Why chat apps are making it big in Asia

Asia is home to WeChat, LINE, Kakao, and Viber – local solutions that are proving to the world how chat apps are the future of mobile. In Asia, these chat platforms give consumers access to dozens of critical services like peer-to-peer and online payments, transportation, financial services, sparking a wave of new chat- first application innovations and enabling customers without bank accounts or credit cards to participate in the digital economy. In the week the Japanese messaging app Line announced the year’s biggest Tech IPO of over $1 Billion, we at Seedstars World break down what we can learn from a trend that is defining Asia and the broader mobile tech world.

1. Interoperability

The interoperability of different apps is crucial. While in Europe and the US the way different apps interact with one another is very limited, services such as Tencent and WeChat have made easy integration and interoperability critical features in their product, giving the user a seamless, frictionless experience. For example, WeChat users can easily use their mobile wallets to make payments for their purchases on the eCommerce platform of Tencent, the world’s third largest Internet company. Such examples of platform crossovers are still missing in Europe and the US, since the service providers strongly rely on their one area of expertise, hoping that it will give them the much-needed competitive edge.

2. Network Effects

The chat apps were smart and quick in realising the potential for network effects by developing adjacent products for consumers. Once a user is retained through chat, then the company can provide services that make the user’s experience more valuable and ultimately revenue generating for the platform. In Asia, it is important to consider the user’s full spectrum of needs that could be served by technology to increase their lifetime value. It came as no real surprise when e-commerce giant Alibaba spun out a third party online payment, Alipay in 2004. Alibaba has been dealing with massive amounts of eCommerce transactions for already 5 years, and going into payments was a natural next step. Continuing it is innovative journey, Alibaba demonstrates how far a clear holistic vision of product can take a startup. Considering the fact that they have access to all their consumers’ data and buying preferences, Alibaba recently rolled out a platform to provide them access to loans and banking services. Their success was in recognising its volume of data was a product in itself that it could monetize. The potential of the volume of data that the group has at its disposal inspired something, that will make life of their users much more hassle-free.

3. Unique Population Dynamics

One unique aspect of Asia is its sheer population and market size. No other continent has two countries with a population of over a billion people. In addition to that, mostly due to the low manufacturing costs in China, Asia also comprises almost half of the world’s smartphone users, creating a sizable market opportunity for technology startups- in 2020 there will be 3bn smartphones in Asia, which represents a growth of 1.7bn from the end of 2014. Asia will also account for the majority of the global subscriber base, as in the beginning of 2015 it already had 49% of the world’s unique subscribers and 51% of the world’s connections. China, South Korea and Japan also have populations that are generally homogenous, which in turn makes it easier for the product to be quickly adopted across the whole country. This stands in strong contrast to the United States and Europe, where the consumer tastes are considerably more varied and nuanced. The relative homogeneity in certain markets is an advantage that makes it easy for startups to launch and understand the user base.

4. Mobile Leapfrogging

The onset of digital technology in China was recent and very rapid. Since Europe and the US were the original launchpads of technological revolutions, and it initially revolved around the possession of desktops, our buying behaviours are much slower to change. The numbers themselves are quite telling; while Chinese mobile commerce is predicted to grow by 250% in 2016, Europe stands at 70% and the United States at barely 36% In Asia the trend is completely reversed. The prohibitive costs of desktops meant the majority of consumers entering the market turned to cheap mobile devices as their first means of getting online. If mobile is the only thing that the users are familiar with, there is no virtually zero friction to adopting mobile-first platforms and using services directly integrated into the messaging apps. The overall market size for social commerce is expected to be USD30 billion within the next two years. If we take just Indonesia as an example, with its population of 248 million and only 0.8% that is actually purchasing products on their mobile, the potential of this untapped market is enormous.

5. Market Size and Potential

Messaging apps are becoming the one-stop shop for every human need. If in the beginning, people would use them to simply communicate with friends or family, today there are unlimited options and purposes. As the possibility to contact customers and employees is simple and reliable, many companies and organisations are choosing chat as the way to reach people. According to Juniper Research, revenues from A2P SMS (Application-to-Person – defined as messages which are sent both to and from an application) will be worth almost $60 billion by 2018, up from $55 billion in 2013. In China, for instance, as of December 2014, there were 557 million mobile Internet users, and the percentage of those using mobile phones to go online jumped from 81.0% in 2013 to 85.8%. For Chinese people the use of mobile instant message apps had grown steadily, attracting 91.2% of the mobile Internet users.

With this large of a market size and opportunity, it is clear that all eyes are on Asia. The question remains, if Western messaging apps have the ambition and capacity to pull the integrated services off the way WeChat, Kakao or LINE are doing right at this moment.

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This article by Seedstars World originally appeared on Seedstars World, a Burn Media publishing partner.

Feature image: Dennis Jarvis via Flickr.