Messaging Apps Have A Goal In Sight, But Out Of Reach

Just as device manufacturers want to be Apple, ecommerce shops want to be Amazon and social networks look up to Facebook, China-based WeChat is the chat application others seek to emulate.

Yes, WeChat, a free app with 600 million monthly active users (100 million fewer than Facebook Messenger), enables chatting, but it’s also a platform for services and commerce.

“Its importance to daily life in China can’t be overstated,” said Bessie Lee, the CEO of WPP China.

Instead of monetizing advertising or marketing opportunities, WeChat monetizes access to service and customers. Every celebrity and fashion company, hospital and bank must have WeChat accounts, absorbing much of the combined function of social media, mobile and digital in the US.

But can an incumbent chat app mimic that success outside of China? Investors seem to be betting on it.

In February 2014, Facebook dished out $22 billion for WhatsApp. That same month, Rakuten bought Viber for $900 million. And Tango, just a few weeks later, got a $250 million investment from Chinese ecommerce giant Alibaba.

Investors are keen on mobile messaging services because of their huge, loyal audiences.

Earlier this year, the top four messaging apps – WhatsApp, Facebook Messenger, WeChat and Viber – combined to surpass the active user count of the top four social media apps: Facebook, Twitter, LinkedIn and Instagram. And messaging apps downloaded last year have had a 62% retention rate, much higher than the 11% average across all mobile apps.

But for all that potential, the industry is still grappling with how to translate growing adoption into a bottom-line profit, said Ted Livingston, Kik’s CEO and co-founder.

“It’s very difficult to monetize the core messenger app experience,” he said.

Some messaging apps integrate native ads, but as Livingston points out, few are doing it “and it’s not their focus.”

Notably, Kik’s recent $50 million investment from WeChat owner Tencent came about because of the companies’ “shared vision over turning chat into more than just messaging, and to be an operating system for consumers and users,” said Kik President Josh Jacobs.

WeChat has expanded the value proposition of chat apps by becoming a “platform for services and distribution,” said Eric Setton, Tango’s CTO and co-founder.

Although Tango is one of the companies that has native ad units, Setton described paid media opportunities as secondary to the need to become a platform for commerce and distribution.

In Japan, for example, Rakuten integrated Viber with its Super Points loyalty service, enabling sales through the app and expanding the size of its loyalty and data collection program. Of course, Rakuten isn’t exactly a first mover.

Observers at the time characterized the acquisition as a way for Rakuten to shore up against rivals like Tencent (which owns WeChat) and Naver Corp. (which owns LINE, Japan’s most popular messaging app). Both have substantial ecommerce and messaging app properties.

“It is easy to see why we have some different services flourishing in different regions,” said Shintaro Tabata, SVP of corporate sales at LINE. He pointed to the diversity of mediums and cultural nuances that define person-to-person communication, and how much that influences chat services.

Consequently, while chat apps might have deep footprints outside their core markets, it’s unlikely that a true global powerhouse will emerge, according to Livingston.

Even for WeChat, global expansion efforts “have not achieved the expected result,” said WPP’s Lee, who added that the company will continue to integrate with services outside China, but that it will be a slow road.

Perhaps Tencent knows this, hence its investment in foreign competitors like Snapchat, KakaoTalk (the most popular Korean chat app) and Kik, which focuses on American teens.

“That’s the demo in the West most representative of what WeChat had, that are coming online for the first time through their phone, and often through chat,” Livingston said.

In order for Kik to be the WeChat of the US, it needs to achieve the dominance its counterpart has in China and the surrounding region. WeChat can monetize because it’s so integral to general services there.

But for many messaging apps, the most reliable monetization methods are paid stickers, or emojis, and game micropayments. Premium and user-created stickers (which can be sold in the app) constitute “a main revenue stream” at LINE, Tabata said, and the same is true for most popular messaging apps.

It’s unlikely that will be enough in the long term. The mammoth investments in the messaging space create pressure to offer a far more sophisticated platform.

In the West, Kik is challenged because the desktop and browser services that dominate “search, discovery and information” have “immense inertia,” said Livingston.

WeChat was able to mold Chinese ecommerce and online services, aided by regulations that minimized foreign competition. Livingston pointed out that a Western competitor must “try to switch someone from Amazon to a new ecommerce experience,” or fight its way past Google in the search and conversion funnel.

Will what happened in China stay in China?

“WeChat’s model is unique,” Lee said. “I’m not sure it can be replicated globally.”

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