Latin America: Mobile Messaging Heats Up
From WhatsApp to LINE: The Growing
Competition in Latin America’s Mobile Messaging Sector
LATINVEX SPECIAL
Knowledge@Wharton
Everywhere around the world, mobile instant message
applications -- such as WhatsApp Messenger and LINE -- have changed the way
people relate to one another, and Latin America is no exception. Unlike with
traditional SMS applications, these apps allow users to send an unlimited
number of text messages, accompanied by videos and images, to one person or to
a group of people at no cost, regardless of the brand and model of the
smartphone that a consumer is using. The only catch: They have to sign up for a
data plan.
The boom in mobile instant messaging is so big that in
some countries, such as Spain, people are already using the verb “guartsapear”
to refer to the action of communicating through the American application
WhatsApp, which is among the most popular. According to experts, the
applications are gaining traction because they are attractive and useful. In
addition, smartphones have been proliferating, and there are more and better
connections to the Internet.
The figures in Latin America speak for themselves. “Over
the past three years, the penetration of smartphones has grown in a spectacular
way,” notes Alejandra Beghelli Zapata, professor of information technology at
Adolfo Ibáñez University in Chile. According to data obtained from various
sources in the sector, “in 2010, [penetration in the region] was barely between
4 percent and 9 percent [depending on the country]. However, the most recent
estimates point to a penetration rate of between 24 percent and 28 percent by
the end of 2013, with an estimated total of between 140 and 200 million
smartphones in the region,” he notes. He adds that the rate of Internet
penetration is between 40 percent and 50 percent, which is above the global
average. However, there is a wide divergence on a country by country basis.
“While the Internet penetration rate in Uruguay, Argentina, Chile, Puerto Rico
and Colombia exceeds 50 percent, in countries such as Haiti and Nicaragua, the
penetration rate is no higher than 15 percent,” she says.
Moreover, projections for the use of mobile technology
during coming years look promising. Beghelli points out that the latest study
about the condition of the Latin America market produced by GSMA, the
organization that represents global mobile service providers, notes that “in
2011, mobile broadband exceeded fixed broadband as the first option of
consumers for accessing the Internet. Mobile subscriptions have increased by
127 percent a year during the past five years, and forecasts call for [mobile subscriptions]
to continue growing at an annual rate of 50 percent over the next five years.
By 2015, it is expected that Latin America will have some 350 million mobile
broadband subscribers.”
On the other hand, comScore, the Internet research firm,
believes that Latin America and Asia are the two markets where instant
messaging applications will be used the most. In terms of average hours per
month that people spend using instant messaging services, Brazil leads the
world list with 8.5 hours a month. Mexico, Peru, Argentina and Chile appear on
the list of the top ten countries as well. In none of those countries do users
devote fewer than six hours a month to instant messaging applications. When it
comes to the market penetration of this kind of messaging around the world,
Peru leads the list. In that country, 77 percent of the online population is
using this form of communication. Six other Latin American countries appear
among the top ten in that regard – Brazil, Mexico, Argentina, Colombia, Chile
and Venezuela.
A ‘FREEMIUM’ MODEL?
“The popularity of instant messaging applications varies
from region to region,” notes Beghelli, “and it does not appear that there is
any one country that leads the world.” For example, “Korea’s Kakao Talk has a
penetration rate of 95 percent in Korea, but a rate of less than 5 percent in
Japan. In the United States, that company [Kakao Talk] does not even appear
among the leaders. In Brazil, Russia and Western Europe, WhatsApp leads the
market. In China, the most popular applications are WeChat and TencentQQ,
although WhatsApp is the favorite application of 20 percent of users in that
huge country. In Japan, LINE (which is a Japanese company) is the favorite
application of users.”
“Country by country, the situation is very different
depending on how the telecom industry operates in each nation,” notes Ricardo
Pérez, professor of information systems at the IE Business School in Madrid. He
notes, for example, that instant messaging has grown a great deal in Spain
because of the high prices for SMS – the service offered by telecom service
providers. “People have moved toward such applications as WhatsApp, LINE and so
forth, in search of a cheap alternative.” However, he adds that long before the
rise of these applications, some companies were already providing a service for
the same need. For example, Blackberry, the Canadian phone company, “had a
great deal of popularity in emerging countries because you could obtain free
access to its Messenger [service].”
These days, BlackBerry has about 80 percent of the
corporate market in Latin America, and it has the biggest market share in
almost all of the countries in that region. As a result, it is not surprising
that in order to deal with the enormous progress of Apple and Android-based
smartphones around the world, BlackBerry has reacted by launching a low cost
phone called the Q5, which is aimed at emerging markets -- including Latin
America -- where growth is strongest. In addition, the phone comes with the
incentive that BlackBerry plans to make its BlackBerry Messenger service
available to the users of both Apple’s iOS operating system, and the Android
platform. The problem is that the multiplatform messaging applications are
already very widespread among consumers.
According to Beghelli, no research has been completed
about which instant messaging services are the most popular in the region
today. However, she notes that partial studies confirm that by the end of last
year, WhatsApp led the list of preferred services among Latin Americans.
Launched in 2009, WhatsApp was managing daily traffic of ten million messages
in 2012. Nevertheless, with the recent activation of an annual one-dollar
charge by WhatsApp – which had been free of charge on all platforms except in
the Apple App Store during its first year – and with the appearance of a free
Spanish language LINE application at the end of 2012, “it seems as if
WhatsApp’s leadership position is being affected. In fact, during 2013, Japan’s
LINE was the instant messaging service downloaded most often from the Google
Play store,” she adds.
Despite numerous criticisms received from users, WhatsApp
seems to have made a decisive commitment to charging an annual fee, according
to its web page, in order to avoid having to rely on a model of advertising
revenues. The inclusion of advertisements is described there as “an insult to
your intelligence and an interruption of your thoughts.” According to Beghelli,
“It is still not entirely clear if WhatsApp’s strategy of charging users is
scaring away Latin American customers. This is because “for the majority of
people who own smartphones in the region, WhatsApp’s annual charge is extremely
low, almost insignificant.” On the other hand, those users are already familiar
with its interface, and have all of their contacts already on this platform,
and they have created groups that use it regularly. “They derive no benefits
from changing their [IM] application while the rest of their peers are not
doing so,” notes Beghelli.
Nevertheless, Beghelli affirms that many people are
currently trying out LINE, “either because of technological curiosity or
because they are evaluating free alternatives to WhatsApp.” If, in the course
of this process, LINE manages to capture a significant segment of the public,
“it is likely that we will see a massive transfer of users during 2013, not so
much because of the price of WhatsApp but because of the new functionalities
that its users will discover in LINE.”
Among the main functionalities of LINE is the possibility
of adding large scale emoticons and illustrations to conversations. In fact,
its business model consists of selling virtual stickers in an online shop which
people can access from the LINE application. The default version of LINE
contains some 250 free virtual stickers. In addition, unlike WhatsApp, it has
its own special characteristics as a social network, since it features a
timeline and a wall on which other users can publish messages and icons.
Moreover, users can make free calls thanks to VOIP (Voice over Internet
Protocol) technology.
In the shadow of the big players, smaller players are
emerging. They are attempting to stand out by specializing in areas such as
security and the control of the information that is transmitted. This is the
case of Woowos, a Spanish company that offers a free application that enables
customers to erase messages from the destination device, and send them in an
encoded way so that no one can erase them without the permission of the user.
Another instant messaging app called BlinkMe is a free service that was
launched in early March. Also concerned with its users’ privacy, BlinkMe
enables its users to instantly exchange images that last for only a few seconds
and then disappear, without using any cellular memory. At the end of March, it
had 3,000 users; 2,500 of them in Chile. This service is also starting to grow
in Colombia and Mexico. “It is still too early to know if it will attain
widespread popularity in the region,” says Beghelli.
WHO WILL SURVIVE?
According to Pérez, the competition is still
in its early phase. “What is clear is that the war nowadays is about expanding
in order to get the greatest impact from possible networks and from using this
base to make it very costly for your users to change [to other services].” That
is to say, they want to make it very costly for users to make the decision to
change to the competition’s service, because users have their most important
contacts in the same application. In those businesses where the “network
effects” are crucial, “the winner [among service providers] is the one that has
more users and more people who want to be in contact [via that network]. The
market will continue to consolidate around those applications that are used the
most,” affirms Pérez.
Pérez believes that in the future, unless someone
demonstrates that there is a large group of users who demand a differentiated
service – which may be focused on security concerns – the small players will
not have many options for survival if their users need to make the effort of
maintaining several profiles and accounts at the same time. “There is a
saturation point when it comes to how many accounts people can maintain, as
well as how many interests. The only [firms] that are going to survive are
those that provide a differentiated value,” he warns.
Beghelli also believes that there will be a consolidation
in the market and that only a few players will be left standing. With respect
to the most effective business model, she stresses that in Latin America the
great majority of users of mobile communication services prefer pre-paid
services, which means that they are not used to paying periodically for this
kind of service. “As a result, it doesn’t seem as if the business model that
succeeds will be one that involves making monthly payments. Providers must
develop innovative business models that enable them to capture a public that is
demanding but, at the same time, expects that Internet applications are given
to them free of charge. The ‘freemium’ sort of model can be a good point of
departure.” (In the “freemium” model, users are provided with a free service,
basic but proprietary to the company, and are enticed to pay for additional,
higher value added services in the future.)
Technology giants are also moving their pieces around the
board in order to form competitive alliances in this sector. For example,
Google has just announced the unification of its messaging services, and the
launch of Hangouts, which has the backing of Google+, which permits people to
chat with all of their contacts on the social network, as well as to chat with
anyone who has a Gmail account. With this service, Google is trying to battle
against not only those companies that offer mobile messaging, but also those
technology giants that have already incorporated video calls into their
services, such as Microsoft with its Skype, and Apple, which has FaceTime.
Pérez believes that the only danger facing the major
players, such as WhatsApp and LINE, is that one of the social networking
giants, such as Facebook or Google+, might react and provide their own
services. “However, my intuition says that this would be too little too late,
because people are already using other products. I think that the main players
are going to continue to [dominate] for some time, unless there is a
technological revolution that is accompanied by very strong network effects.”
THE LOSERS
The fact that there exists a free alternative
to traditional SMS, without any restrictions on the number of characters and
with more functionality than SMS offers, has had a negative impact on the
growth of the SMS market in Latin America. Beghelli notes, “The [telecom]
operators in the region have seen their SMS revenues damaged in a significant
way beginning in 2011, and everything seems to indicate that the same trend
will continue. In fact, 2012 was the first year in which more messages were
sent by instant messaging applications than by SMS.”
Nevertheless, it does not seem likely that the use of SMS
will entirely disappear, at least in the short run. As Beghelli notes,
this is due to the fact that the penetration rate of smartphones is still low
even in those countries that are Latin America’s leaders in usage of these
devices. “It is unlikely that, given the high price of smartphones, this situation
is going to change drastically in the short run, given the economic inequality
that exists in the [region].” On the other hand, SMS service offers a level of
reliability that you don’t see in instant messaging services, and it does not
require people to have access to data plans. “In a region where almost 80
percent of mobile services are pre-paid, this is an important aspect to
consider,” Beghelli adds.
In addition, she notes, both Movistar and America Movil,
the principal telecom companies in the region, have begun to get closer to
users of instant messaging by developing their own applications: TU Me, in the
case of Movistar, and Claro Messenger, in the case of America Movil. “This
shows that instead of blocking mobile messaging applications in favor of SMS
postings, their business strategy is moving towards the integration of these
applications into their offerings.”
According to José Lino Contreras, professor of
information technology at the Federico Santa Maria Technical University in
Chile, “MSM will probably have to remain a free service or evolve into
something more attractive.” In any case, he believes that mobile phone
companies are not affected by the decline of SMS, “since the increase in the
number of Internet users and the time they spend online through communications
networks compensates to a great extent for what they lose in SMS.”
According to Pérez, the key to the future of the telecom
companies is going to involve maintaining a type of traffic that manages to
keep their customers close to them, thus enabling them to sell value added
services to those customers. “Selling data is all well and good in itself, but
it is not sufficient. The more services of this sort escape from their control,
the fewer possibilities they will have to offer new services that are
differentiated, and which generate separate invoices,” he argues.
Experts note that there are many uncertainties in the
evolution of the mobile messaging sector in the region. However, there is no
doubt that Latin Americans favor this type of communication. “We like to share
and socialize with family members and friends, and with friends of our family
members. Another very strong characteristic [of our culture] involves being
informed about other people’s lives and talking about our own lives. Those are
the foundations of the success of these applications in Latin America,” says
Contreras.
Republished
with permission from http://www.knowledge.wharton.upenn.edu --
the online research and business analysis journal of
the Wharton School of
the University of Pennsylvania.