By Neha Dharia, consumer analyst at Ovum

Underlining how social messaging services can generate significant revenues, Japanese app Line announced revenues of around €45 million in 2012, €34 million of which came in Q4 alone.

Line follows a similar business model to its South Korean competitor KakaoTalk, which is rooted in the creation of a social content platform that leverages the scale and stickiness of its core messaging service.

It is has been more successful than KakaoTalk in expanding internationally: fewer than half of its registered users are based in its initial Japanese market. As of March 2013, over 10 million of its registered users were in Spain, and more than 15 million in Taiwan and Thailand, for example.

So far, the largest revenue-generating services for both Line and KakaoTalk have been social gaming, B2C marketing, and premium emoticon stores.

Other social messaging players are sure to soon follow the Line and KakaoTalk strategy – China’s WeChat, for example, has already started monetising by tying up with utility providers to offer their services via its platform. It has also announced its intention to follow KakaoTalk and Line in launching a social game platform.

Freemium and free-to-play business models subsidised by microtransactions have become popular in the digital gaming industry, and this model is being successfully ported to social messaging through the sale of emoticons and other digital goods.

All of Line’s social games are free to play, but the large number of microtransactions for digital goods within games and premium emoticons became the main drivers of Line’s most recent revenue figures. KakaoTalk recorded premium emoticon sales of over €2 million in July 2012 alone.

The introduction of free messaging services for smartphones instigated the commoditization of mobile messaging, with very few players able to generate significant revenues from subscription-based messaging apps.

Even those that do use the subscription model are able to charge only nominal fees of approximately less than €1 per year.

An increasing number of social messaging players should move toward microtransaction-based models as users’ willingness to pay for basic communication services continues to decrease and more pressure is placed on start-ups to achieve profitability.

Players that have established trust in their payment mechanisms and already built up a library of high-quality content and /or a number of effective marketing channels will naturally have a large advantage over those that are forced to play catch-up.

So how can telcos benefit from this?

Operators can realise profits from social messaging by offering subscription plans or bundled social messaging services, or by facilitating content purchases through carrier billing.

Telcos need to find ways to partner with social messaging apps and learn from the pragmatism shown by over-the-top (OTT) players in constantly seeking mutually beneficial partnership opportunities.

In turn, many providers of high-quality OTT services are keen to benefit from telcos’ reach and carrier billing capabilities in return for a share of the revenues.

An example of the kind of win-win partnership possible between network operators and OTT players is KDDI’s “au Smart Pass” service, which had five million subscribers as of March 2013.

For just a few euros per month users gain “unlimited” access to over 500 smartphone apps including Line (with access to exclusive emoticons) and KakaoTalk, as well as 50GB of cloud storage and online-to-online marketing services.

Facebook Chat has agreed similar partnerships with 18 operators worldwide to grow its mobile footprint by offering free or discounted use of its app on both feature phones and smartphones.

A further example is the “WhatsApp Roaming Pass” offered by 3 Hong Kong and WhatsApp, which, for a daily fee, allows consumers to use the OTT messaging service while roaming.

Ultimately, however, it must be noted that while social messaging apps can be effectively monetised, the revenues they achieve are unlikely to reach the levels of those from SMS.

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