 2021, more than double number of users in 2014.

"The challenge is: Are they going to be a significant player, and where they are going to be in the market?" Goodman said.

However, Naeem Aslam, chief market analyst at Ava Trade, pointed out that there is simply too much competition, and it feels like Yahoo is trying to follow what is known to work instead of being an innovator.

"There are certainly much better other options in the market, which are market leaders rather than chasing the trend," he said.

Aslam was skeptical that the announcement would change the company's earnings growth, since most of that movement was based on the spinoff of its stake in Chinese e-commerce giant Alibaba. He pointed out that things would be different if Yahoo had purchased Snapchat. Bloomberg reported that Snapchat closed an investment round with Yahoo in October of last year.

"For this reason, we do not believe there is any substantial value in owning this stock," he said. "In fact, it may not be a bad idea if one adds to their short position as we [see] this downward trend unwinding."