Mobile Chat – The Culture Line

Exporting services from Japan is a license to lose money. 

• NHN Corp, South Korea’s biggest internet company, is making a bid to expand outside its own turf with its Line, its chat application.
• This application has been developed by NHN Japan, the Japanese internet company it acquired in 2006, but the focus is to take the fight to Facebook, Skype and Whatsapp.
• Line already has over 100m users which puts it in my “sustainable” category for an internet service or ecosystem.
• This is important as it means to me that it will survive as long as it doesn’t blow all of its cash trying to win the Western markets.
• Over half of its users are in Japan with the rest spread across Asia.
• This compares to WeChat (China) at 300m and KakaoTalk (South Korea) at 82m.
• The Line service is free to download and use but one can buy icons and cartoons (stickers) to use in the chat and it is there that NHN Japan hopes to make its money.
• The company freely admits that it is on a land grab and it is on that basis that it is expanding to the US and Europe.
• The company aims to win over 500m to 1bn users globally and does not seem to care what it costs, spending a massive $224m to market the application this year.
• Across Asia, I think this application has legs as it has an installed base of users giving a good network effect and Asia is an undeveloped market.
• Furthermore it’s a cultural fit, as Asian users especially those in Korea and Japan attach a lot of value to cartoon characters as these are highly visible in their culture and day to day lives.
• But in the West it’s a totally different story and here I think that NHN is making the classic mistake that so many Japanese companies have made before it.
• The fact that something works in Japan and Asia is no indication whatsoever that it will work elsewhere.
• Remember iMode and the billions that were wasted trying to develop that outside of Japan?
• Furthermore, the Western instant messaging market is reasonably well developed with WhatsApp, BlackBerry, Skype, Facebook and so on.
• When all your friends are already on one system, it is incredibly difficult to get you to switch as one will not be able to chat with one’s friends unless they all switch.
• Also, I am afraid that cutsie cartoons are probably not enough to encourage such an upheaval especially when the users are expected to pay for them.
• I expect that the free angle of Line is likely to be pushed hard but the reality is that all instant messaging is already or soon will become free.
• WhatsApp is free on Android which is where I suspect iOS will go eventually despite noises about charging users $1 per year. There are just too many free alternatives.
• Hence like many Japanese exports before it, I suspect that Line is doomed to failure outside of Asia and a colossal amount of money is about to be wasted.
• The real killer application will be the one that can make all of these chat applications talk to each other but I suspect that the APIs to make that happen are being jealously guarded by their owners.