Bidding war between Tencent and LINE for Kakao; Tencent already own nearly a third of Kakao

Thomas Clayton: Bidding war between Tencent and LINE for Kakao

BY JACKY YAP | MAY 28, 2013 | ASIA

Thomas Clayton, CEO and founder of Bubble Motion shares his thoughts on Asian startups and the impending bidding war between LINE and Tencent for Kakao.

There are only a handful of companies in the region which managed to grow and subsequently raise multiple round of fundings. Singapore-based Bubble Motion is one of them. Founded back in 2005, Bubble Motion is the Twitter for Voice, and raised a total of US$50 million in funding from investors such as Sequoia Capital, Comcast Ventures, SingTel Innov8, JAFCO Asia, and many others. Bubble Motion now serves over 19 million users globally.

Of course, a great company is led by a great team. CEO and founder Thomas Clayton has had extensive experience and prior to starting Bubble Motion, Tom has started, worked for and ran numerous high-tech companies. Thomas also recently wrote an article on “Why the Largest Social Network in 2015 Won’t be Facebook, and Will Be From Asia“. Prior to his keynote at Echelon, we spoke to Thomas about the opportunities in Asia.Responses are by Thomas Clayton

Asia is a mobile first market and filled with lean and hypercompetitive startups

I believe Asia has two inherent advantages.

First, it is truly a ‘mobile first’ market – everywhere from India, where there are more than 950 million mobile subscribers to only 120 million internet users to Japan where surfing the Internet on mobile is 3 times more prevalent than fixed line access and it was the first country to have mobile internet access surpass PC internet access. It also helps that Asia has the largest mobile subscriber base, by far, in the world.

Second, it is hypercompetitive with startups that are extremely lean and move super fast – faster than anything I’ve ever seen in the Valley. Given the competitive environment and the lack of institutional funds, they have grown up in an environment where these characteristics are absolutely necessary for survival. This factor, combined with the fact that Asia startups are used to dealing with extremely price sensitive consumers, they know how to be ridiculously creative and monetize in very nontraditional ways (i.e., stickers, games, etc) that is not always readily apparent to startups in the west.

Asian chat apps: There will be a bidding war for Kakao; Whatsapp and Viber needs to buck up

At the current rate and pace, I would put my money on Line – they have grown like a rocket ship and now have very deep pockets due to their phenomenal revenue growth. Their massive advertising campaigns are all over the region. KakaoTalk is following suit and is also marketing aggressively in select markets, but they have to work with fewer resources than Line at this point. It is unfortunate, because it appears that Line copied much off Kakao, which was around long before Line. Either way, Kakao will dominate Korea – that market is one and over. It is also ironic given Line’s parent company is NHN of Korea. If any of the two were to merge, it would be these two, as the CEO of Kakao is ex-NHN and they obviously know each other well. And if NHN wants Line to dominate its home market – Korea – it’ll have to acquire Kakao to achieve that at this point. However, rumor is that there is a lot of bad blood between the two, so I not sure how realistic this would be in the near future.

The other big players in the region are Whatsapp, Viber and WeChat. WeChat has also spent aggressively, but it appears to focus more on incentivized downloads, as their rankings tend to be quite high, but anecdotally, the actual DAUs and MAUs seemed to be lower than Line, Whatsapp and Kakao in many of the markets. WeChat does have one clear differentiation – their “Locate Nearby” button that is clearly focused on a use case of wanting to meet new people around you – more like a dating or hook-up feature though. It is a very different direction than the other apps and I don’t necessarily see the others adding this functionality. Similar to Kakao in Korea, Wechat (or Weixin) has clearly won the China market, which means that that is game over for any other market entrants.

Along these lines, you could also see Tencent acquiring Kakao at some point, as they already own nearly a third of the company through their last investment round. This would clearly help them be a more formidable competitor outside of China. Ultimately, I don’t think it is out of the question that we could see a bidding war between Tencent and Line for Kakao. Kakao would be quite valuable to either of them, but moreover, it would really hurt each of them if the other was to acquire it. It has an Apple versus Google type of dynamic to it.

Whatsapp and Viber have had great organic growth across the region. Whatsapp was the first mover and grew like a wildfire. However, ever since they started charging a $0.99 cent download on iOS and an annual subscription of $0.99 on Android, it has really given these other regional players a chance to grow at a phenomenal pace. Premium apps and subscription fees are not ideal for the extremely price sensitive Asian consumers. Hopefully, Whatsapp changes its model in Asia soon; otherwise, it risks losing its early lead in the region – it already has in Thailand and markets like Indonesia and the Philippines are switching fast.

Viber has done well organically in the region – with no marketing spend whatsoever. Their big advantage is their user interface – it feels like you are using the dialer or the default messenger on your phone. However, this puts it much more in the Whatsapp camp as a communication tool or utility as opposed to a fun social app like the other regional players. They’ve recently added stickers, but in general, they have not tried to monetize yet. Given the types of use-cases and probably different demographics of its core users from the other regional players, monetization maybe a challenge for them initially. They’ll definitely have to be a bit more creative.

While LINE and Tencent are still relatively young in the industry and this impending bidding war could be seen as a move for user acquisition, there are also several bidding wars going around globally – Yahoo’s offer to Hulu at US$600,000 to US$800,000, and Google and Facebook’s venture into Waze set at one billion dollars.

There will be a Part 2 of the post by Thomas on the various challenges and opportunities presented by this new breed of mobile platforms. Thomas will also be delivering a keynote and is part of a panel at Echelon, Asia’s largest technology conference on the 5th of June. You can check out the agenda here and grab your tickets to Echelon now.

 

Why the Largest Social Network in 2015 Won’t be Facebook, and Will Be From Asia

BY THOMAS CLAYTON, BUBBLE MOTION

04.18.13

We’re all familiar with the major social networks in the U.S. (FB, Twitter, etc.) as well as which ones are up and coming (VineSnapchatKikWhatsApp). But what are not talked about a lot, are the social networks out in Asia that are growing insanely fast — like WeChatKakaoTalk, and LINE. Although culturally targeted towards a different audience, these Asian networks will one day cross the pond and come to the U.S. and start competing out here. And although they started as pure messaging apps, they’ve increasingly added features to become full social networks. Basically, it’s only a matter of time before one of them comes out of nowhere to dominate like Gangnam Style.

The time has come: Facebook is falling from grace. It appears that although people used to love flooding their friends’ newsfeeds with pictures and information displaying their every move and emotion, these people have now moved on. It’s no longer cool to upload hundreds of photos from your most recent vacation, which can be overwhelming for friends as well as for the uploaders themselves (uploading, adding captions, and tagging your photos can be a huge time commitment). Today, less is more. Keeping social sharing simple and instant is the secret to integrating into people’s lives and mobile devices.

I know that predicting Facebook’s downfall is a bold statement, but if they don’t bend to keep up with changing trends, they will lose their spot as the U.S.’s top social network. Given the viral nature of social networks, this can happen much sooner than we think. If that time comes, here are the reasons why an Asian social network will be the service to ascend the throne. Facebook’s latest mobile only effort – Facebook Home – aims to attack the Asian messaging apps directly, by taking over a user’s phone and making its messaging “chat heads” ever present.  Unfortunately for them, it seems Home has had a less than head turning reception at launch.

User Interface – Facebook is trying to be everything to everyone. The user experience is way too cluttered. In contrast, Asian social networks like LINE and Weixin have slick user interfaces that focus on simplicity and visually pleasing graphics. There are so many actions a user can take, and while those options are easy to access, they are still in the background rather than in your face. These messaging apps are about interaction first, then everything else.

Stickers are sticky – It’s all about the UI and user experience combined with some very sticky features – like stickers which are used by many Asian social networking apps.

The sticker love actually traces back almost a couple decades in Japanese culture. Back in 1995, when email and pagers were taking off in Japan, people were struggling with the transition to the shorter, more casual nature of these forms of communications, because in Japan, personal letters are supposed to be long and filled with lots of expression. Digital communication sometimes doesn’t get the writer’s intended message across – which can cause a lot of confusion. This is a big reason why things like stickers and emojis are so successful – they keep things light and fun, while helping users convey their actual sentiment in our world of dry communication. This is a concept that some U.S. social networks, such as Path and MessageMe, are slowly starting to grasp, but ultimately they are late to the game and may not have the time or tools to catch up with some of their Asian counterparts.

Mobile Monetization – Facebook still has yet to find the right formula for monetizing on mobile. Its latest solution is to increase the number of ads rolling into user’s mobile feeds, but placing them in a user’s feed rather than on a banner. This adjustment was made in an effort to make advertisements less disruptive to the mobile user experience due to limited screen space, but scrolling through a bunch of ads isn’t so seamless in my opinion.

On the other hand, Asian social networks seemed to have figured it out. LINE, for example, utilizes acharacter licensing model where its stickers behave as unique, market-specific advertisements, a method that has brought in phenomenal funds for the service – one that in my prediction will outstrip all of Facebook’s mobile revenue already in this year. Call it a bold proposition, but the rumor quietly circulating around Asia is that LINE is already about to cross $1B in revenue, which trumps Whatsapp’s rumored $100M in revenue.

Audience – The new recipe for limited social sharing appeals to that teen/tween market, which acts as the barometer for what’s the next “hot” and addictive trend in the industry. Facebook admitted in itsannual 10-K report that it’s losing young users, which is a huge red flag that the service needs to make some serious changes. Teens and tweens are one of the strongest early adopters and influential markets out there. Facebook knows this, as the service itself started with college kids before expanding to anyone and everyone.

Asian social messaging services get what users today are looking for out of social sharing: simplicity and fun. Facebook should start looking East for inspiration on how to up the ante and regain engagement, before an Asian social network beats them to the punch and funnels away a large portion of their user base, primarily on mobile.

Thomas Clayton is Chief Executive Officer of the voice blogging startup Bubble Motion.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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