Chat Bubble

I have seen a new trend of applications being advertised on TV. Some of the ads have celebrity endorsements. It looks like a lot of money is being put into applications like WhatsApp,LINE,WeChat SnapChat etc. These applications are being tipped to take over from Facebook in the social media space.

Having installed WhatsApp and looking at the features of LINE,WeChat & SnapChat, I have come to a rather unflattering conclusion. These applications are glorified “Yahoo Messenger” of old.

Facebook,Twitter & LinkedIn have done well  attracting lots of users and then figuring out how to make money out of these users. Earlier, Google followed the same strategy and are one of the giants of technology now.So, there have been examples of companies that have done well by initially concentrating only on acquiring users and then figuring out the business model.

So, what is wrong with gaining users and then figuring out how to make money out of them? I can’t say there is anything wrong. But, there are frightening similarities between these chat apps and the dotcom bubble startups of late 90s. These similarities are –

  • Advertising on TV
  •   “We will make money through advertising“.
Bubble

Bubble

 

Yes, Yahoo survived, so did rediff.com, but history is littered with thousands of websites that died when funding stopped a new alternative for banner advertisements came into existence.

Lets consider the existing companies and see how they are making money off their user base –

  • Google/Facebook/Twitter –  Google and then Facebook manged to monetize their users by building excellent advertising platforms. These platforms enabled even small businesses to advertise tiny amounts of money(As low as Rs.40 a day  in Facebook) and gain customers. This created a long tail of customers and instant monetization covering all their users.
  • LinkedIn – Has a set of excellent products for HR professionals which enable them to look at lots of LinkedIn profiles and then contact them for hiring. So, they provide a hiring platform for HR professionals. These products have an annual subscription fee.

Advertising will not work in “Chat” applications since people are not on the app most of the time. People are inclined to check the app only when they get a notification. Showing an advertisement using notification or embedding an advertisement into a chat message would make it too intrusive. Facebook and Google have a very nice way of showing non-intrusive advertisements.  Hence, these applications would have to come up with a new business model.

Let us see what the current applications are doing to monetize –

  • WeChat/LINE – They have unique virtual stores which provide virtual goods like stickers and profile add-ons to use. Although this is innovative, it does not cater to businesses like the above platforms. Most of the users are unlikely to purchase anything(at least in India).I predict that it is unlikely these apps will ever recover the money invested in advertising on TV with celebrity endorsements
  • WhatsApp – In some markets like US, this is a paid app. However, in India it is still free to download and use. The moment they charge, 90% of Indian users will migrate to another application. So, I don’t see any future for this business model.
  • SnapChat  – None so far.

 

Having looked at some of the applications, I don’t see any of them growing to be the technology giants of the future. SnapChat refused a 3 billion dollar offer from Facebook. The VC who funded this startup & the founders are living quite cozily in the center of the bubble. I predict that most of  these apps are going to disappear.

Having said that, people will not be using Facebook for social networking in 20 years time. There will be innovative new applications that are going to replace Facebook.  These applications will have business model that would be considered very radical. As radical as pay-per-click was to usual banner ads that were prevalent during dotcom bubble.

All I am just saying is that the current crop of chat applications are not going to replace Facebook. We are yet to see the replacement.

What do you think? Do comment!

PS – Dotcom bubble seems so nice. When the current bubble bursts, what will people call it? Chat App bubble? Please suggest some nice names which we can use in the future :-)

 

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