The Delta Perspective
Current size does not make you invincible
Authors: Maxime Bayen, Dino Saric
On March 25th, the anonymous group messaging app Rumr was launched. This comes one month after Facebook’s $19 billion acquisition of WhatsApp. With over 20 mobile IM apps recording 10 million Monthly Active Users (MAU) and above, the market is getting intense and the proliferation of new IM apps is expected to continue. While the top 10 largest mobile operators worldwide took 20 years to reach 100 million subscribers, the 10 largest mobile IM apps needed only 5 years to achieve a comparable size. Yet, neither size nor valuation or even revenue are a promise of sustainability in this space.
The graph below is the outcome of an internal analysis performed on the 50 largest mobile messaging apps worldwide. At first glance, it seems that the market is dominated by 4-5 players dictating the future of mobile messaging apps. This could be an overstatement and it’s likely that tomorrow’s dominant messaging app does not yet exist. For example, looking back, digital communications platforms such as ICQ, MiRC, AIM or MSN Messenger did not stand the test of time. Let’s then take a closer look at the graph.
Surprisingly enough, there is no clear correlation among the three quantification metrics; size (Monthly Active Users), revenue and valuation. For instance, players like SnapChat and KakaoTalk are both valued around $4bn though KakaoTalk has four times more MAUs than Snapchat and actually generates solid revenue. Similarly, WhatsApp, with now 500m MAUs, only generates around $20m of revenue whereas WeChat, with 400m MAUs, made more than $1bn revenue in 2013. This lack of coherence among the metrics clearly indicates the fragility of this extremely competitive market.
As a matter of fact, the magnitude of current revenue does not guarantee a sustainable future. In the world of mobile messaging apps, user trends evolve rapidly and “loyalty” is a foreign concept. WhatsApp, Line or WeChat could disappear even faster than they took off if left unchecked.
We believe, the success of any mobile IM app hinges on three golden concepts:
1. Constant Innovation – The Only Entry Barrier
Neither the size of your team (e.g. SnapChat only employs 20 people), nor the amount of funding (e.g. Rumr entered the market with only $800,000 of funds raised) are entry barriers. The only real entry pass is innovation as well as a disruptive feature that can propel the popularity of a messaging app. In February this year, as WhatsApp experienced a few hours of downtime, around 5 million users switched to a new entrant named Telegram, which positioned itself as the “fastest and most secure mass market messaging system in the world”. Similarly, the capability to innovate constantly is also what will enable a mobile messaging app to last. Line, for instance, has launched at least 10 new features on its platform since the beginning of this year.
2. Being “Hip” Is Fundamental
According to an April survey by Upfront Analytics, close to 1/3rd of the most connected US teenagers (13-17 years segment) prefer Kik or SnapChat, and do not use Facebook Messenger or WhatsApp on a regular basis anymore. Understanding what “cool kids” favour as a communication platform is being analysed and tracked by most of the 50 top mobile IM apps. A recent UCL study has also established that a growing number of teenagers have stopped using Facebook as they were embarrassed to use the same social network as their parents. While there is no scientific metric to measure how trendy a mobile messaging app is, successful players have to be mindful and delicately handle “non-hip” moves. The addition of a paid feature, the association/partnership with a larger corporation, the perceived level of privacy and trust or even the association with specific celebrities/political personalities could impact a platform catastrophically.
3. Think Ecosystem, Not Only Communications
As Line’s CEO Akira Morikawa said recently, “Line is not just about communication, there is the element of platform”. Line as well as few others like KakaoTalk and WeChat have been able to turn their apps into digital platforms that facilitate shopping (thanks to solid in-App payment solutions such as Alipay), gaming, video streaming, education and social engagement all within a single app. Going beyond basic communication appears to be the key quest. All eyes are now on WhatsApp, which seems to be content with its current position as a pure communication software (through messaging and voice).
This capacity to go beyond communication is becoming increasingly relevant in emerging markets where mobile is the ‘first and only screen’ of internet access among the unconnected, a trend well illustrated by the impressive growth of China-based WeChat or the take-up of 2GO in Nigeria. Therefore, we believe that the emerging markets will shape and dictate the evolution of this industry going forward.
Mobile messaging players that grasp these three concepts and hone them to their advantage, should find themselves at the top right corner of the graph the next time we take this industry’s snapshot in 12 months from now – and see which player has become almost invincible.
Maxime is a Manager at Delta Partners’ Intelligence Unit, based in Dubai. He works closely with advisory teams engaged in the Africa and Latam regions. His areas of focus include mobile data, pricing, and sales & distribution. Prior to Delta Partners, Maxime was a consultant within the TMT practice of two firms in the MEA region focusing mostly in marketing and sales projects for telecom operators.
Dino is a Research Analyst with the Intelligence Unit at Delta Partners. His main region of focus is Africa and his areas of expertise include app ecosystems and smart devices. He also works closely with the corporate finance and private equity teams on a day to day basis helping with investment, M&A and funding research. Dino has previous experience in the financial industry in North America and the Middle East focusing on private insurance.