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Earning their keep

Released at: 03:17, 24/06/2014

Earning their keep

Free messaging app providers have been working hard at piloting accompanying services to bring in some revenue.

by Hoang Thu & Huyen Thanh

On a Saturday morning, while enjoying a smoothie at a coffee shop on Xuan Thuy Street in Hanoi’s Cau Giay district, Ms Nguyen Minh Anh, a PR executive, is busy using Zalo, Line and Viber to contact friends and colleagues. The apps, she said, are great for sending and receiving messages and making calls at any time, and her monthly phone bill has fallen significantly since she started using them.

She uses each app for a specific purpose - Zalo for messaging and Viber for calling her boss or her boyfriend, who is overseas. “I also use Line but only to contact friends who love to play games,” she added. Ms Anh is one of millions of Vietnamese people using free messaging apps. These mobile chat app providers have spent a great deal on promotions and launching marketing campaigns to win over users like Ms Anh.

Vietnamese mobile users of 16 to 20 years of age spend five hours and 20 minutes on social network sites and connected activities each week, according to a 2012 report from market researchers TNS. The percentage of respondents using social media or chat apps to communicate with friends was 40 per cent and 30 per cent, respectively, while the those using SMS, phone calls and emails was below 20 per cent, according to a 2014 survey from mobile company Jana. Social media and chat apps are selected as the primary method of communication and are predicted to increase in popularity. The demand for communicating with friends and family by young Vietnamese is changing, with traditional communication channels gradually fading in popularity with free chat app providers arriving on the scene.

The big question for app providers, though, is how to earn money from a “free” service. Some idea can be gleaned from what they’re doing elsewhere. Line, Kakao Talk and WeChat have been seeking ways to make money through providing additional services. Line, which is very popular in Japan, Taiwan and Thailand, has been busy expanding across Southeast Asia and in India, Mexico, and South America since last year. Despite being a free app, Line earned $338 million in revenue last year for its parent company, after chalking up $120 million in the fourth quarter alone. This was a 20 per cent increase over the previous quarter and a 450 percent increase over the last quarter of 2012.

Line had around 340 million registered users around the world as at November of 2013 and aims for 500 million users this year, and has three major sources of revenue: free-to-play video games that make money from in-game purchases of virtual items and other services, “stickers” featuring cartoon characters that users buy and send as messages, and official accounts for businesses and celebrities who pay fees to send a set number of promotional messages. In Japan, Line’s game line-up took out seven of the top ten highest earning mobile game spots, beaten only by fellow Japanese game Puzzles and Dragons. The popular Japanese messaging app and social platform might well be making more money than any other chat app out there.

Kakao Talk, which dominates in South Korea, uses methods similar to the way Line makes money. It sells stickers - rich emoticons that are available in packs of a dozen for $1 or 2 and provides an Application Programming Interface (API) that lets publishers make their games social on the Kakao Talk platform and has a virtual currency for purchasing items. The service also allows brands to open official accounts, which are promoted to users and can push promotional messaging, links and content to Kakao Talk users that opt to receive them. In China, WeChat, developed by local internet giant Tencent last year, added an electronic payment feature to the popular app - a step towards making money with small handling fees for transactions made through the app. WeChat also uses video games to generate some of its revenue.

Meanwhile, WhatsApp, the messaging app Facebook recently bought for $19 billion, has so far stayed free for the first 12 months of use and then a mere $0.99 a year after that. It has limited its services to simple communication features, which makes it more appealing to some users. However, analysts say that this strategy has also limited the company’s ability to make money, despite having 450 million monthly active users. The app’s revenue stood at $20 million last year.

Invading Vietnam

In Vietnam, the over-the-top (OTT) app market boomed last year but the cake isn’t divided evenly among all. As Kakao Talk has nearly disappeared from the market and Vietnamese users have boycotted WeChat, the market is now being controlled by three big players: Viber, Line and Zalo. Line has been very popular among Vietnamese teenagers and chosen by youngsters who love icons and Line Pop games. It is known as the first commercialised OTT app, with a lot of games on its platform. Insiders say there are much contact made via Line, with it only being installed for users to play games and take pictures. Line’s ecosystem has been unceasingly expanding, while it has been trying to encourage people to spend money to upgrade games or buy icons. NHN, Line’s distributor, is investing heavily in information and news about South Korean entertainment activities, which are updated on the Line platform, and connecting its user community through offline activities such as film ticket gifts and posters of famous people. 

Zalo, the only Vietnamese OTT app, has advantages in messaging. As at March this year its main revenue was coming from marketing campaigns for brands and other value added services like games and stickers. According to Mr Vuong Quang Khai, Deputy Director of Zalo’s provider the VNG Corporation, the app has recently been involved in marketing campaigns for brands such as McDonalds, Coke, and Domino’s Pizza, among others. “With basic services such as messaging and phone calls, Zalo is committed to not charging users,” he said. “We will pilot some value-added services to earn money in the near future.” Zalo will become an open platform with diverse functions and apps, which may include the apps of its partners and competitors. However, earning money from advertising is not what the Vietnamese chat app provider prefers, but advertising for brands does appear on Zalo Page. Users only see such advertisements when actively joining the page.   

OTT players have had a tendency to offer advertising alongside their communication services at different times over the years in Vietnam. According to Mr Otohiko Kozutsumi, Chief Operating Officer at MicroAd JSC, it is not surprising that many major brands recently have started to use Line and Zalo for marketing because these apps now have large user numbers like social networks such as Facebook. While Facebook is suitable for enhancing customer loyalty, it is type of “pull” advertising. On the other hand, Zalo and Line are suitable for delivering promotions and are a type of “push” advertising. “We can use these messaging and chat apps for delivering coupons and allowing customers to visit restaurants and shops,” he added. Because customers use messaging apps every day, it is easy to realise the message from brands and brands can use these apps to improve customer retention. When a convenience store in Japan posted coupon information, a high 6 per cent of customers who received the coupon used it. “Because messaging apps do not have a function of ‘sharing’, we cannot expect that it will work like Facebook’s viral marketing,” Mr Kozutsumi said.

There are four steps in consumers’ purchasing activities. Firstly, they become aware of a brand. Secondly, they consider whether to buy the brand or not. Thirdly, they buy the product. Then, if users feel loyal to the brand, they will buy it again. Advertising on messaging and chat apps is quite strong in the third and the fourth stages. They can encourage their customers to use a coupon and buy a product. “Messaging apps have strong advantages for people who already know or have bought a product from a company, but are not suitable for increasing brand awareness,” Mr Kozutsumi said.

According to Mr Vu Hoang Tam, CEO of VHT Mobile Marketing Co., apps providers also make money by selling their apps for other units, such as the case of Viber and WhatsApp. “This has great advantages as these apps possess a large pool of users’ data, which allows them to pilot and exploit other business activities,” he said. Insiders said that free messaging apps are just the first step. Writing the software is difficult, but running it is even more challenging. “At present, all are free,” one insider said. “But in the future success will come if only 2-5 per cent of users pay service fees.” For these apps, a major challenge is to make sure that their efforts to generate revenue do not undermine their appeal as communication and social networking tools.

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