When Facebook acquired WhatsApp for $22 billion in 2014, tech outlets exploded with possible reasons for the sky-high acquisition. The most popular explanation was that Facebook had decided to prioritize user growth. At the time, WhatsApp boasted 400 million monthly active users. Now, twenty-one months after the acquisition was announced, that number has jumped to 900 million. At a growth rate of 24 million users per month, WhatsApp has clearly proven itself an engine of user growth.
Here’s the plot twist.
WhatsApp’s 900 million monthly active users don’t even comprise the majority of global messaging users. There are 2.5 billion people in the world on messaging apps today, meaning that messaging is 25% larger than social media in terms of registered users. More surprising is that messaging growth has just begun, and an estimated 1.1 billion new users will onboard by 2018. The takeaway here is that messaging is much more ubiquitous than even WhatsApp numbers would suggest.
The messaging section in Activate’s Think Again: Tech & Media Outlook 2016 is the product of two months of research and analysis. In creating this section, I dug deep to answer the questions that would define the specifics of this opportunity. Where do these 2.5 billion users come from? Where are the next 1.1 billion? Will these users adopt WhatsApp, or its competitors? How will user count convert to revenue growth? The results of the analysis were more conclusive than anyone on our team expected. Our most unexpected findings are as follows:
1. While China, Japan, and South Korea have dominant messengers with large user counts, Facebook Messenger and WhatsApp are poised to take Southeast Asia.
The whole world is not up for grabs. Major Asian markets have already been saturated with at-scale local players. WeChat dominates Chinese messaging with 600m monthly active users and a 65% penetration rate within China. Likewise, Japanese messenger LINE reports 211m monthly active users, and a 60% penetration rate within Japan. The situation is similar for South Korea, where KakaoTalk reigns supreme.
The story is different for Southeast Asia. Despite regional proximity, major APAC players have fallen behind Facebook Messenger and WhatsApp in Vietnam, the Philippines, Malaysia, and Indonesia. Japan’s LINE is still dominant in Taiwan and Thailand, but by a relatively narrow margin that Facebook Messenger is starting to close.
2. The most significant growth market for messaging is the Middle East & Africa, where Facebook Messenger and WhatsApp also have the advantage.
Almost half the opportunity for user growth in messaging comes from the Middle East & Africa. The smartphone penetration in the region is notoriously low at 21% (for comparison, smartphone penetration in all other regions ranges from 70%-81%). As smartphone adoption in the Middle East & Africa increases, so will the number of users in need of cheap and convenient messaging tools. Among those who currently have smartphone access in the region, WhatsApp has the leading penetration rate at 65%, and Facebook Messenger comes in second at 42%. We can expect these two apps to become the go-to messengers for new smartphone users in the region.
3. User growth will convert to revenue through services built on top of messaging platforms.
The major players in Asia — WeChat, LINE, and KakaoTalk — have already begun driving revenue by launching apps and services on top of their messaging platforms. Almost everything a smartphone user would do inside a native app can now be done inside a messaging app: gaming, ordering taxis, sending and receiving money, listening to music, watching TV, buying goods online, and so on.
Average revenue per user is very high for messengers that offer these platform layers: $7.00 for WeChat, $4.24 for KakaoTalk, and $3.16 for LINE. The main drivers of revenue are games and, for KakaoTalk, e-commerce. By comparison, WhatsApp makes $0.06 per user, and this money comes exclusively from subscriber fees. The upside of introducing platform layers is quantified, and now that Facebook Messenger has launched a nascent app store and virtual assistant ‘M’ inside its service, the messaging landscape seems to have found its revenue roadmap.