OTT Messaging Market Overview 2014

By Nick Lane, chief insight analyst@mobilesquared
Key trends in the mobile app
and messaging markets - 2014

@mobilesquared
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mobilesquared excels at interpreting & analysing
research & data on the mobile industry. We
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@mobilesquared www.mobilesquared.co.uk

Mobile engagement

Mobipedia
Apps empower us to become more informed, more
knowledgeable, and more in control of our daily lives

That special relationship
Source: Flurry
Men use app/web for
33h13m per month
Men use app/web for 66m
per day
Women use app/web for
34h43m per month
Women use app/web for
69mper day

Device usage
Source: mobilesquared
Average Android users spend 50 minutes per day using their device
Average iOS users spend 80 minutes per day using their device

Mobile time (%)
28%
22%
16%
22%
16%
16%
16%
12%
8%
10%
8%
8%
8%
10%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Android
iPhone
Daily smartphone usage (by %)
Talk Text Social networking browsing email games other

Mobile time (mins)
14
17.6
8
17.6
8
12.8
8
9.6
4
8
4
6.4
4
8
Android
iPhone
Daily smartphone usage (by mins)
Talk Text Social networking browsing email games other
60% of daily smartphone usage is
spent on talk, text, social networking
48 mins of total iPhone usage and
30 mins of total Android usage

Daily device usage

The global OTT opportunity

Smartphone growth
Source: mobilesquared research of *top 68 smartphone markets
By the end of 2014 there
will be 2.14 billion
smartphone users, rising to
3.6 billion in 2017
Selectedmarkets

Smartphone OTT growth
Source: mobilesquared research
By the end of 2014 there will be 1.36
billion smartphone OTT users, rising to
2.89 billion in 2017
Selectedmarkets
Top 5 OTT markets in 2014 are:
1. China (23% of total OTT users)
2. US (5%)
3. Brazil (3%)
4. Japan (2.3%)
5. Russia (2.2%)

State of play

Cumulative OTT users

WhatsApp goes top in 2018
Source: mobilesquared research, data based on existing growth levels

OTTm traffic forecasts
36.1 trl OTTms sent in 2014 (99 bln per day)
108.3 trl OTTms sent in 2018 (296.7 bln per day)
Avg user sending 73.6OTTs per day in 2014,
rising to 102.8in 2018

OTTm daily usage
OTT messaging app
usage still in infancy
phase, will begin to
mature from 2015

Adoption
OTT messaging app still in
period of rapid adoption
until 2015, followed by
mobile consumer
rationalisation and
maturing marketplace

Global outlook
18% of global OTT users in
2014, and 18% in 2018
1% of global OTT users in 2014,
and 3% in 2018
2014, and 59% in 2018
and 8% in 2018
2014, and 10% in 2018
and 2% in 2018

Market breakdown: US
Mobile
subscribers
Smartphone
penetration
OTT
penetration
WhatsApp
penetration
Facebook Mess
penetration
64%
40%
328
mil
23% 19%

OTT market overview: Asia

Market breakdown: Australia
Mobile
subscribers
Smartphone
penetration
OTT
penetration
Twitter
penetration
67%
33%
14%
24.4
mil

Market breakdown: China
Mobile
subscribers
Smartphone
penetration
OTT
penetration
Sina Weibo
penetration
WeChat
penetration
59%
38%
23%
1.21
bil
46%

Market breakdown: India
Mobile
subscribers
Smartphone
penetration
OTT
penetration
WhatsApp
penetration
Twitter
penetration
12% 6% 5%
894
mil
3%

Market breakdown: Indonesia
Mobile
subscribers
Smartphone
penetration
OTT
penetration
WhatsApp
penetration
WeChat
penetration
20% 16%
7%
282
mil
7%

Market breakdown: Japan
Mobile
subscribers
Smartphone
penetration
OTT
penetration
LINE
penetration
Twitter
penetration
51%
40%
15%
138
mil
37%

Market breakdown: Singapore
Mobile
subscribers
Smartphone
penetration
OTT
penetration
Twitter
penetration
Tumblr
penetration
83%
43%
23%
11%
8.06
mil

Market breakdown: South Korea
Mobile
subscribers
Smartphone
penetration
OTT
penetration
KakaoTalk
penetration
LINE
penetration
76% 72% 69%
30%
53.6
mil

Market breakdown: Thailand
Mobile
subscribers
Smartphone
penetration
OTT
penetration
LINE
penetration
Instagram
penetration
35%
24%
84.1
mil
2%
26%

Asia
India
Smartphone: 103.3 mil
Smartphone OTT: 53.4 mil
41.7 mil
6.9 mil
25.1 mil
Japan
Smartphone OTT: 55 mil
37.9 mil
22.4 mil
5.5 mil
Indonesia
19.8 mil
16.6 mil
18.4 mil
14.7 mil
17 mil
China
Smartphone OTT: 557.4 mil
111.5 mil
66.9 mil
423.6 mil
272 mil
11.1 mil
462.7 mil
South Korea
15.9 mil
21.7 mil
36.7 mil
1.57 mil

Smartphone/OTT growth
-
500,000,000
1,000,000,000
1,500,000,000
2,000,000,000
2,500,000,000
2013 2014 2015 2016 2017
Smartphone OTT user forecasts, Asia
Smartphone users Smartphone OTT users
In 2014 Asia will have 1.2 bil
smartphone users, rising to
2.1 bil by 2017
In the same timeframe the
number of smartphone-based
OTT users will increase from
814 milto 1.4 bil

Developing your OTT app strategy

What they have in common?
Stripped to the mobile minimum

Fragmentation of communication
1990 2000 2010
Voice calls
Messaging
Video calls
Mobile IM
Mobile VoIP
Chat apps

Fragmentation of communication
1990 2000 2010
There are over 2,300 social networking
apps in the App Store, of which 490 are
messaging apps.
Divisions between messaging and social
media platforms blurring

Discoverability
8% (39) of the messaging apps are paid-for;
60% of those are sticker-based apps

Monetisation
The proliferation of communication makes
discoverability difficult.
Once found, how easy is it to develop a
business model?

Monetisation
LINE makes over $10 million
per month from stickers.
LINE DECO expected to adopt
freemium model.

Global stickiness
Stickers becoming the minimum service for OTT messaging apps.
Purchases make up 27% of revenues = $270 million in 2013.

LINE revenue
LINE is believed to be the most
profitable non-gaming app in
the world
Revenue up 20% q-o-q and
450% y-o-y
Sticker purchases make up
27% of revenues
Kakao’s mobile games service
generated $311 million in
revenue during 1H2013

Social messaging platform
Mobile games revenue on the up;
OTT platform’s low-hanging fruit

What is it?
Social Messaging Service
Social Messaging Network
Social Messaging Platform
Social Messaging Portal
WhatsApp,
ChatON, iMessage
LINE, WeChat,
Kakao
Market worth
$1 billion in 2013
Market worth
(with games)
$2.1 billion in
2013
Alleged OTT messaging apps market worth
$15-16 billion in 2013 rising to over $40billion in 2017 HOW?

Social messaging platform
Major internet behemoths in Asia, Tencent and Naver Corporation, are going
head-to-head in the messaging app space and developed Social Messaging
Platforms to sell stickers and games, and provide in-app gaming purchase
functionality.
Tencent (owns WeChat)
Employees 25,517
Sales $6.96 billion
Market Cap $65.01 billion
Naver (owns LINE)
2,220 employees
$2.12 billion sales
$10.44 billion market cap

Facebook ad revenue
$656
$882 $1,250
$375
Facebook mobile ad revenues
totalled $3.16 billion in FY’13
= mobile
ad spend
in $mil

Social messaging service
Facebook Mobile advertising generating $3.34 per mobile user per year
If everyone is Facebook = $17.59 billion in 2013
It’s taken Facebook 10 years
WhatsApp predicted to generate $1 billion revenues in 2017
Facebook is the only proven model to date
Pureplay messaging app = $300 million in 2013 from advertising
Subscription model to come...

Facebook ad revenue
$656
$882 $1,250
$375
Gartner claims mobile advertising marketplace will be
worth $18 billion in 2014. Facebook just recorded
fourth sequential increase in mobile ad revenue in 1Q
2014 of $1.34 billion.
Facebook will generate over $6 billion in mobile
advertising in 2014.
Facebook will account for 1/3 of the global mobile
advertising market.

Whatsbook or FaceApp
WhatsApp’s large repository of phone numbers
WhatsApp’s 11 1million users in China
“Facebook has bought a network that is
growing much faster than itself (growth drives
valuations) and has almost half as many
members already, for 10% of its value”
Benedict Evans, analyst with VC firm Andreessen Horowitz
Also acquired 465 million mobile phone numbers,
and 111 million WhatsApp users in China

What price a user
Facebook WhatsApp WeChat LINE Twitter KakaoTalk Snapchat
Market Cap ($bln) 115,000,000,000 19,000,000,000 30,000,000,000 14,900,000,000 11,000,000,000 2,400,000,000 3,000,000,000
2013 annual
revenue ($mil) 7,872,000,000 20,000,000 330,000,000 338,000,000 600,000,000 58,000,000 -
Users 1,228,000,000 450,000,000 350,000,000 300,000,000 241,000,000 130,000,000 100,000,000
CPU ($) 94 42 86 50 46 18 30

OTT consumer shifts

Deconstructing Facebook
http://www.wired.com/2014/02/ff_messagingwars/
People don’t want a web-style social network on their mobile devices
• Simpler
• Faster
• Less public
• Friends-based
• More intimate
People want pieces of Facebook, but not the entire package at once
People think twice about posting content
Social media has become too social
“Facebook is concerned that one or more of these upstarts would soon
supplant it as the go-to tool for sharing news with friends.”
Are we seeing a monumental
consumer behavioural shift from
social to personal?

The exodus commences
“WhatsApp is the only widely used app we’ve ever seen that has more
engagement and a higher percent of people using it daily than Facebook itself.”
Mark Zuckerberg announcing WhatsApp acquisition
The percentage of teens active on Facebook dropped by 9% during 2013. Falls were also
recorded for YouTube (7%), Twitter (3%) and Google+ (4%). (Source GlobalWebIndex)
Kids don’t want to be on a network and be monitored by their parents
Wary of permanence – updates/picture come back to haunt you (esp. job hunting)
Millennials being turned off by Facebook forever: timeline from birth…

New demands
Messaging apps based on existing network – seamlessly connect/trawl
phone’s contacts
Users want informal casual, conversations (Snapchat)
Messaging enhancement (stickers, video, sketches, different fonts...)
Apps now contain drawer out with a list of little apps, a web search field,
and an option to download more
• Kik encourages users to share games and music videos, Buzzfeed lists,
and includes a Foursquare widget to share location with friends
• It has a disappearing-photos app and video websites optimized for the
built-in browser
• A One Direction app that helps the band connect with its audience—
fans can message other fans directly, reroute them to Twitter or to
videos, and share updates and concert notices

Livingstone, I presume
“Can we become a platform where the core function stays simple but all
the apps we want to use—the next Snapchat, the next Instagram—are
there too? Then the network effect will start where users will get Kik not
for Kik but for those apps that plug into it.
“We don’t think about Facebook at all.
“In mobile the brands need to be so simple. Kik is a messenger. Instagram
is photo sharing. Snapchat is a broadcaster. For Facebook to compete with
us, I think they would have to build a new mobile-only version of
Messenger with a new brand. A new community, built from scratch.”
Ted Livingstone, CEO of Kik

The OTT mobile operator view

Facebook becomes threat
Source: mobilesquared annual mobile operator survey, client research
MNOs separated the threat
of Facebook as a company
and its threat as an OTT
provider (Facebook Home
and Messenger)
WhatsApp was seen as a
revenue threat but not as a
brand threat, ie it was not
Facebook, Microsoft, Apple,
Google

Messaging then voice

OTT users on your network
Source: mobilesquared mobile operator survey 2013, client research
79% of mobile operators
in both 2012 and 2013
expected between 1-30% of
their subscriber base to be
using OTT services.
Only 21% of mobile
operators said they
expected more than 50% of
their subscriber base to be
using OTT services in 2013

OTT upsides
Source: mobilesquared mobile operator survey 2013
0% 10% 20% 30% 40% 50%
Increased messaging (SMS, MMS, IM)
An increase in data usage
Both increased messaging and data usage
We are yet to identify any upsides
There are no upsides
What are the upsides of increased OTT activity of your subscribers? 57% of mobile operators
have experienced an
increase of messaging, an
increase in data usage, or
both
Only 7% of mobile
operators said there were
no upsides

MNO strategy
Partnering is now the
buzzword among
MNOs
mobilesquared
expects the number
of MNOs partnering
with OTT providers
to top 50% in 2014

OTT & technology

Rich Communication Service
Concept of interworking has been the cornerstone of the mobile industry.
But RCS alone is not enough: RCS is too little, too late, even with VoLTE.
RCS not sufficient for MNOs to compete with start-ups launching
innovative messaging services to consumers.
4G investment is further creating the appeal of YouTube and Netflix;
Similarly, RCS technology will further empower OTT providers using the
RCS APIs.
WebRTC will allow new players to deliver communication services (voice,
messages and video), or allow existing non-communicative apps to
communicate.

RCS launches
WhatsApp growing by 1
million users per day
In Jan’ 2012 RCS projected
to hit 15 million subs by
year-end
8 launches in 2012
9launches in 2013
1 known launch in 2014

Proposed RCS launches
41 other operators have
committed to launching
RCS but cannot be
named for reasons of
commercial confidence
joyn downloads on Android
Germany Telekom 50,000-100,000
Korea SKT 100,000-500,000
Korea KT 100,000-500,000
Spain Orange 10,000-50,000
Vodafone 500,000-1,000,000
US MetroPCS 100,000-500,000

RCS latest
29 live RCS solutions in 23 countries
87 MNO launches by 2015
9 device manufacturers
22 suppliers of hosted solutions
5 infrastructure providers
8 joyn accredited devices (Sony, BlackBerry,
Samsung, Huawei, HTC, Nokia, LG
31 native devices ranged by operators

dis-joyn-ted
Only 7% of MNOs
believed joyn was
the solution
28.6% believed
joyn could have been
solution if brought to
market sooner

Some MNOs persist

Some don’t

Why not joyn?
1. No clear business model
2. Free to subscription unproven model (including
WhatsApp)
3. joyn innovation based on OTT messaging app
innovation – but 6 months later
4. joyn will not overcome mobile operator
fragmentation

Voice turns to messaging

Libon
• Evolved from voicemail service (2012), then call-back (2013) and rich
messaging (2014)
• Libon has learnt from the OTT world how to do business
• By running OTT it can roll out its updates to every Orange country
immediately
• Avoids awkward conversations with brand managers (why it’s green) and
product managers (who are unlikely to use it)
Libon allows people to buy very cheap calls and uses messaging to spread the word virally
Originally positioned to challenge Skype and Viber, now moved into OTT messaging space
Acts and thinks like a start-up

Reintermediation
“We are just grabbing the traffic back from Skype and Viber and
everyone else”
Use of competing services declined: Viber usage collapsed by 79%
Average usage: 250 mins per month international calls.
Priced at €5 per month @ 68% gross margin
If priced at €15-20, wouldn’t have taken back the Skype traffic, just taken the high-end, but by taking advantage
of the low cost price structure that an MNO can provide, we can go after every user.
Also experienced increase in in-bound international traffic of 21%
25% of SOSH (international calling service) subscribers are new to Orange Group to take advantage of the
service.
“We’re starting to create quite a lot of value for
something that seems free.”
Reintermediation is of voice,
not messaging; messaging
being used as a driver for
voice

The Enterprise

The present OTT model

Multi-device compatibility
OTT communications
does not mirror
consumer behaviour.
We’ve achieved any
content, any where,
any device
Why not messaging?

Yammer
8 million users globally
200,000 companies use Yammer
Microsoft acquired Yammer for $1.2
billion in June 2012
Cost Per User (CPU) = $150
compared to Facebook $94 and
WhatsApp $42
0
3,000,000
8,000,000
0 80,000 200,000
0
1000000
2000000
3000000
4000000
5000000
6000000
7000000
8000000
9000000
2008 2010 2012
Yammer Growth
Users Corporates

Cotap
Company launched May 2013
App launched October 2013
Completes $5 million Series A
financing round in May 2013
Raises further $10 million in Jan 2013
Ambition = first enterprise app to reach
1 billion
Workplace Mobile messaging app based on:
• Most enterprise software is bloated and attempts to
solve dozens of different problems.
• Days of the bloated enterprise applications at an end
• Mobile apps that are extension to desktop software
don’t meet the mobile user’s expectations.
• Next wave of enterprise software must be mobile-
first, lean, considerate of user expectations, and
respectful of the physical limitations of mobile
devices.
• It also needs to solve new problems that arise as
consumer technologies influence the values we bring
to work.

TigerText
Company formed 2010
3 million downloads
10,000+ businesses
Secured $21 million Series B
investment in Jan 2014 to accelerate
adoption
Email is no longer the best answer
For the Millennials entering the job market, email
is becoming an outdated way to communicate
TigerText is replacing the need for email by
providing a tool that allows you to securely
message and share files with coworkers from a
mobile device, laptop or tablet
TigerText facilitates safe and professional
communication
Coworkers are instantly connected without
needing to exchange personal numbers
Messages are encrypted and set to self-destruct
after a pre-set period of time

Enterprising
The business &
productivity app
market, is not only
growing at
approximately the
same rate as the
consumer app
market but is also
less congested, and
offers better revenue
potential, for more
developers.

Enterprising
Publishers that
target businesses or
professional users
have a much higher
chance to generate
very high revenues
16% of those
targeting the
business &
productivity market
generate revenues
exceeding
$500,000 per
app per month,
compared to just 6%
among consumer-
focused publishers

Enterprising
iOS dominates
professional and
business users
94% of tablet users
are on iPads, while
54% of enterprise
smartphone activations
came through iPhone
devices in 4Q2013
Revenue generated via
iOS devices accounts for
at least 60% of the
total revenue in the
business and productivity
market

Thoughts
OTT communications space similar to mobile advertising industry 2005/06 (Wild
West)
App or platform?
Facebook cannibalising social media platform advertising
Boundary between social media and messaging blurring
Teenagers switching from social media establishment (Facebook & Twitter)
Every messaging app too focused on becoming next WhatsApp and missing
Enterprise opportunity
Get Enterprise right, will lead into mainstream consumer proposition
Or, monetise your free consumer messaging app with a premium Enterprise version

Over to you: Any questions?
nick@mobilesquared.co.uk www.mobilesquared.co.uk Tel: +44 (0) 118 380 1601
Thank You

OTT Messaging Market Overview 2014

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OTT Messaging Market Overview 2014