Feb 19 Asian chat services KakaoTalk, LINE and
WeChat threaten to overturn the mobile order of things, usurping
the role of Google Inc, Apple Inc, Amazon.com
Inc, Facebook Inc and telecoms carriers as
gatekeeper to the consumer.
Where these internet and telecoms giants once controlled the
lucrative choke points of the industry, social messaging
services are fast emerging as an alternative distribution
channel for adverts, apps, and goods and services.
For example, Tencent Holdings' WeChat allows its
more than 270 million active users to book taxis, top up phone
credit, and even invest in wealth management products, while
Naver Corp's LINE recently launched flash sales via
its app in Thailand, with more than 5 million users signing up
to buy L'Oreal lipstick and other products.
The growing role of such apps as distribution channels was
acknowledged by Japanese billionaire Hiroshi Mikitani when he
explained why his company Rakuten Inc bought messaging
company Viber last week for $900 million. "In some smaller
emerging markets, it was very difficult for Rakuten to go in
because of the lack of scale or distribution infrastructure. But
after the acquisition of Viber we can now go into those markets
with our digital businesses."
At the heart of the battle is how to make money from the
world's billions of mobile phone users.
Traditionally, it was carriers who took in the revenue from
voice and SMS messages - and more recently from internet usage.
Income, however, has been hurt by so-called over-the-top players
such as Google and Facebook, who make most of their money from
Then there are the app stores, where users find and download
apps. Although many of these are free, users are encouraged to
add features which they pay for within the application. Google's
Play store and Apple's App Store, the two largest, deliver these
apps and handle all payments, taking a 30 percent cut along the
way, some of which they may split with the carrier. In some
countries, other app stores dominate, particularly China, where
Google doesn't operate its online store.
These platforms are not only a source of revenue, but also
effectively control access to the end-user. Apple said users
spent $10 billion on its App Store last year.
But the growing popularity of mobile messaging apps is
More than half of all smartphone users are active users of
such apps, according to Analysys Mason, and the volume of
messages has already overtaken traditional SMS short messages,
and will double again this year.
Riding this wave are dozens of companies peddling mobile
messaging apps, with some able to gather a critical mass of 100
million users or more. By offering compelling mixes of chat,
downloadable icons and games, LINE, KakaoTalk and WeChat have
emerged as some of the most popular in Asia. Now these apps are
leveraging their networks to become gatekeepers of their own.
Take South Korea, for example. In Google's app store there
seven of the top-10 grossing apps are Kakao-branded, according
to App Annie, a company that measures app usage. Kakao promotes
them to users of its apps and takes a cut from the developer.
While Google and the carriers get their 30 percent, Kakao takes
another 21 percent. With KakaoTalk on around nine of every 10
South Korean smartphones, it's an easy, albeit costly, way for
game developers to be noticed.
WeChat, or "Weixin" in China, meanwhile, has taken its home
market by storm, and Shenzhen-based Tencent is throwing itself
into monetising the app, going well beyond selling users
emoticons - called stickers - and extra lives for games and into
e-commerce and banking.
When WeChat let users send traditional Chinese New Year
gifts of money through their smartphones, a survey by market
research firm Ebrun this month found it had been key in users
adopting WeChat's payment service: 74 percent of users surveyed
had connected their bank account to their WeChat profile.
"This is really exciting," says Bertrand Schmitt,
Beijing-based CEO of App Annie. "It's like building a new
platform on top of platforms."
BIG AT HOME, BUT ...
To be sure, none of these companies is about to seriously
challenge the big players. All three dominate at home - LINE in
Japan, KakaoTalk in Korea and WeChat in China - but are still
battling to win the same degree of loyalty in other markets.
A survey by OnDevice, a mobile market researcher, showed
WeChat was installed on most respondents' devices in China, but
LINE was on only 5 percent and KakaoTalk on only 3 percent.
Tencent owns 13 percent of KakaoTalk owner Kakao. None of these
services was on more than 10 percent of devices in the United
Outside China, all three need to work for now with Apple and
"I don't think they threaten app stores and operating
systems, not yet anyway," said Sameer Singh, an analyst based in
Hyderabad, "because the platform owner still retains control
over developer activity."
Nevertheless, those watching the shift see it as just the
latest in a series of disruptions.
"This is why Microsoft feared Netscape, why
Facebook feared Instagram, why AT&T lost to Apple, and why
Apple was worried about Google Maps: in each case a platform was
inserting itself between the existing platform layer and the
users," said Marshall Van Alstyne of Boston University.
"Once it spreads widely enough, it controls the interaction
and becomes the strategic bottleneck. The social networking
sites are in a strong position to do this with respect to other
platforms. If you can control that user interaction, you can
control the revenue streams."
In most Asian countries, the mobile phone has been most
people's main, if not first, internet device. And in China,
local players quickly filled the void left by Google to build
app stores and payment mechanisms on phones running Google's
Android operating system.
"All the markets outside the West are experimenting with
this and perfecting this," said Dmitry Levit, an investor in
social messaging service mig33, which recently listed in
Australia through a reverse takeover.
"North Asia just created a perfect storm of a vast,
relatively young population, a little bit of expendable income
that is perfectly fine for a few sticker packs and relatively
well distributed payment systems," he said.
Beyond North Asia everything is still up for grabs.
LINE and WeChat are investing heavily in marketing to push
beyond their strongholds. LINE said its marketing expenses more
than trebled year-on-year in the last quarter and are likely to
remain at similar levels this year.
Getting users to install the app is one thing. Monetising is
another. The emerging markets of South and Southeast Asia lack
easy and cheap ways to make small payments over the phone,
something all messenger players are going to have to figure out,
probably through deals with operators.
"It took us more than 5 years to charge users on prepaid
cards," said Thomas Clayton, Singapore-based CEO of Bubbly, a
social network that focuses on getting celebrities to use the
service as a promotional tool. "I wish I had the monetisation
they have because we have the billing capability, but nothing
like the big monetisation model they have."
And the disrupters, of course, risk being disrupted
Game developer Electronic Arts Inc CEO Andrew Wilson
said in December his company was looking to launch some of its
products in South Korea outside the Kakao network to avoid "what
we see as a second-tier tax of Kakao."
And other social networks are waiting for a shakeout in the
industry, arguing users will not accept lots of different
channels on their phone.
"Our problem is trying to figure out who's going to win the
war," says Bubbly's Clayton. "We don't have the bandwidth to
work with all three of them and it's hard to figure out which is
going to be the ultimate winner."