Line Messaging App Expands to Chinese Market: A Challenge to WeChat? Or Call for Funding?

21 Jun

Japan’s largest over-the-top (OTT) messaging service software company, Line, is now building a team to target the Chinese market. Though having strong technical operations is the basis for the competition against various different social media platforms, competition of technology is not the only obstacle that will be encountered when entering the Chinese market. A major challenge that will also need to overcome, eventually, is the country’s large and powerful user networks. WeChat, a chatting service developed by Tencent Holdings, currently has up to 400 million domestic users in China.

Unlike internet platforms, social media platforms are based on a person’s social network in real life and are exclusive to each individual’s native language and culture. Vastly different from technology, each individual’s social network is reflected by his or her own choice in real life.

Even though Line is unable to match WeChat or Whatsapp when it comes to the total number of active users, its revenue is actually higher than the latter two combined, estimated at about US$500 million. Line games generate about 60 percent of its income while its cute and often exaggerated stickers generate 20 percent of its revenue. In fact, the Line stickers are actually one of its major features, but are stickers and games alone really enough to win the attention of Chinese consumers?

Based on the existing trends observed in China, we believe such a feat would be difficult. The mobile gaming market, for one, is essentially controlled by a few major websites in China, and WeChat has its own large collection of free stickers and emojis for its users to choose from. OTT companies, additionally, will face a lot of pressure from carriers from the Chinese market. When WeChat first became popular, carriers were unsatisfied with only managing traffic operations and repeatedly sabotaged WeChat by spreading rumors in the Chinese market stating the messaging app will charge for its services. Figuring out how to cooperate with Chinese carriers will become one of the biggest obstacles for Line’s expansion to China.

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Upon first entering the Chinese market, Line chose to work with 360 App as its distribution partner. However, with no corresponding technology and effective marketing strategy, few in China were aware of this free messaging technology. Though Line was able to achieve fame from sponsoring a widely popular Korean drama in 2013, the short-lived popularity was unable to change its market standing in China, and consumers soon forgot about the app. In April 2014, Line partnered up with Wandoujia, one of China’s leading app stores, to be in charge of its sales operations in the country. In comparison to 360 App, Wandoujia is slightly lesser known to the public, thus provided little help to promote Line.

Line’s hopes to overtake WeChat in the Chinese market proved to be extremely difficult. With Tencent as WeChat’s foundation, similar messaging apps from Alibaba Group and NetEase were equally unable to threaten WeChat from its standing in the market. Therefore, it makes one wonder if Line’s high-profile team expansion is really trying to target the Chinese market.

For 2014, Line is aiming to reach 500-600 million global users from its current 450 million users. Despite its losses, the company is still continuing to develop this market because of its large pool of potential users, rushing to obtain the Chinese users before other messaging apps like KAKAO and WhatsApp. It no longer matters how many users Line can obtain, but what’s important is that it can solidify its position first.

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Previously, there had been rumors that Line will launch its IPO in America, Korea, or Japan. It can only be assumed this rumor was most likely started due to the approaching round of financing to attract new investors. It is likely that more investors will join in on this investment after Line is introduced to a major hotspot like the Chinese market. Reportedly, Alibaba made contact with Line in the past in an attempt to complement each another’s businesses. Alibaba also possesses a large user base in China, which creates the opportunity for Line to enter the market. However, nothing came of this supposed rumor. To put it frankly, Line hopes to appear as if it is entering the Chinese market but it is obvious the company is targeting Ma Yun as its financial support.

 

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