Why LINE hasn’t dominated and won as a super app in Thailand or SEA
LINE is playing a different game, mostly in media. It knew that logistics and payments are crowded spaces, and it’s risk appetite is low (read: publicly listed company with HQ in Korea, not Southeast Asia). Incumbent banks have moved in to fill the vacuum in mobile payment, fueled by Promptpay and a standardized QR code regime. Grab and Go-Jek moved into fill the vacuum of logistics-enabled businesses. Both of these have stronger brand, more cash in bank dedicated to the region, and stronger distribution channels than LINE.
Definitions: A superapp is one that bundles multiple services together, increasing stickiness for the user and expanding the addressable market for the platform.
Diversifying with logistics: LINE Man was awesome, but the company is losing ground on supply
LINE Man was launched in 2016, primarily as a food delivery app, and was an instant hit. It’s the first company in Southeast Asia to successfully launch a concierge model, where you get delivery motorcyclist to go and order physically at the store. Companies prior to that, such as FoodPanda or UberEats, was betting that a full-stacked approach, where an acquisition team goes to onboard a restaurant, sync menus to a backend, would provide a more seamless and faster user experience. Thai consumers didn’t bite. The assortment was too limited because the sales team could not acquire fast enough and mom-and-pop vendors like the bubble tea stalls and street food vendors were not going to ever use an iPad to run deliveries. However, consumers were willing to wait the extra 10 minutes if you gave them the entire city’s menu catalog (no integration) and ask them to go crazy. They hit a million paying users within 2 years of operations.
The problem was that LINE was not sure if it was going to work. They launched it as a separate app, introducing the friction of downloading something new . They may have had intentions about integrating it later on, but they didn’t. The result is that you don’t simply have LINE user, you have a LINE user and a LINEMan user.
Moreover, once Grab owns a controlling share of Thailand’s two-wheeler supply, LINE Man will be cut off from actually doing business altogether as it won’t have enough drivers. Unless LINE Man is willing to match Grab’s driver subsidies, it is unlikely to win. In the long run, motorcycle driver are unlikely to work with LINE Man when it may not be willing to dish out on subsidies and has a less sophisticated app. LINE does have $2.3B in cash and cash equivalents on its balance sheet, but one wonders if they would spend that winning Thailand or consolidating its position in Japan. Given how quickly LINE Taxi launched and retreated, LINE has a revealed preference for being risk-averse in markets that require burning cash to stay competitive.
Diversifying with payments: LINE Pay has no anchor use case. Also, incumbent banks are rocking it.
Within payments, the wallet game is tough in Thailand. SEA tried with Airpay, True with True Money Wallet, AIS with mPay, Lazada with helloPay. The problem is that all of these attempts at wallets do not have a high-frequency, anchor use case for these wallets. Users are not going to load money onto Lazada, if they buy only once every 3 months. They definitely will not do it with Airpay, which has no clear anchor use case. LINE Pay is no different. Where is the natural place to spend if I load money onto LINE Pay? They have only started to rectify this with the new LINE-Rabbit branding, which encourages the 1.4 million daily riders on the BTS sky train to use LINE Pay. Assuming you reach 50% of these riders, that’s only 700,000 users.
Against this backdrop, the incumbent banks are reaching the users and getting them to settle payments through them. It’s incredibly easy because they don’t have to create a wallet. Users already have cash on in their bank accounts. Kasikorn has 10M users on its K-Plus app, and SCB has 9M users on its SCB Easy app, with around 60% of these being active. These 19M in two banks show that almost 50% of Thailand’s 40M bank population have been acquired onto digital platforms by the incumbent banks. In contrast, LINE Pay in Thailand has 5M registered users, but their % of active user is likely to be much lower than the banks.
LINE Pay’s weak position becomes clearer when we see how many transactions are happening via Bank vs. Non-bank channels in Thailand. Unless LINE Pay can acquire more use cases, then it is unlikely to see greater adoption of its wallet
Source: Kasikorn Bank and Bank of Thailand
Don’t take a knife to a gun fight. LINE does media.
Instead of fighting a cash-burn game in logistics or battle with incumbent banks, LINE took the wise choice of playing in another type of market entirely — news and TV. In 2018, LINE Today had 32M users and LINE TV had 33M users. LINE TV favors local content and reruns of old favourites in Thailand.
This direction for LINE makes sense for a couple of reasons
High DAU = a unique negotiation chip. With LINE’s Thailand DAU of 35M users compared to Grab’s regional daily active ridership of 6M, media companies don’t have much of a choice when deciding who to sell rerun rights to.
Same business model, different real estate: LINE has historically monetized through advertisements (Sticker and LINE Official products, where brands can plug themselves into everyday messages). Creating more real estate in new media properties is a natural extension of the team doing what is good at. LINE TV already sells ads at roughly 200 THB per 1,000 views. The 4 top TV soap operas alone brought in 1.2B views in 2018, translating into about $7M in revenue.
The company is not oriented towards operating with longtail partners. LINE is not an operations-first company. It does not specialize in negotiating with thousands of offline non-tech-savy longtail merchants and drivers who switch loyalty weekly depending on subsidies given. That is likely why it went into food delivery with a concierge model in the first place. This is similar to Apple, which is fundamentally a hardware company, had a difficult time breaking into the ads industry when it launched iAd in 2010 and shut it down in 2016. LINE would have had to build completely different capabilities
What would LINE have to do if it wanted become a superapp?
LINE is unlikely to be the dominant platform for retail, logistics, and payment transactions in Southeast Asia. Indonesia is a lost cause because Whatsapp and Facebook Messenger already have about 7x as many accounts on it and the same network effects will make it hard for users to switch out (Reference: We are social and Hootsuite Digital report 2019).
If they wanted to diversify out of this trap into retail, logistics and payments, they’ll have to bet big with external capital. That means perhaps listing the Southeast Asian assets as a separate company, and raising money on the basis of that. Or that means spinning it off the asset entirely so that they can remain laser focus on North Asia. Until then, we think that LINE is playing a wise game by going into media and not bleeding its cash dry.
Sources:
https://scdn.line-apps.com/stf/linecorp/en/ir/all/FY19Q1_earnings_release_EN.pdf
https://www.slideshare.net/DataReportal/digital-2019-thailand-january-2019-v01
https://kasikornbank.com/en/IR/PresentationJournal/webcast/KBank_Investor_Presentation_1Q19.pdf
https://www.bangkokpost.com/business/1470917/thailand-takes-no-2-line-today-spot-with-32m-users
