From WhatsApp to LINE: The Growing Competition in Latin America’s Mobile Messaging Sector

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% and 9% [depending on the country]. However, the most recent estimates point to a penetration rate of between 24% and 28% 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% and 50%, 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%, in countries such as Haiti and Nicaragua, the penetration rate is no higher than 15%,” 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% a year during the past five years, and forecasts call for [mobile subscriptions] to continue growing at an annual rate of 50% 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% 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% in Korea, but a rate of less than 5% 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% 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% 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% 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.

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