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News  28, May 2013

Thomas Clayton: Bidding war between Tencent and LINE for Kakao

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BubbleMotion logo smallThomas Clayton, CEO and founder of Bubble Motion shares his thoughts on Asian startups and the impending bidding war between LINE and Tencent for Kakao.

There are only a handful of companies in the region which managed to grow and subsequently raise multiple round of fundings. Singapore-based Bubble Motion is one of them. Founded back in 2005, Bubble Motion is the Twitter for Voice, and raised a total of US$50 million in funding from investors such as Sequoia Capital, Comcast Ventures, SingTel Innov8, JAFCO Asia, and many others. Bubble Motion now serves over 25 million users globally.

Of course, a great company is led by a great team. CEO and founder Thomas Clayton has had extensive experience and prior to starting Bubble Motion, Tom has started, worked for and ran numerous high-tech companies. Thomas also recently wrote an article on “Why the Largest Social Network in 2015 Won’t be Facebook, and Will Be From Asia“. Prior to his keynote at Echelon, we spoke to Thomas about the opportunities in Asia.

Responses are by Thomas Clayton

Asia is a mobile first market and filled with lean and hypercompetitive startups

I believe Asia has two inherent advantages.

First, it is truly a ‘mobile first’ market – everywhere from India, where there are more than 950 million mobile subscribers to only 120 million internet users to Japan where surfing the Internet on mobile is 3 times more prevalent than fixed line access and it was the first country to have mobile internet access surpass PC internet access. It also helps that Asia has the largest mobile subscriber base, by far, in the world.

Second, it is hypercompetitive with startups that are extremely lean and move super fast – faster than anything I’ve ever seen in the Valley. Given the competitive environment and the lack of institutional funds, they have grown up in an environment where these characteristics are absolutely necessary for survival. This factor, combined with the fact that Asia startups are used to dealing with extremely price sensitive consumers, they know how to be ridiculously creative and monetize in very nontraditional ways (i.e., stickers, games, etc) that is not always readily apparent to startups in the west.

Asian chat apps: There will be a bidding war for Kakao; Whatsapp and Viber needs to buck up

At the current rate and pace, I would put my money on Line – they have grown like a rocket ship and now have very deep pockets due to their phenomenal revenue growth. Their massive advertising campaigns are all over the region. KakaoTalk is following suit and is also marketing aggressively in select markets, but they have to work with fewer resources than Line at this point. It is unfortunate, because it appears that Line copied much off Kakao, which was around long before Line. Either way, Kakao will dominate Korea – that market is won and over. It is also ironic given Line’s parent company is NHN of Korea. If any of the two were to merge, it would be these two, as the CEO of Kakao is ex-NHN and they obviously know each other well. And if NHN wants Line to dominate its home market – Korea – it’ll have to acquire Kakao to achieve that at this point. However, rumor is that there is a lot of bad blood between the two, so I not sure how realistic this would be in the near future.

The other big players in the region are Whatsapp, Viber and WeChat. WeChat has also spent aggressively, but it appears to focus more on incentivized downloads, as their rankings tend to be quite high, but anecdotally, the actual DAUs and MAUs seemed to be lower than Line, Whatsapp and Kakao in many of the markets. WeChat does have one clear differentiation – their “Locate Nearby” button that is clearly focused on a use case of wanting to meet new people around you – more like a dating or hook-up feature though. It is a very different direction than the other apps and I don’t necessarily see the others adding this functionality. Similar to Kakao in Korea, Wechat (or Weixin) has clearly won the China market, which means that that is game over for any other market entrants.

Read also: The Kakao story: Rising from the ashes of failure and being lean

Along these lines, you could also see Tencent acquiring Kakao at some point, as they already own nearly a third of the company through their last investment round. This would clearly help them be a more formidable competitor outside of China. Ultimately, I don’t think it is out of the question that we could see a bidding war between Tencent and Line for Kakao. Kakao would be quite valuable to either of them, but moreover, it would really hurt each of them if the other was to acquire it. It has an Apple versus Google type of dynamic to it.

Whatsapp and Viber have had great organic growth across the region. Whatsapp was the first mover and grew like a wildfire. However, ever since they started charging a $0.99 cent download on iOS and an annual subscription of $0.99 on Android, it has really given these other regional players a chance to grow at a phenomenal pace. Premium apps and subscription fees are not ideal for the extremely price sensitive Asian consumers. Hopefully, Whatsapp changes its model in Asia soon; otherwise, it risks losing its early lead in the region – it already has in Thailand and markets like Indonesia and the Philippines are switching fast.

Viber has done well organically in the region – with no marketing spend whatsoever. Their big advantage is their user interface – it feels like you are using the dialer or the default messenger on your phone. However, this puts it much more in the Whatsapp camp as a communication tool or utility as opposed to a fun social app like the other regional players. They’ve recently added stickers, but in general, they have not tried to monetize yet. Given the types of use-cases and probably different demographics of its core users from the other regional players, monetization maybe a challenge for them initially. They’ll definitely have to be a bit more creative.

While LINE and Tencent are still relatively young in the industry and this impending bidding war could be seen as a move for user acquisition, there are also several bidding wars going around globally – Yahoo’s offer to Hulu at US$600,000 to US$800,000, and Google and Facebook’s venture into Waze set at one billion dollars.

There will be a Part 2 of the post by Thomas on the various challenges and opportunities presented by this new breed of mobile platforms. Thomas will also be delivering a keynote and is part of a panel at Echelon, Asia’s largest technology conference on the 5th of June. You can check out the agenda here and grab your tickets to Echelon now.

Jacky Yap

Jacky Yap

Having spent one year abroad in Shanghai under the NUS Overseas College Programme, Jacky has an avid interest in entrepreneurship and web based startups. Jacky used to run N-House, Singapore's first entrepreneurial themed residence in NUS, and was also part of the organizing team for Startup Weekend Singapore 2012. You can reach him at jacky [at] e27 [dot] co

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