Recent valuations of major mobile instant messaging (IM) players on the market suggest that the larger the user-base the more valuable each user becomes. This premise may be based on advertising revenues alone so monetizing more features is likely to increase the value per dollar per-user. For example Viber, bought for $900million (approx. €695million) suggests each user is worth around $9 (approx. €6.95) whilst WhatsApp, the market leader, was bought for $19billion (approx. €14.7billion) or $42 (approx. €32.4) per user. For WeChat, however, the per-user valuation could be double or triple that of WhatsApp due to multi-feature monetization strategies. Currently the market is fragmented and there are various monetization strategies in play, however revenue potential is yet to be exploited. We look at the different methods of revenue generation on the market.

Subscription

This is the obvious choice to generate revenue however, WhatsApp was the first mover in this market and charges $0.99 for users to subscribe following a year or more of free trial. WhatsApp, being first mover, was able to set market expectations with its subscription price so it will be very difficult for a competitor to charge users for a less well-known product. Interestingly there will always be a small loyal proportion of a user base that is willing to pay for services if they value it highly enough.

Personalization

Stickers, premium stickers, sponsored stickers, branded/official accounts and personalized ID’s are current methods employed by IM apps that successfully generate revenue. This is the most ubiquitous method of monetization but it has now become the minimum requirement expected of an IM app and is therefore being slowly commoditized. This explains the move towards more premium and official stickers and further personalize, like wallpapers, pictures and ID tags.

Stickers are employed across most IM platforms. LINE, for example, made $10million (approx. €7.7million) per month in 2013, roughly 25% of annual revenues, from stickers. LINE and WeChat have also partnered with football clubs creating official accounts; a pervasive sport offering a lot of potential.

Purchases & payments

In-app payments (purchases made from within a mobile application in order to access special content or features) are the most lucrative money spinner. Monetization comes from content merchandising; games (the most effective money generators); music (less effective due to competition from the likes of Spotify/iTunes) and peer-to-peer or retail payments (WeChat has developed this but it requires significant development cost). LINE has generated roughly half of its total revenue in Q2 2013, from in-app purchases in games and a further significant amount for content merchandising, whereby it created its own virtual characters turning them into toys, clothing, games and so on.

Advertising

Advertising is a core digital business model particularly among search engines, social media and websites who receive payments from businesses advertising on their home page. Advertising within IM apps however, is not so popular as it annoys users by interrupting their chats. Advertising may generate modest revenues among those not annoyed but it may also result in user churn away from that particular IM app. This has indeed created a spin off in the form of advertising apps with IM built to communicate between buyer and seller such as Hunter App in Africa. Also non-invasive and contextual advertising is being developed for IM such as Walkabout.im and Emu.

Utilities

File storage/sharing and group voice/video have become expected commodities for an IM product. It therefore offers little revenue potential considering competition is high in the cloud and innovation space from the likes of Skype and Snapchat. These are more compelling and highly monetized propositions in the B2B market when IM is tied to Unified Communications (UC) or, in partnership with telecom operators, offers high data-use subscriptions bundled with an IM app. Privacy and security, a significant growing trend for mobile devices, may offer potential B2B and B2C revenue.

So will money be made from mobile IM?

Yes, firstly through in app features and secondly the real money will be generated where IM is a portal to further products and services. Scale and financial backing will be important to create advantage so further M&A activity should be expected. Western and Asian brands may learn from each other and start developing both advertising-based and feature-based monetizing models. Future integration with the Internet of Things (M2M), contactless technologies (NFC) and wearables may present sustainable innovation and monetization.

For more information contact Chris Lowe at chris.lowe@gfk.com.