Messaging Apps as Platforms

Recently, I did client work regarding some popular messaging apps, particular those from Asia. I thought I’d share some of the findings of my research with Tech.pinions subscribers. My research focused primarily on three messaging platforms: WeChat, Kakao, and LINE.

Offerings that go way beyond messaging

The most interesting thing is how broad these messaging platforms are, well beyond their original focus of messaging itself, and how they’re using this diverse set of offerings to monetize even as messaging itself doesn’t really generate revenue for the most part. The chart below shows monetization strategies for these three players, with WhatsApp thrown in for an interesting comparison (note: this characterization is accurate to the best of my knowledge – with these messaging apps, it’s often particularly difficult for Westerners to fully explore the functionality):

Messaging app monetization

WhatsApp makes for an interesting contrast because its business model to date is essentially the reverse of all the others, with red cells where the others have blue, and vice versa. The only way WhatsApp has ever attempted to make money is through a usage fee — a dollar either on a one-off basis or a recurring annual basis. Conversely, the Asian messaging networks don’t charge at all for messaging itself, but monetize through a wide range of other features and functions. Only some of these functions have a direct connection to messaging itself – in other words, they leverage the social network within the messaging app. A number of them actually have nothing to do with the social network per se. For example:

  • Merchandise – as far as I can tell, LINE is the only one of the three major Asian messaging apps that monetizes in this way. Selling toys and other physical goods is obviously unconnected to who you know on the network
  • Corporate/brand accounts – these also bear no relationship to the friends and family you’re connected to on any of the services but monetized through the brands that want to reach you and/or celebrities you’re interested in enough to want to pay to follow in an exclusive fashion
  • E/M-commerce – in this sphere, tying into the connection with friends and family can actually backfire, as one story I read indicated (a Chinese woman taking advantage of her social network to promote her m-commerce store quickly found herself unfriended)

The revenue streams from these strategies are diverse too, though none of these companies breaks out its revenue sources in great detail in its reporting:

Revenue sources for messaging platforms

Some of the newer revenue streams not captured in my relatively generic breakdown of monetization strategies are particularly interesting. WeChat has moved beyond payments to money market and other banking products, while LINE has taxi and music services. What’s most striking is that what these messaging platforms are creating looks very similar to what major technology companies such as Apple, Google, Microsoft, and Amazon are creating in the West. We appear to be heading toward a world where many large technology companies build very similar sets of offerings for consumers, but do so coming from very different starting points – in the US and Europe this will often be from smartphone platforms or other software or hardware heritage, but in Asia it appears the starting point will be messaging platforms.

Increasing regionalization

As Ben has written recently, this is another reflection of the increasing regionalization of technology, not only by continent but by individual country. WeChat’s usage is dominated by its home country of China, Kakao’s usage is similarly dominated by domestic Korean usage, whereas LINE is the only one of the three that has found significant audiences in other countries, though its “big 4” (Japan, Thailand, Taiwan, and Indonesia) make up 78% of its user base:

Users by country for Asian messaging apps

It’s also interesting to note where these companies came from and when:

  • Kakao was launched in 2010 as an independent company but was acquired by/merged with Daum in 2014
  • LINE was started following the Fukushima nuclear meltdown in 2011 and has always been part of Naver
  • WeChat is part of one of the Chinese Internet giants, Tencent, and was also first released in 2011

None of these companies is more than five years old and yet each has become fairly dominant within its respective markets.

Lessons for non-Asian messaging platforms

What does this mean for Western-heritage messaging companies that want to recreate the success of these Asian peers? I suspect some elements of their success can be recreated in messaging apps outside of Asia, especially those tied to the social graph, such as person-to-person payments. But I believe those that are less connected to the social network itself will fail among non-Asian users, who expect their smartphone vendor or OS vendor, not an app vendor, to provide this kind of service. Facebook Messenger is an interesting case study here — it has broadened into payments already (though it isn’t directly monetizing them), but I’m curious to see whether it can break out into some of these other categories.

Published by

Jan Dawson

Jan Dawson is Founder and Chief Analyst at Jackdaw Research, a technology research and consulting firm focused on consumer technology. During his sixteen years as a technology analyst, Jan has covered everything from DSL to LTE, and from policy and regulation to smartphones and tablets. As such, he brings a unique perspective to the consumer technology space, pulling together insights on communications and content services, device hardware and software, and online services to provide big-picture market analysis and strategic advice to his clients. Jan has worked with many of the world’s largest operators, device and infrastructure vendors, online service providers and others to shape their strategies and help them understand the market. Prior to founding Jackdaw, Jan worked at Ovum for a number of years, most recently as Chief Telecoms Analyst, responsible for Ovum’s telecoms research agenda globally.

9 thoughts on “Messaging Apps as Platforms”

  1. The whole category baffles me. I have trouble identifying features that AOL Instant Messenger didn’t have in the 90s (OK, payments), and I can’t help but wonder if/how those new variants actually make money.

    The technical barrier to entry is fairly low, it’s all network effects, but with low stickiness (I’ve got 4 of those IM apps for different groups of contacts, I could add another couple… and I still mostly text…) How can you make money off that ? The minute you start bothering users with bills or ads, they can switch to the next VC-funded marvel ?

    1. In Asia in particular, the network effects seem very strong in-country – I hinted at this but didn’t dive into it in depth here. E.g. Kakao is not only dominated by Korea, but dominant in Korea. Ditto WeChat in China, etc. Facebook has been the closest thing to this in many western markets, but it’s not quite the same. But once you start adding all these layers of additional functionality, the services retain stickiness even as the value of the network effects diminishes due to notifications etc.

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