LINE 101

TC just reported that LINE’s revenues have doubled YoY to $192m USD in Q3 2014. And just like that, LINE is back in the news again.

Since I seem to repeat the same answers to the same questions about LINE over and over, here is what I wrote in 2013 for TNW. The piece is about messaging apps but I  go over all the basics of LINE. From history to adoption, features, business model, etc., this should cover any and all questions so it’s really, really, really long.

Enjoy — and feel free to ask any questions in the comments.

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Line’s rise in Japan

Take the Line story, for example. Line, wasn’t an overnight success and there is good reason for that. Line’s biggest marketshare is in Japan. Japan’s smartphone market really began growing in 2011 — some four years after the US — and analysts have found a near-150 percent rise in smartphone adoption between 2011 and 2013.

Of the 127 million people in Japan, smartphone ownership finally passed 50 million users in August, but things are developing rapidly. Japan overtook the US as the biggest spenders on apps only this week, and the market is potentially hugely lucrative for makers of popular apps.

This market shift also affected Japan’s text-based communication.

Text-based communication in Japan is very different from the US and other parts of the world. Japanese telecoms have advanced emailing systems, where carrier-issued email addresses are attached to every mobile number. The email system functionally operates like SMS: simple, free and unlimited. SMS in Japan is charged per text, so before mass market smartphone adoption, text communication was done by keitai meru (cell phone mail).

With the rise of smartphones, apps quickly became popular. As users got used to beautiful, gesture-based UIs, text-based cell phone email no longer fulfilled their needs. That’s when Line started gaining serious traction. People go where their friends are and Line happened to be in the right place, at the right time.

Line changed Japanese mobile communication.

And it’s easy to see why people quickly adopted Line. An Internet connection gives users free unlimited voice calls, unlimited free messaging, unlimited instant photo sharing, group chats and video communication. The interface is cute and Line is very easy to use, but, most importantly, it offered a solution to the ‘pay for all and everything’ Japanese telecom model — and Line disrupted the Japanese mobile industry.

Internet Power Balance Shift to Asia

The WSJ had a nice piece breaking down the mega internet companies of the world — of course US leads the pack but Asian companies aren’t doing so shabby either. China is of course leading the ‘Asia’ pack due to sheer population volume. Seriously, file that under no shit Sherlock.

But there were some fun factoids:

• 45% of the world’s nearly 3 billion internet users are in Asia
• WeChat (owned by Tencent) has about 440m users
• Tencent’s profit margin in the second quarter was 32%, compared with 27% at Facebook and 21% at Google.
• Tencent’s stock-market value is $148 billion, compared with Facebook’s $194 billion.
• LINE (Japanese messaging app) had revenue of $323 million, 16 times the estimated revenue of WhatsApp.

…separately, it’s really funny how ‘tech journalists’ don’t seem to understand the products they are writing about. This particular author, said WeChat is WhatsApp’s rival. No. No. No. I can not say this enough times: they are two very different products. WhatsApp is a communication utility – a tool. WeChat is a full fledged platform, an ecosystem.

The author also calls LINE stickers ‘cutesy emoticons’ — which further highlights the lack of understanding of mobile behavior in Asia even after NYT wrote about it!! (Pretty embarrassing).

Oh well. I guess that’s why there is a need for someone like me or Jon Russell of TNW and a dedicated publication like TIA to pipe on about this region.

Mobile Money

Leaving the US has opened my eyes to a lot of things, especially how the world outside of America operates. Because the iPhone isn’t as adopted in other parts of the world, there are many solutions to make communication between iOS and Android possible — which is why I became so fascinated with chat apps.

Then, I fell into the chat app rabbit hole and became obsessed with learning, using and following the big players outside of the US: WeChat, LINE, Kakao and WhatsApp. Which lead to learning about the different use cases and the reason I keep piping on about how SnapChat, WhatsApp, FB Messenger are not like WeChat, Line and Kakao. I also argue WeChat is in a league of its own. (If you’re interested, my messaging app series is here). Living in Asia, it’s easier to appreciate various ways people and cultures use their mobiles as I am an actual user vs. reading about use cases.

When I visited various Southeast Asian countries with Dave McClure’s Geeks on a Plane tour, my mind was blown. In countries still considered emerging nations ex: Malaysia, Thailand, Philippines, Indonesia, the way phones are used are so different. Actually, everything is different. Most mobiles are pre-paid. Mobile internet connection is mostly 3G and the majority of the population still uses flip phones. I even saw old Nokia phones with the green, pixelated screens. Remember those? I was really good at Snake. Reading and researching about mobile, I was aware of the numbers but to actually see how low smartphone penetration actually was, is a moment I will never forget.

The biggest opportunity I see in emerging nations is how technology is solving dual objectives: social problems and monetization. And the biggest opportunity I see is in mobile payments. I’ve said it once and will probably keep repeating, that because WhatsApp has capabilities on flip phones and older phones, their biggest missed opportunity is moving from a communication utility into a full fledged platform.

I really wish I knew more about payments or was passionate about the topic enough to jump into creating a product. But I am, super excited to see who will be the first to solve across SE Asia.

qz really sums it up best:

At the end of April, nine mobile operators with 582 mobile connections across 48 countries in Africa and the Middle East committed to make their mobile money offerings work across their networks. With interoperability comes greater cohesion and opportunity for new services.

And the kicker:

If it’s done right, it could form the foundation of a whole new global financial-services industry. And the US and Europe will be far behind.

Read the entire post here

SEAsia Messaging App Share

 

LOTS of opportunities in SEAsia.
To recap on LINE:

• 60% of LINE’s revenue came from the mobile games
• LINE was the world’s top app publisher by monthly revenue
• LINE Posts $143 Million In Revenue, Up 123% Year-Over-Year
• $1.5mm USD revenue for user generated sticker marketplace

Granted, we may not see the same sorts of revenues from SEAsian countries, as most are developing nations and notorious for not spending (ex Path is Indonesia’s largest market, yet they never boast revenues or lack thereof).

The next few years will be fun to watch as chat apps mature and become more dominant.
(Sources 1,2,3, image via here)

 

43.3% of Japanese use LINE Professionally, 29.6% use Facebook

 

Wow — I knew messaging apps are huge in Japan but it still astounds me to see numbers.
43.3% of those in the sample pool use LINE professionally.
29.6% use Facebook as a professional communication tool.

Skype is 12%
KakaoTalk 6.1%
Followed by LinkedIn, Viber, communicator.

I guess as Hiroko Tabuchi of the NYT reported: “It’s just easier when a bear says it.”
*above stats provided by MMD — a Mobile Marketing Data Labo, a research company in Japan.

Popular Communication & Messaging Apps by Country

I spent the past week reading forecasts and reports from Goldman Sachs, McKinsey, Morgan Stanley, Deutsche, etc., etc.

It sounds a bit boring but really not. It was actually fun to read, consume, compare and contrast the different reports.

Quick takeaways:

Deutsche’s chart of messaging apps used in Brazil, Russia, China, South Korea, Japan and the US.

 

Cross referenced with AppAnnie’s spend by country chart tells us:

• S. Korea consumes and spends on content. Kakao Talk’s success is likely due to that ecosystem.
• Japan leads in gaming, explaining the success of gaming companies as Capcom, DeNA, Gree, et al., and the reason the Japanese spend the most in both Google Play and iOS stores. Also explains success of LINE
• US has wide range of content spend but the US is a distinct market from the rest of the world with different economical factors.

This chart also from App Annie interests me more, as it shows spend vs device:

I agree with Goldman Sachs, stating BRICs (Brazil, Russia, India and China) are 3-5 years away from global scaling and spending.

South Korea, with the highest spend and technological advancements, is like China where the ecosystems are so tightly intertwined it’s a tough market to penetrate. Fun to watch, but just like China, certain models and strategies cannot be emulated because of the reliance on proprietary strong holds.

For people looking to enter markets, Japan, UK and US are the likely bets. Or at least if I were a VC, that’s where I’d be placing bets.

Still digesting but as my thoughts parse, I will be sharing.

WeChat 101- Quit Comparing WeChat and WhatsApp

WhatsApp, Viber, Telegram and Snapchat are not like WeChat, LINE and KakaoTalk.

I’ve written about LINE and KakaoTalk but now it’s time to intro the last player – WeChat. WeChat is not – I repeat NOT anything like WhatsApp or Viber.

Aside from multi-media communication capabilities: photos, video, walkie-talkie and broadcast features, in August of 2013, WeChat completely overhauled their product with v5.1 to add a bunch of new features and functions.

They keep differentiating themselves from the rest of the chat apps and this is why:

• in-app payments
• P2P (peer to peer) and O2O (offline-online) core strategy aside from games <– HUGE
• multiple monetization streams

Payments

WeChat Payments connects bank card to WeChat account so users can make payments in-app.
Users can make transactions happen through 1. payments to WeChat authorized partner retailers 2. P2P (peer to peer) or in plain English other WeChat users – example: users can send one person a specified amount, or send money to a group and divide the lump sum among a group of friends.  If I had a penny for every time I’ve had issues with group payments where one person pays too much, too little I’d have about four extra iPhones sitting around. Or think about that one person who never has cash, etc., etc. WeChat group payments is the perfect resolution for group events / activities.

O2O / P2P Commerce

WeChat also partnered with sites and services – whether through acquisitions or buying a stake in the company – doing flash sales or becoming the preferred payment partner. To date, DianPing – China’s answer to Yelp, with a Groupon type group buying feature DianPing also offers coupons and discounts and users can even order food for delivery – is one of the most notable.

The other is Didi Dache – China’s Uber – where users can order a taxi and make payments, all in-app. Since forming the partnership in Jan., WeChat reports

• 21mm cab rides have been booked via WeChat
• 700k daily bookings via WeChat
• Didi Dache and WeChat also pay cab drivers bonuses when the drivers use their services vs a competitor

WeChat also aggressively positions themselves as the entry point for global brands who want to reach China’s youths. Most recently, Vivienne Tam and WeChat collaborated to bring NYFW (NY Fashion Week) to WeChat users.

They’ve also done campaigns with Mc Donald’s, Starbucks, Burberry, Pepsi and Maybelline – bottom line, they are making money becoming a payment solution and by advertising as well.

Another monetization channel through partnerships is content. WeChat and Chinese media outlets bring news and entertainment to users. However, instead of solely bringing content into the app like Flipboard or Facebook’s Paper, they have their media partners build proprietary micro-sites into WeChat with proprietary URLs ie: mp.weixin.qq/majorchinesenetwork and charge users subscription fees.

They’ve also ventured into streaming video, launching a standalone TV with CNTV (major Chinese tv network).

If you think that’s all, they are also China’s small business e/m-commerce solution (like Etsy or even Amazon).
Small business accounts are

• free to create — fee is dependent on level of API customization and how much a business wants to integrate their products and services into WeChat
• transactions are conducted inside WeChat — which leads to increased time spent inside app
• bar-code scanner capabilities so people can scan a bar code in a store of something they see and shop for it online for example
• built in loyalty cards and point card systems

Major brands and retailers to even a college student with a fruit stand can buy and sell on WeChat – that’s how simple it is.

WeChat states they have 300mm active users per month and YoY growth of 124% (note: these numbers are before the Red Envelope campaign that reportedly activated 20mm transactions within 9 days and announcement of all their partnerships).

WeChat is not fucking around.

I’m sure there are so many more features and functions, products and services I may be missing. This is information I gathered through English sources (FT, Economist, WSJ, Techcrunch, The Next Web, Tech in Asia and some random Chinese sites I ran through Google Translate) but even if I don’t know all the details, it’s pretty clear they are one step above the rest of the chat app herd.

One can argue their success is due to the uniqueness of the Chinese market and how the economy is intertwined by a select few and with the government, but strip away all that noise and look at WeChat as a product. They are still several steps ahead of the rest — even LINE, that I am a massive fan of.

2014 is going to be a year to closely watch Asia.

Messaging Apps are Communication Tools

Finally – I get it now. And by it, I mean the WhatsApp acquisition by Facebook.

It’s what I’ve been preaching — that messaging apps are not social networks. They are communication tools / utilities.

So basically, Facebook just bought a telephone company.

But I’m still wondering what is going to happen when messaging apps fully evolve to multi-faceted platforms (gaming, commerce, communication tools); basically the ‘what’s next‘. WhatsApp is going to be left behind.

Only time will tell. I guess.

 

WhatsApp: Time to Grow-up and Start Making Money

There is a piece on All Things D about WhatsApp’s CEO calling out other messaging apps and their “bullshit metrics”.

“We want to steer the conversation to be about active users, not registered users,” said WhatsApp CEO Jan Koum. “We’re a bit fed up and frustrated about people talking about registered users. We think it’s important for us as a leader in the space to speak up and be ethical.”

…the CEO, Jan Koum says.

In a competitive space as messaging apps, it’s no longer just about mass adoption. WhatsApp is the most adopted in markets where users do not spend.

These charts basically speak for themselves. Their pay-per-dowload and one dollar annual fee is cute, compared to the business oriented players as Line, KakaoTalk and WeChat.

Messaging apps are not social networks. They are communication tools and now, moving on to becoming businesses, shifting from apps to e-commerce.

I can’t be the only one who thinks it’s peculiar how WeChat has the most MAUs (monthly active users), yet they are profiting the least.

Calling out other players in the messaging space is nice and all but “we have the most users! we are superior!” mind-set is no longer enough.

Time to grow-up and answer the question: Where is the monetization strategy? #1 in MUAs, last in revenues. Hi, Facebook.

*All Things D piece is here
chart sources 1, 2

Messaging Apps: What’s Next

Several have asked “what’s next?” after this post on messaging apps was published. By what’s next, I’m assuming people are wondering what I see as the ‘next big thing’. There are several ‘what’s next’ questions that need answering. Here is one. Who will win the messaging space?

I went into details about Line in particular because they are taking the right steps in differentiating themselves from the other messaging apps.

1. product evolution — Line, continues building new features and functions that fit user needs. Most recently they released an event app Band, that is like Facebook events but a million times better.
2. business models — like I said, stickers are not after-thoughts or novelty items. Stickers, are part of their monetization strategy. Line also does merchandising. They license their characters and collaborate with brand partners to bring things like this
   Aside from Crocs they partner with toy makers, accessories makers — basically about any company — to bring stuffed animals, plushies, cell phone accessories, and of course, stickers. [1, 2, 3] They recently collaborated with Maybelline to even bring Thailand users flash sales. Their next step, is eCommerce. Obviously.

Because of the above, I believe LINE will be the ultimate of messaging apps. And I still stand by my statement they will not successfully localize in the US. Messaging apps don’t have a place there.

As for the the Snapchat counter-argument, I am pasting a response to a comment.

I commend Snapchat and indeed their rise proves there is a need but if you look at the feature differences, you, too, will agree Snapchat is not on the same playing field as Line, KakaoTalk and WeChat. WhatsApp, Kik and Viber aren’t even on their levels.

Snapchat serves as a fun tool. WhatsApp, Kik and Viber are communication utilities like Line, KakaoTalk and WeChat. The differences are, the latter three have business models and strategies. Where the former are just…building to build.

In the American market, Instagram (if they lay out their product pipeline correctly and ultimately include text communication sans comment thread) will ultimately win the space (in the US).

As for ‘what’s next’, as in what is the next big thing?  Easy: wearables.

I think it’s absolutely fascinating though, how the US is moving back into hardware, while the software shift is happening around Asia. God, I love technology.

Added. Wired agrees wearables are what’s going to be hot, too.

Asia Lacks iOS Talent

This morning, LINE had a major update.

Their new features are only part of the reason LINE differentiates themselves from the other messaging apps. They are truly, the leader in this space when it comes to long-term product and business strategies. Man, they are so smart.

The one thing that really blows my mind is how the iOS app is so much crappier compared to the Android app.

I only user banner notifications for apps because the little red circles drive me batty. Before, the banner notifications used to tell me who sent a message with a preview.

After the update:

What is ‘MT’? Manual Transmission?? More Text??? Mt. Fuji???? Margaret Thatcher?????
This just makes no sense.

Hoping it was a bug, I switched the notifications to alert style and…

Ummmm same thing. I really wonder what MT means.

Check out the notification for the Android though:

Legit.

I don’t understand the thinking behind the iOS notifications but that’s neither here nor there. This only goes to show the dominance of Android over iOS in Asia, and how more emphasis is placed on developing on the former than latter.

Living in Asia makes me really want to switch to Android.

KakaoTalk’s Challenges

While the US is still trying to figure out how to jump on the messaging app money train, the downfall of messaging apps has begun in Asia.

KakaoTalk is Korea’s most dominant messaging app and an interesting analysis was just released [source].
A few takeaways:

• KakaoTalk has 130 million subscribers. 35 million of them are from Korea.
• Korea has approximately 37 million smartphone users
• Kakao Japan was set up in July 2011. They have a joint venture with Yahoo Japan
• Kakao is also in Vietnam and Indonesia
• 9 of their games have at least 100 million cumulative downloads
• since July of 2013, they have not hit 100 million
• new subscriber acquisition rate is slowing down
• they are also losing ground in overseas markets

KakaoTalk’s monetization strategy is lacking and heavy reliance on mobile gaming is a bad idea. Just look at Gree, the Japanese mobile gaming company. Their net profit Q1 fell 74% from the previous year and it keeps declining [source]. Even if KakaoTalk boasts game revenues of $300 million in the first half of the year [source], KakaoTalk’s user acquisition rate is declining. Their games are no longer as popular. They will see a shortage in projected revenue unless they come up with a new plan.

Their localization strategy is a failure. A joint venture with Yahoo! Japan should have catapulted them to mass penetration quickly, for in Japan, Yahoo!  is still the most visited website source. But they are still very much behind LINE, that entered the Japanese market 15 months after KakaoTalk. I also wonder how KakaoTalk is approaching growth in Vietnam and Indonesia.

KakaoTalk will stay dominant in S. Korea, since they have the most users in their home base, but LINE is also owned by Naver. Naver is a S. Korean company and they also have home base advantage. Unless KakaoTalk figures out a way to scale the servers (they are experiencing server errors and outages. Five that I could find, to date. 1,2 ), users can quickly move to another service as fast as they onboarded. Especially, since messaging apps are the way we communicate in Asia. An outage on KakaoTalk or LINE  in the US, is like Gmail or iMessage going down.

The messaging app space is peaking and it’s so competitive right now. It’ll be interesting to keep a close watch on KakaoTalk to see how they will evolve their product and strategies to stay a major player.