If talk is cheap, why are chat apps becoming such big business?

Cross post from an article first published on LinkedIn.

Earlier this year, the news that Facebook had purchased WhatsApp for $19 billion made many people’s eyes water; especially as the revenue model for the service is still relatively embryonic.

But this acquisition is not unique. Across the globe tech giants are busy investing in chat apps and social messaging services. China’s Alibaba has invested $215 million in another messaging app, Tango, and the Japanese Internet company Rakuten spent $900 million to acquire Viber.

So why are tech companies going so crazy for messaging apps?

1. These services are already proving popular

If you look at the growth curve of many of these applications, then it’s clear that they are growing faster – albeit from a smaller user base – than more established social services. In 2013, WhatsApp usage grew by over 100% in every market, and a staggering 230% in North America.


2. Smartphone owners use them regularly

Of course just because an app has been downloaded doesn’t mean it is used regularly. The shelf life for many new apps is very short, with many of them sitting on your phone unused – and unloved – for some time before you get around to deleting them.

Messaging apps are different. Smartphone owners use them regularly. Five of the top ten most use smartphone apps across the globe have a chat/messaging function.

And interestingly Facebook owns four out of these ten services; given that they own Instagram as well. That must bode well for Zuckerberg’s efforts to move to mobile.


3. They provide access to emerging markets

As this chart from We Are Social shows, through its acquisition of WhatsApp, Facebook gained access to 465m active users of the messaging app in China alone. Considering that Facebook itself has 820,000 users in China, there is a fair possibility that not all of these users will be on both networks.

Moving forward, it will be interesting to see if these services merge; or if Facebook decides to keep the user experience separate.


4. The brands are coming

Given the size of these markets, it’s inevitable that business would seek to find ways to use these services.

Burberry partnered with WeChat to offer users a distinctive offering from the London Fashion Show; whilst McDonalds, the NBA and others have sought to harness the potential of Snapchat.

As a result, although many of these networks started as places to chat with friends, they’re fast becoming another source for social content for users; with material being tailored to fit the often unique characteristics of each platform.


5. Making it pay may be a challenge

All of these trends – service growth, increased usage, the development of richer in-app content – look set to continue. Does this mean these types of networks are the future of social media? Quite possibly.

How they monetise will be a key question to address; as will the reaction of telecoms operators, many of whom will be unhappy at the loss of revenue from SMS/MMS traffic as users send messages through Instant / Social Messaging apps instead.

This battle may take time to play out however.  Juniper Research suggest that even in 2018 there will be a huge disparity between the volume of messages being sent and the share of revenue they generate.

With messaging apps anticipated to be responsible for 75% of all mobile messaging traffic by 2018, but just 2% of these revenues, seeing how these services and applications develop is going to be fascinating to watch.


Want to know more?

To understand more about the growth of these networks, see this piece that I wrote for Huffington Post – Five Charts Showing How Chat Apps Joined the Social Media Mainstream. You can also see the different characteristics of some of the biggest social messaging networks in this presentation – 10 thing you need to know about Chat Apps – from ictQATAR. (Quick disclaimer: I work there.)

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