How Messaging Apps Make Money

Mar 3, 2014

How Messaging Apps Make Money

JURO OSAWA

While WhatsApp has so far kept its messaging service simple and free of advertisements, rival apps like Line, Kakao Talk and WeChat have been scrambling to find ways to make money through additional services like video games and official accounts for corporate users. For those apps, one big challenge is to make sure that those efforts to generate revenue won’t undermine their appeal as communication and social networking tools.

For example, Line, which is popular in Japan, Taiwan and Thailand, now has three major sources of revenue: free-to-play video games that make money from in-game purchases of virtual items and other services; “stickers” featuring cartoon characters that users buy and send as messages; and official accounts for businesses and celebrities who pay fees to send a set number of promotional messages. Last month, Line said its revenue for the fourth quarter of 2013 rose more than fivefold to 12.2 billion yen ($120 million) from 2.2 billion yen a year earlier.

Line says the promotional messages sent by official accounts are different from traditional ads in that users only receive them if they choose to become subscribers of those accounts. A Line spokeswoman says the app is advising corporate and celebrity account users to avoid sending messages too often, while keeping each message short. If users think that they are getting too many messages from a certain account, they can block the account. As a business model, the official accounts work like ads. In Japan, monthly fees for Line’s accounts increase if the businesses and celebrities using them get more subscribers or send more messages.

“Instead of relying on just one business model, we are trying to combine several different models,” said Jun Masuda, Line’s chief strategy and marketing officer, at a press conference in Tokyo last week.

Kakao Talk, which is dominant in South Korea, also uses methods that are similar to Line’s to make money.

Its color-matching video game called Anipang, which users play through the messaging platform, has been a big success. Kakao, which doesn’t disclose its annual financial results, also generates some revenue by letting brands and celebrities like “Gangnam Style” singer Psy send messages and updates to their subscribers.

Sirgoo Lee, Kakao’s co-chief executive, says he is experimenting with seven or eight new projects to find new sources of revenue. Line’s Masuda also says that the company is looking into other services such as e-commerce and music distribution as possible ways to earn revenue from its messaging platform.

In China, WeChat, developed by local Internet giant Tencent HoldingsTCEHY +5.66%, last year added an electronic payment feature to the popular app – a step toward making money with small handling fees for transactions made through the app. Like Line and Kakao, WeChat uses video games to generate some of its revenue.

By contrast, WhatsApp, the messaging app from Silicon Valley that Facebook recently agreed to buy for $19 billion, has so far limited its service to simple communication features, and that has made the app more appealing to some users. But analysts say this strategy has also limited the company’s ability to make money, despite having 450 million monthly active users. The app’s revenue stood at $20 million last year.

With FacebookFB -0.70% backing it, WhatsApp could get more time to come up with a long-term business model as the app tries to further expand its user base. “Monetization is not going to be a priority for us,” said WhatsApp Chief Executive Jan Koum at a conference call last month, after announcing the deal with Facebook. “We’re focused on the growth.”