East Teaching West and the rise of Messaging as a Platform

This post was initially published on Tumblr in November, 2013. Re-posting onto Medium for consolidation but also because of growing relevance of the Western leading firms moving quickly into messaging platforms.

A recent report from Ovum states that there will be 2 billion mobile messaging users by the end of 2014 with 71.5 TRILLION messages across platforms.

Combine that with the rumor around Snapchat’s supposed $3B acquisition offer andWhatsApp’s users numbers passing 350M and everyone seems to be buzzing about mobile messaging apps.

But this momentum has been building and it is a case of the East leading the West in terms of innovation. The always insightful Benedict Evans posted the graph below in his recent Mobile Eating the World deck:

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It shows not only the massive numbers of users these messaging apps have acquired, but also the number of them. He claims that

“Over 50 social messaging apps have had more than a million downloads on Google Play. A dozen have had over 50m downloads”

If you look at the slide above, what’s particularly interesting is how many of the apps are emerging from Asia. WeChat is owned by Tencent in China, Kakao and Line are Korean (interestingly Tencent is also an investor in Kakao…and in Nimbuzz).

So, yes this all comes back to Tencent, the Chinese internet powerhouse that in Q3, 2013 generated $2.5B in revenue with $1.8B of that from “value-add services” (ie stickers, digital goods) and $383M in “ecommerce.” That’s IN ONE QUARTER on 55% Gross Margin!

And this revenue comes from its QQ messaging platform which is mainly China centric with 815M user accounts. But QQ is the platform of yesterday and the Chinese giant has awakened and the growth is now coming from Weixin and WeChat which account for 272 MAUs or a 124% YoY growth.

WeChat (and its investment in Kakao) is a signal that the publicly listed Tencent is no longer content to own the Middle Kingdom and I think it signals the first big push by a Chinese internet giant into the West.

So when Pando Daily posted this week that WeChat was going to be much bigger than WhatsApp for payments, yes its true and it comes from WeChat’s genes, from the hundreds of millions of dollars Tencent has been making on top of QQ ($334M in 2007!)

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The East, and specifically Tencent, nailed the notion of a mobile-centric messaging-centric platform and a monetization based on gaming, dating, stickers and “cards” over 5 years ago. It seems that it is just now that we, in the West, are waking up to this.

The only Western-born company that I can think of that has nailed mobile microtransactions (outside of gaming) is Badoo which was making over $150M in 2011. And to be fair, Badoo has Russian roots. [NB: Would welcome thoughts on any others].

Social Graphs are evolving, the notion of platforms is evolving, the monetization of mobile users is evolving and it seems there is a thing or two we, in the West, can learn from the East.


Christian Hernandez is the co-founder and Managing Partner of White Star Capital, an early-stage Venture Capital fund backing exceptional entrepreneurs with global ambitions. www.whitestarvc.com

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