It may not have the jaw-droppingly high valuation of Facebook’s $19 billion acquisition of WhatsApp, but yesterday’s announcement that chat app maker Kakao’s is merging with Korean international portal Daum might be a glimpse into the future for Silicon Valley.
Daum is not a familiar name in the US, but the situation it faced leading up to the merger is one that internet firms in the West may soon encounter.
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It operates Korea’s second largest internet portal, and also offers email, search, a blogging platform, mobile apps and more. Though the company is well established — with over 1,500 staff, and $124 million in revenue and $8 million in profit for its most recent quarter of business — it acknowledges that it needs a stronger presence on mobile as profits have dipped 50 percent over the past year.
In Kakao, which is valued at $3 billion according to the merger, Daum may well have found its answer. Though Kakao has struggled to find the same international growth as Asian rivals Line (400 million registered users) and WeChat (390 million active users), the company is dominant on its home turf.
A success in Korea
Unlike other messaging apps, Kakao is already profitable. With just 140 million registered users, its annual revenue reached $203 million with a $59 million profit.
The Kakao Talk app is said to be installed on over 90 percent of smartphones in Korea.
Games running on the Kakao Games platform — which hooks up to Kakao Talk to link up friends, share points and more — account for nine of the top ten grossing titles in the Google Play store in Korea. In Apple’s App Store in Korea, seven of the top ten grossing titles run on the Kakao Games network, according to App Annie.
The Kakao Talk’s ‘Plus Friend’ account system, which lets advertisers communicate with users who opt-in to receive push messages and promotions, is used by Korea’s most visible consumer brands and entertainment figures.
Messaging is the central part of the smartphone experience, but — like other Asian apps — a big part of Kakao’s success in Korea is its games network and other standalone apps for news, blogging and more that are tied in to the main chat app.
Using chat as the ‘sticky’ starting point of its user experience, Kakao has effectively created a mobile social network that engages users, attracts top brands and companies, and makes money. Admittedly its network is only strong in Korea, but its success there hints at where mobile messaging is headed.
Early days in the US market
At this point, the idea of a messaging app that is tied to games and other apps may seem alien to those in the US, but there are clear signs that the market is moving in that direction.
WhatsApp is the only high-profile messaging company that doesn’t offer content. Instead, its founders to stick to the basics of replacing SMS and, under Facebook’s ownership, connecting phone-owners worldwide with a $1-per-year monetization plan.
Others are focused on a different user experience, however.
Snapchat previously voiced its interest in ‘Asian-style’ business models and in-app purchases, Tango offers games, music and other content, Viber was bought by Rakuten, which is planning to add games and e-commerce, and there’s Kik, which aims to be the Twitter of messaging. Asia’s messaging firms have found the US market tougher to crack and have largely focused on emerging markets and Europe, but they are likely to increase their US efforts sooner rather than later.
Outside of that pack in the US is Google Hangouts and Facebook Messenger. With Hangouts, Google has, thus far, stuck purely to communications and left gaming and content alone, while Facebook seems happier to support other apps via its lucrative mobile app install ads than introduce its own chat app network.
In other words, neither is in the messaging app network space yet.
US market development
Facebook may be aiming to avoid a repeat of Farmville-like spam games which continue to blight its social gaming experience, but the examples of Asia and the rising popularity of casual mobile games in the West (like Flappy Bird) suggest that there is scope for a service that does more than just messaging in the US.
For now though, the US messaging space appears to be in its infancy. Chat apps there aren’t used as extensively as in places like Asia, while there a number of companies competing with fairly modest user numbers.
Over time, we can expect consolidation and the top apps to emerge as leaders, as they have done in places like Korea, China and Japan. Once that happens, the likes of Facebook, Google, Amazon, Yahoo and others may need to take a leaf out of Daum’s book.