Mobile Messaging: The Stakes Have Been ‘Hiked’

hike-messenger-login-heroThis guest column is by Arvind Yadav, Principal at Aurum Equity Partners LLP

With a USD 175 million fundraise, Hike messenger has just upped the game in the mobile messaging market. Loaded with cash and backed by the global bigwigs which include Bharti, Softbank, Tiger Global and now Tencent, the app is gunning for the pole position which has so far been firmly sitting with Whatsapp. Hike already has 100 million registered users in its fold and manages traffic of 40 billion messages on a monthly basis. Whatsapp with close to 1 billion users, is still far ahead on this count, however it can ill afford to be complacent.

The game has moved beyond just adding downloads or active users. These loaded high-tech companies are not just fighting for the privilege to send your hellos and smileys to friends and family. Tencent is in fact the key investor behind WeChat which has been evolving to become the “one app to rule them all”.  The concept is simple. An average person would not use more than 5 to 10 apps on a regular basis. An instant messaging app is more likely to be among the top 3. Hence why not offer more solutions to a ‘customer’ who already likes your user interface and capture a larger share of the wallet. No need for users to have different apps for sharing photos, transferring money or even watching online content.

Potential Revenue Models for Messaging Apps

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The conventional business models have been tried with varying levels of success. Whatsapp tried hard to monetize its user base with a nominal subscription fee, but in the end it had to shelve that plan and go free. Advertising has similarly been a no-go for most players as they do not want to risk degrading the user experience.

On the other hand, mobile gaming has been a great model for monetization. Generally mobile games are free to play, but they generate revenue by charging players for better virtual weapons and other additional features. Tencent’s success in this segment has set the benchmark for other players. Online gaming contributed more than 55% of Tencent’s overall revenues. In 2015 the company generated over USD 8.5 billion from games software, of which USD 3.2 billion was from mobile games. Surely WeChat’s 762 million monthly active users (March 2016) play some role in that.

Most other conventional segments are either small in terms of revenue potential or may not be a lucrative option in the Indian context. Online to Offline commerce could seem like a logical extension but it is a highly specialised market with a lot of control required to maintain the quality of the products and services. O2O is not really a prospering market and the likes of Flipkart and Snapdeal must not be enjoying the current phase. Services like Cab aggregation are largely played out markets with clear leaders established in Uber and Ola.

Messaging apps would find greater synergies with product segments that do not involve controlling the human side of services. Hence, a great mobile software product developed by their army of elite coders can be far more synergistic than any misadventure into Urbanclap’s zone of services.

What should then a messenger of the future look like? We do not need a time machine to figure that out, just a glance at our neighbours. WeChat has already set the path in China for others to follow.

It’s essential that players in the Indian market don’t blindly try to replicate the model. A deeper study of the prospects of the end segments is warranted.

Potential Target Areas in India

Digital Payments: There is no doubt that adding a payments infrastructure to their portfolio of offerings should be the immediate priority for players like Hike and Whatsapp. Indian digital payments market is set for unprecedented growth driven by rise of e-Commerce and change in purchase behaviour. As per a study by BCG and Google, the value of transactions set scale USD 500 billion by 2020, ten times its current level. By any means it will be a very large market to be tapped across the categories of Person to Merchant (P2M), Business to Business (B2B) and Peer to Peer (P2P) money transfer.

The global trailblazer in the mobile messenger category is again Tencent and WeChat. It has already built one of the world’s largest payments systems emerging as the only serious rival to Alipay In fact, WeChatPay accounts for approximately 25% of the 6 trillion yuan mobile payments market in China, growing at 111% year on year. Not bad for a messaging app.

Enterprise Solutions: There is no reason for the messaging players to limit their playfield to just the B2C segment. The acceptance of SaaS solutions as flexible and efficient options amongst large and medium businesses has opened up a huge window of opportunity. The messengers are ideally placed to capture a large segment of the opportunity in Content Collaboration and Communications (CCC). With an established user base and acceptability for their platform, churning out an enterprise version would be a low hanging fruit.

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Slack has emerged as a first mover in this segment. Its solutions are focussed on messaging for teams within companies. Further users can integrate other CRM apps to use Slack to manage customer interactions.

OTT Content: The way we consume video content is transforming completely. Subscribing to 500 channels which can be watched on just one screen is not an idea that is very sustainable. Faster internet speeds, smarter and connected TVs and reducing smartphone prices are driving users towards on demand content on the device of their preference. As per a report by Media Partners Asia, India’s online video market will contribute USD 1.2 billion in revenue by 2021. The advertising video on demand (AVoD) services will grow at a CAGR of 38% between 2016 and 2021, while the subscription video on demand (SVoD) services experience a CAGR at 64% for the same period.

Users are likely to welcome the opportunity to access their favourite videos on their favourite app, which in most cases is the mobile messenger. Content owners could not hope for a wider platform for distribution of their videos.

Internet of Things (IOT) Communications: I was always amused by people who give a name to their cars and refer to it as a person. Not any more though. The next breed of cars is not just a means of transport, but one of the smartest and most sophisticated ‘persons’ you can have around you. Why then should it not figure in your friend’s list on the messenger? The need to communicate with machines is evolving at a breakneck speed. Smart TVs, wearables, cars, home security systems are already making a mark. Global IOT Market to exceed USD 300 billion by 2020. IOT software and services will capture the largest share of the market (USD 260 billion). India is expected to account for 5% of the global market. A messenger that could talk to these devices could be a game changing development.

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There is no telling how the mobile communication field is going to play out, but we are definitely set for an interesting phase of growth. It would be interesting to see the dynamics in terms of geography and more importantly, technology between WeChat and Hike, now that Tencent is a common investor. Hike management has already indicated that they will be exploring “services, people and office space, but also AI, machine learning, virtual reality and augmented reality”. Keep an eye on your messenger as new features will keep popping up now and again. I doubt Whatsapp is going to continue being the simplistic app it is right now.

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