Instant Messaging apps market analysis

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Instant Messaging Application Market Analysis

Corentin METGY 04/12/2012

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1. Market Overview

2. Major actors

3. Exit opportunities

4. Telcos’ response

Plan

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The mobile instant messaging market is considerably increasing. UK based institute Juniper Research recently forecasts that global mobile messaging traffic will reach 28.2 trillion annually by 2017, nearly double the 14.7 trillion messages which will be sent this year, 2012. Mobile messages comprise SMS, MMS, IM, Email, RCS/RCS-e and Social Media messages. Global growth in total traffic will be primarily driven by the use of over-the-top (OTT) instant messaging services, which will comprise over 25% of all traffic annually in five years’ time according to Juniper’s analysts. Besides, the firm forecasted in 2011 that mobile IM will triple exceeding 1.3 billion users by 2016 . On his side, The Radicati Group, a California-based IT research firm estimated that there was 2.4 billion IM accounts in 2010 worldwide, rising to 3.5 billion by 2014. OTT instant messaging services have developed themselves thanks to smartphones’ ascension. They permit users to send messages for free using mobile operators internet connection (Wifi, 3G, 4G) and push notifications. This new way to communicate is growing strongly from several years which indicates that social messaging is not a short-term trend, but a shift in communication patterns. In August 2012, WhatsApp announced it is handling 10 billion messages a day.

14,7

28,2

0

5

10

15

20

25

30

2012 2013 2014 2015 2016 2017

Increase in global mobile messaging traffic between 2012 and 2017 (in billions)

Source : Juniper Research

Market overview (1/2)

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Market overview (1/2)

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5

10

15

20

25

30

35

40

45

2012 2013F 2014F 2015F 2016F

Mobile OTT communication ($bn)

CAGR 130%

3G VoIP Application Revenue (m) Split by 8 Key Regions 2010-2015

VoIP Minutes of Use p.a. (Excluding WiFi) (m) via 3G Users Using Applications Split by 8 Key Regions

2010‐2015 Juniper Research forecasts a worldwide increase in mobile VoIP application minutes via 3G from 343 millions 2010 to just over 30 billions 2015, centupling in just 5 years. Furthermore, Juniper Research estimates that the number of mobile VoIP minutes carried on 3G and 4G network will rise from 15 billion minutes in 2010 to 470.6 billion by 2015. In parallel, the expected revenue from mobile VoIP via applications will increase from $20.5 million to $1.25 billion. Finally, global mobile OTT communication market will reach 45$bn in 2016.

Sources: Juniper, Frost and Sullivan, Portio Research, Arthur D. Little analysis

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Logo Company Country Description PositionningActive Users

in 2012 (mm)

Business

Model

AOL, inc. AOL launched AIM on February 2006.Pure player / Instant

messenger195 Advertising

Apple, Inc. (iMessage)Apple launched Facetime in Octuber 2010 and

iMessage in October 2011.

Handset vendors

instant messenger140 -

Baidu Baidu Hi was launched on February 2008 IM / Search engine - -

Blackberry, Inc.

Some of the features of BBM include groups, bar-code

scanning, l ists, shared calendars, BBM Music and

integration with apps and games using the BBM

social platform.

Handset vendors

instant messenger60

The BBM Music Premium is

available for a monthly

subscription of $4.99, social

games

Cisco Jabber

(Cisco, Inc)

Jabber was founded in 2000 as a non profit

organization. The company was acquired by Cisco in

2008.

Pure player / Instant

messenger- -

eBuddy B.V.

eBuddyB.V. was founded in 2003 and is based in

Amsterdam, the Netherlands with additional

locations in London and San Francisco

IM multiplatform 33 Advertising

Facebook Messenger

Facebook lanched Messenger App. In August 2010.

FBCIM allows you to use Facebook Chat without the

need to be connected on Facebook.

Social Network

instant messenger

425 (mobile

users

worldwide)

-

Fringland Ltd.Fringland Ltd. was founded in 2005 and is based in

Tel-Aviv, Israel.IM multiplatform -

Advertising + Paying regular

phone calls worldwide

Gadu-GaduThe company was founded in 2000 and is based in

Warsaw, Poland


messenger15 -

Major actors (1/4)

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Google, Inc. Google talk was launched on August 2005 IM / Search engine - -

groupmeGroupMe was founded in 2010 and is based in New

York


messenger

As of August,

2011, GroupMe

delivers in

excess of 100

-

ICQ LLC.The company was founded in 1996 and is based in

Tel Aviv, Israel.


messenger42

Free daily-limited SMS

sending, resumable fi le

transfers, greeting cards,

multiplayer games

imo.imImo Chat was founded in 2007 and is based in Palo

Alto, California.IM multiplatform 7 -

Kakao Corporation

(Kakaotalk)Kakotalk was founded in 2006 and is based in Seoul


messenger66

Advertising, Digital items,

and game center

Kik Interactive, Inc. Kik Interactive, Inc. was founded in 2009 and is

based in Waterloo, Canada.


messenger30 -

LiveProfileThe company was founded in 2007 and is based in

New York.


messenger- -

MeeboThe company was incorporated in 2005 and is

headquartered in Mountain View, California.IM multiplatform - -

MySpaceMyspace developed MySpaceIM in 2006 as an

addition to its social platform

Social Network

instant messenger- -

NHN Corporation

(KOSE:A035420)

Created in 1999, NHN Corporation operates Internet

search portals primarily in South Korea and Japan.

LINE was launched on June 2011.

Instant messenger /

Gamers community

40 (25mm in

Japan)

Advertising, Digital items,

and game center

Major actors (2/4)

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NimbuzzNimbuzz B.V. was founded in 2006 and is based in

New Delhi, IndiIM multiplatform 220

Advertising, Freemium model,

agreement on revenue

sharing with IM companies.

PingerPinger was incorporated in 2005 and is based in San

Jose, California.


messenger- Advertising

Pinterest -Social Network


Samsung ElectronicsChatOn was introduced by Samsung Electronics in

September 2011

Handset vendors


Shape.AG

Shape.AG was founded in 1999 and is based in

Stuttgart, Germany IM multiplatform -

Freemium : IM+ 3.0 Lite, a

free ad-based version and

IM+ pro for 8.99€

Skype (Microsoft)The company was incorporated in 2004 and is based

in Palo Alto, California.


messenger

600 (not only

mobile)

Paying regular phone calls

worldwide

Startphone Limited

(Hyves)

Hyves was in 2010 stil l the most popular social

network in Holand with 10.6 mill ion Hyves users and

a 68% penetration. As of November 12, 2010,

Startphone Limited operates as a subsidiary of

Telegraaf Media Groep.

Social Network


Tencent (WeChat)

Tencent is a leading Chinese internet company.

WeChat was initially launched as Weixin in China in

January 2011. The app has recently been launched in

Thailand.


messenger200 -

TextMe

San Francisco based TextMe was originally launched

in March 2011 as a free, texting-only application for

Ipod


messenger1 -

textPlus, Inc.

The company was formerly known as GOGII, Inc.

textPlus, Inc. was founded in 2007 and is based in

Marina del Rey, California.


messenger110

Freemium : Gold & Silver

versions, social game, virtual

goods

Major actors (3/4)

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Touch Touch was primarly known as PinchChatPure player / Instant

messenger13 -

Twitter -Social Network


Valve Corporation

Valve Corporation operates as an entertainment

software and technology company. The company was

founded in 1996 and is based in Bellevue,

Washington.

Instant messenger /

Gamers community54 -

Viber Viber was launched in 2010Pure player / Instant

messenger100 -

VKONTAKTE VKONTAKTE is the first russian social network.Social Network


WhatsappWhatsApp funded was founded in 2009 and is based

in Santa Clara, California.


messenger100

$0,99 for the app and a

subscription of $1,99 per

year

Windows Live

(Microsoft, Inc.)Windows Live Hotmail App.


messenger- -

Yahoo!, inc.Yahoo! Messenger was originally launched under the

name Yahoo! Pager on March 9, 1998.IM / Search engine - Advertising

YandexYandex, the first russian search engine, launched an

IM platform on August 2008.IM / Search engine - -

YYYY Inc., through its subsidiaries, operates an online

social platform in the People’s Republic of China.


messenger400 -

Major actors (4/4)

Sources : OTT companies websites, blogs, Wikipedia, Press releases

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From 2003 more than $300mn have been leveraged by over-the-top (OTT) instant messaging services providers. These start-ups have interested institutional and corporate funds. Thus, Jabber was funded by France Telecom, Intel and Webb interactive Services before being sold to Cisco in 2008. KakaoTalk was funded by WeMade Entertainment Co., a South Korean online game developer and Tencent which develop QQ IM, the leading instant messaging service in China. More recently the company has been funded by Yahoo! following the signing of a partnership between the two structures concerning the Japanese market. Private Equity firms invested large amounts in several rounds. For example, Mangrove Capital Partners participated in 5 funding rounds for Nimbuzz and Kleiner, Perkins, Caufield & Byers and Matrix Partners supported textPlus during 3 rounds. This shows that they have a huge interest and that they trust in the long-term development of the sector.

Fundraising & private placements (1/3)

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Target Closed Date Investors Size ($mm)

Fringland Ltd. (Fring)

may-24-2011 North Bridge Venture Partners; Pitango Venture Capital; Veritas Venture Partners 10,0

apr-30-2009 North Bridge Venture Partners; Pitango Venture Capital; VenFin DD Holdings Limited; Veritas Venture Partners -

nov-27-2008 - -

aug-09-2007 North Bridge Venture Partners; Pitango Venture Capital; VenFin DD Holdings Limited; Veritas Venture Partners 12,0

GroupMe Inc.

jan-04-2011 Betaworks; First Round Capital; General Catalyst Partners; Khosla Ventures; Lerer Ventures; SV Angel 10,6

aug-25-2010 Betaworks; First Round Capital; Lerer Ventures; SV Angel 0,9

ICQ Ltd. 1996 Shalom Management -

IM+ (SHAPE.AG) Feb-13-2012 Finam Global 10

Jabber, Inc. mar-19-2003 France Telecom Technologies Investissements SA; Intel Capital; Webb Interactive Services Inc. (OTCPK:WEBB) 7,2

Kakao Corporation

oct-15-2012 Yahoo Japan Corporation (TSE:4689) -

apr-15-2012 Tencent Holdings Ltd., Investment Arm; WeMade Entertainment Co., Ltd. (KOSE:A112040) 81,1

aug-26-2011 CyberAgent Ventures, Inc.; DCM; Korea Investment Partners Co. Ltd.; Maverick Capital, Ltd.; WeMade Entertainment Co., Ltd. 19,2

Kik Interactive, Inc.

mar-07-2011 RRE Ventures LLC; Spark Capital; Union Square Ventures 8,0

LiveProfile Inc. apr-01-2011 Lightspeed Venture Partners 1,1


Source : Capital IQ, MergerMarket

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Target Closed Date Investors Size ($mm)

Meebo, Inc.

déc-20-2010 Draper Fisher Jurvetson; JAFCO Ventures; Khosla Ventures; Sequoia Capital; Time Warner Investments 27,5

avr-30-2008 Draper Fisher Jurvetson; JAFCO Ventures; KTB Ventures; Sequoia Capital; Time Warner Investments 25,0

janv-18-2007 Draper Fisher Jurvetson; Sequoia Capital 9,0

déc-19-2005 Sequoia Capital 3,5

Nimbuzz B.V.

déc-31-2011 Mangrove Capital Partners -

mai-18-2010 Myriad International Holdings B.V. 12,4

juil-01-2008 Mangrove Capital Partners; MIH Holdings Ltd. 15,0

juin-18-2007 Holtzbrinck Ventures Gmbh; Mangrove Capital Partners; MIH Holdings Ltd. 10,0

août-29-2006 Mangrove Capital Partners -

2005 Mangrove Capital Partners -

Pinger, Inc. févr-23-2012 T-Venture Holding GmbH 7,5

déc-06-2006 DAG Ventures, LLC; Kleiner, Perkins, Caufield & Byers 8,0 Startphone

Limited (Hyves) Jan-2008

Van den Ende & Deitmers Venture Capital Partners Buyer Funds: Crossmedia Fund -

textPlus, Inc.

oct-16-2012 GRP Partners; Kleiner, Perkins, Caufield & Byers; Matrix Partners; The Raine Group LLC 18,0

janv-31-2011 GRP Partners; Kleiner, Perkins, Caufield & Byers; Matrix Partners 15,0

déc-09-2009 Kleiner, Perkins, Caufield & Byers; Matrix Partners 8,2

WhatsApp Inc. avr-08-2011 Sequoia Capital 8,0



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There are some good exit opportunities. Most of leading internet, telecom and handset vendors are present on the market and do not hesitate to spend hundreds of millions dollars to acquire leading independent actors. Note that ICQ has been acquired by AOL in 1998 for $407mm and sold ten years later for less than the half to Digital Sky Technologies Limited, the largest Internet company in the Russian-speaking and Eastern European markets. There is no multiple, EBIT or revenue available on major databases (Capital IQ, MergerMarket, etc.)

Exit opportunities (1/2)

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Closed date Transaction Type Target Buyer Size ($mm)

Nov-21-2012 IPO YY, Inc. - -

June-04-2012 Acquisition Meebo, Inc. Google Inc. (NasdaqGS:GOOG) -

Augt-21-2011 Acquisition GroupMe Inc. Skype, Inc. 80

Nov-12-2010 Acquisition Startphone Limited (Hyves) Telegraaf Media Groep NV

(ENXTAM:TMG) 60,69

May-08-2011 Acquisition Skype, Inc. Microsoft 8 500

July-08-2010 Acquisition ICQ LLC (AOL Inc.) Digital Sky Technologies Limited

(DST) 187,5

Oct-31-2008 Acquisition Jabber, Inc. Cisco Systems, Inc. (NasdaqGS:CSCO)

-

Dec-18-2007 Acquisition Gadu-Gadu S.A. Naspers Ltd. (JSE:NPN) 155

Aug-30-2005 Acquisition Teleo, Inc Microsoft -

June-05-1998 Acquisition Mirabilis Ltd. (nka: ICQ Ltd.) AOL Inc. (NYSE:AOL) 407

1997 Acquisition MSN Messenger Microsoft 400

Exit opportunities (2/2)


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initiative to deploy inter-operator RCS services. The GSMA (RCS project association) aims to provide customers with instant messaging or chat, live video sharing and file transfer across any device, on any network, with anyone in their mobile address book. It will permit operators to face OTT competitors that cannot offer a global solution. Mobilization is global and the project is now supported by many major industry actors including operators such as AT&T, China Mobile, Orange Telefonica, Vodafone and Deutsche Telekom and handset vendors such as HTC, LG, Nokia and Samsung. The solution is now available under the consumer brand Joyn. It has been launched this semester in Spain by Orange, Telefonica and Vodafone, in Germany by Vodafone and in the USA by MetroPCS. In addition, operators in France, Italy and Korea have committed to commercial launches. Deutsche Telekom announced it will start supporting Joyn in Germany from December this year and Orange will begin to deploy Joyn in France from June 2013.

As we seen in the first part, the messaging industry is approaching a watershed moment. Ovum firm believes that global SMS revenues will plateau in 2014, meaning that operators need to implement a strategy now so that they can to cope with the subsequent decline in revenues. OTT companies became a real threat for operators. $14bn (11%) have been lost in SMS revenues to OTT players in 2011. In the report Counteracting the Social Messaging Threat, Ovum firm estimated that social messaging services would cost telecom operators $23,2bn in SMS revenues in 2012 (18,1% of 2011 revenues) and $54bn by 2016 (42,2% of 2011 revenues). In 2007, a group a group of leading telecom operators have formed the Rich Communication Suite (RCS), a global

Telcos’ response (1/2)

128; 12%

315; 30%

620; 58%

Global mobile traffic revenue 2011 ($bn)

Sms

Data

Voice

Source : Juniper Research

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Orange has maybe find a solution, with Libon’s freemium business model. There is a free version and a paid version without advertising, automatically renewed because of 2.69 euros per month (charged to iTunes account, so Apple keeps 30%), with more features including 1 hour of calls to 30 international destinations. The challenge will be to convince users to abandon services they are accustomed to using and move to a paid solution.

Telefonica was the first operator to declare war on OTT services providers with the application TU Me. The app is free to download and allows users to send texts and pictures, make calls by using their data allowance. Services which offer similar functions, such as Skype, often need Wi-Fi to make it work and, while Wi-Fi is an option here, the 3G connection enables users to be a lot more mobile when communicating on the move. Telefonica has been fallowed by other operators like T-Mobile with Bobsled, a similar application that also offer free voice calls within Facebook. Orange Telecom have just launched Libon, a mobile application which allows users to send messages, chat and call in voice over IP, 3G or WiFi, including in countries where it does not have its own mobile network. (This service is available in 80 country whereas Orange is operator in only 33 of them). Operators become OTT themselves. Their services compete directly with OTT companies like Whatsapp but operators will need to identify new revenues because even if voice calling and text messaging are still growing, the revenues and margins are in decline.

Telcos’ response (2/2)

Technology

Instant Messaging apps market analysis