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Line, the Asian chat app that reached 100 million users about three times faster than Facebook, is putting growth before profit to take on the US social-networking giant and Twitter Inc. in their own backyard.
With 38 per cent of its users in Japan, developer NHN Japan is honing plans to expand Line’s reach, setting up a US marketing team and planning joint promotions and content- delivery agreements with local companies. NHN Japan is still at an investment phase as it targets as many as 1 billion customers globally, said Jun Masuda, chief strategy and marketing officer.
“This year, we want to capture North America,” Masuda said. “We’re not focused on being in the black. It isn’t time to cash in yet.”
Known for cartoon characters and other “stickers” that users can include in chat messages, Line is among several apps from Asia challenging Facebook, Twitter and Microsoft’s Skype as a way of communicating via mobile devices. South Korea’s KakaoTalk is looking to Vietnam and Indonesia to expand past 82 million users; China’s WeChat has about 300 million.
Line reached the 100 million-user mark 19 months after its June 2011 debut, compared with 49 months for Twitter and 54 months for Facebook, according to NHN Japan.
Line has features, such as group messaging, that make it stand out as an alternative to Facebook, said Tom Taulli, an independent analyst who covers initial public offerings. Still, incumbent chat providers are robust enough to keep from losing many users to Line, said Clark Fredricksen, a researcher at EMarketer Inc.
“In the U.S., things are clearly evolving in the direction of instant messaging and chat, and having a mobile experience across devices is important,” Fredricksen said. “There’s clearly an opportunity, but also major platforms that are big enough and innovative enough could head off any threat from a foreign competitor.”
Parent NHN Corp., operator of South Korea’s biggest search engine, has gained about 40 per cent in Seoul trading since June 1, 2011, against an 8.9 per cent drop in the benchmark Kospi index. Facebook is down 32 per cent since its May 18 debut.
“NHN is trying to carve out a niche market in the US and Europe,” said Park Dae Up, a Seoul-based analyst at Dongbu Securities Co. “Making big strides is difficult in those developed markets, where Facebook and Twitter already dominate. It’s trying to be a significant second-tier player.”
Facebook, based in Menlo Park, California, had more than 1 billion monthly active users as of December, with 82 per cent of them outside the U.S. and Canada, according to the company’s website. Twitter, based in San Francisco, surpassed 500 million user accounts in June, including about 140 million in the US, according to a report by Semiocast, a research company.
WhatsApp, based in Santa Clara, California, has seen its mobile messaging app downloaded by more than 100 million users of Android phones, Neeraj Arora, a spokesman for the company, said in an e-mail. It’s seeking to add more users of Apple devices by offering unlimited service for $1 a year, he said.
Line, with services including free voice calls, is available to users of Google Inc.’s Android, iPhone, Windows Phone and Research in Motion Ltd.’s BlackBerry operating systems as well as personal computers. The app has topped Apple’s rankings of free downloads in 41 countries, according to NHN.
When the app hit 120 million users on March 9, about 45 million accounts were in Japan and 15 million each were in Taiwan and Thailand, according to NHN. The company doesn’t disclose numbers for other markets.
Part of the reason Line and free messaging service KakaoTalk have been successful in Asia may be that users in the region are particularly concerned about privacy, NHN’s Masuda said. While Facebook is known for its status updates and Twitter for its posts, the Asia-developed chat applications are mainly focused on person-to-person messages.
“There is a need for closed and private communication,” Masuda said.
Asian consumers are also more accustomed to paying for apps and services than those in Western markets, he said. While Line’s basic service is free, it earns revenue by selling stickers and from games and corporate accounts, he said.
NHN is nonetheless betting Line’s global appeal will grow. While it hasn’t set an official target, the company wants to grow to 500 million or 1 billion users in two to three years, Masuda said.
‘At Any Cost’
“We want to spread throughout the world at any cost,” Akira Morikawa, president of NHN Japan, said in a speech in Tokyo last week.
The company said Feb. 26 it teamed up with Nokia Oyj to make Line available on the Espoo, Finland-based company’s Asha mobile devices. The release is scheduled for this month in China, Malaysia, Indonesia, Thailand, Vietnam, the Philippines, Cambodia, Taiwan, Hong Kong, Singapore, Australia and New Zealand, Line said in a statement on its website.
In addition to selling stickers, Line plans to develop new services and may generate future sales by becoming a marketing platform for companies, Masuda said. The company doesn’t disclose sales or profit.
Line’s strategy of growing first and making a profit later may prove difficult, said Mitsushige Akino, a fund manager in Tokyo at Ichiyoshi Investment Management Co.
“NHN says they’re in a value-building stage, but while they keep saying that, many similar services may emerge,” Akino said.
Any competitor can offer games, stickers and a place for advertisements, so holding onto users will require fresh, new ideas, he said.
KakaoTalk has more than doubled its users since January 2012, says developer Kakao Corp., based together with NHN Corp. (035420) in Seongnam, outside Seoul.
WeChat, a messenger app from Shenzhen-based Tencent Holdings Ltd. (700), China’s largest Internet company, said it had more than 300 million registered user accounts as of Jan. 21, two years after starting the service. The company has formed a team to study possible expansion in the U.S., Jerry Huang, a director, said in a Feb. 25 e-mail.
WeChat has the potential to reach at least 400 million users this year, Alicia Yap, an analyst at Barclays Plc in Hong Kong, said in a March 13 report.
“Even after they become big, Line still needs to create a model that makes users spend money,” Akino said. “I think that’ll be difficult.”
NHN, which said last month it will spin off Line, may list the new company in Japan late next year, Korea Economic Daily reported March 18, citing unidentified bankers.
“We don’t lack funds,” Masuda said, adding that there were no plans for an initial public offering at the moment.
The company is spending 250 billion won ($224 million) marketing the app this year, more than double last year’s amount, Jay Park, a Seoul-based analyst at Samsung Securities Co., said in a Feb. 25 report. He estimates Line’s value at 7.9 trillion won, about 11 percent of Facebook’s $61.6 billion market capitalization.
“We expect Line to boast more than 300 million subscribers by end-2014,” Park said. “Although some are concerned over a sharp rise in Line-related marketing costs, we believe it is essential to carving out a share of a market.”
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