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Monetizing mobile instant messaging: the future requires scale innovation

by Chris Lowe , 17.12.2014

The mobile instant messaging (IM) market has been a phenomenon of the past 4 years. The growth of IM has been staggering with players such as Japan’s LINE and China’s WeChat acquiring over 500 million users within 2 years of launch. A large proportion of the global IM user base however, does not generate substantial revenue and this is fueling change.

IM is part of a mobile messaging ecosystem

IM forms one method of messaging within the mobile messaging ecosystem which consists of SMS, MMS, IM, e-mail, RCS and social media. These services are provided by telecom operators, MVNOs, social media providers, OTT providers and content providers/search engines. Major players include WhatsApp, LINE, WeChat, Viber, Skype, BBM, Kakao Talk and Kik. IM is competing against the other mobile messaging platforms for share of traffic and revenue.

IM adoption is explosive but has limited reach

It is important to note that, despite its global popularity and explosive growth in recent years, IM is a limited market for monetization. The number of users required for IM to be effective in delivering real-time messages is constrained to those with access to smartphones,  higher disposable income and access to quality 3G/4G networks.  These three factors are typically restricted to those in more developed economies or urban areas. However, the tide is turning and smartphones are penetrating the lower end of the market more and more with inexpensive, often Chinese (Huawei, ZTE, Xiaomi and Lenovo/Motorola) smartphones being made available in developing economies and rural areas. IM may find delayed opportunities in these untapped markets.

IM continues to grow however SMS  generates the majority of mobile messaging revenue

SMS is still king of messaging in terms of reach, user base and monetization although its prevalence is beginning to decline, particularly in developed markets, while more contextual, personal and interactive IM traffic increases. If this trend continues it is likely IM will account for the vast majority of mobile messaging traffic. Since users buy into free communication with IM, the huge increase in traffic is unlikely to generate much direct revenue leaving SMS to take the lion’s share of the money. IM then has to evolve to stay relevant and turn profit.

The IM market is consolidating and innovating further due to untapped revenue streams

In recent months the IM market has consolidated noticeably with Facebook acquiring WhatsApp for $19billion (approx. €14.7billion) and Rakuten snapping up Viber for $900million (approx. €695million). Per-user valuations have ranged from $9 (approx. €6.95) for Viber to $42 (approx. €32.4) for WhatsApp and potentially double or triple this for LINE or WeChat due to having monetized more features and services. Also LINE, WeChat and KakaoTalk are already backed by substantial media/electronics corporations with resources to develop IM apps into successful money machines. If we expect these apps to develop further they are likely to benefit premium stickers, official accounts, personalization features, in-app and in-game purchases, and content merchandising whilst finding a path to non-invasive advertising revenue.

It will therefore be interesting to note how the remaining market moves which includes: Blackberry’s BBM (approx. 80m users), Kik (approx. 80m users) and AliBaba’s Tango (approx. 130m users). Major online brands Amazon, Google and Yahoo have not yet acquired nor monetized a major IM app and may be poised to do so.

The trend appearing is that Instant Messaging by itself is not being monetized; it is a proxy to monetization. The IM platform is built first, a substantial user base is formed and then, stealthy monetizing attributes are deployed following financial investment/acquisition. Facebook is a good example where it may use WhatsApp’s user base and link to their Facebook account where advertising is shown, thereby not disrupting the flow of chat on IM.

The Asian IM apps are clearly leading the market in terms of innovation and effective monetization whereas the Western brands moved first and established brand equity. It appears Western brands are currently behind the IM innovation curve and the recent acquisitions by online and tech organizations gives them differentiation by integrating IM to social media and search. Furthermore we might expect to see additional features being added as in Asia.

Human characteristics fuel the next wave of IM features

Some innovative IM platforms entering the market focus on three promising areas for monetizing the medium term horizon: Emotions, security and ‘artificial’ intelligence (AI).

Emotions: IM apps that bring an emotional response are appealing considering the popularity of online dating apps such as Match and location-based dating apps such as Tinder. Also the younger generation are using IM to flirt and integration of such features into an existing platform may be fruitful. Somebody is a new IM app delivering instant messages “via the nearest human” thereby evoking raw emotions and creating a fun new niche.

Security: Considered important globally and certainly in the West with fears of government snooping, hackers and unauthorised publishing of personal information. Apps such as Snapchat have added fuel to that fire with destroyable messages and videos. BBM, Telegram and Ansa apps provide highly secure communication and control over your settings.

Intelligence: Artificial Intelligence is being built into IM and Walkabout.im by NextWave is an interesting proposition by providing a non-invasive way of advertising in an IM app. Interestingly Google has recently purchased Emu and may make a play into AI and contextual based advertising and, like Facebook with WhatsApp, link IM chat to advertising in its search engine or social media accounts.

Future IM monetization relies on innovation

The IM market is consolidating allowing those with large acquired user bases and financial backing to innovate and monetize at scale. IM is likely to survive in the mobile messaging market as a portal to other products and services and by continuing to launch innovative, fun and simple attributes that their user base craves. For now communication, personalization and purchasing are important. Tomorrow more secure, personalized, emotive experiences built into wearables and the Internet of Things may present opportunities.

For more information please contact Chris Lowe at chris.lowe@gfk.com.


Forbes: WhatsApp Could Be Worth $100 Billion Once It Monetizes Like Its Asian Peers

Financial Post: Snapchat adds video calls, instant messaging as it seeks ways to monetize

Bits: The Messaging App Wars Are Just Getting Started

Mashable: Are Ads Coming to Messaging Apps?

Mashable: What's WhatsApp and Why Did Facebook Pay $16 Billion for It?

Financial Times: Japan's Rakuten to buy Viber for $900m

BBC News (Business): Facebook to buy messaging app WhatsApp for $19bn