OTT Messaging Market Overview 2014

By Nick Lane, chief insight analyst @mobilesquared

Key trends in the mobile app and messaging markets - 2014

@mobilesquared

Mobile insight specialists

mobilesquared excels at interpreting & analysing

research & data on the mobile industry. We

transform research & data into expertly crafted

Strategic Reports, White Papers, Consultancy

Projects, & Presentations.

Who we work with

@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 @mobilesquared www.mobilesquared.co.uk

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

69m per 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 (%)

Source: mobilesquared @mobilesquared www.mobilesquared.co.uk

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)

Source: mobilesquared @mobilesquared www.mobilesquared.co.uk

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 @mobilesquared www.mobilesquared.co.uk

By the end of 2014 there

will be 2.14 billion

smartphone users, rising to

3.6 billion in 2017

Selected m

arkets

Smartphone OTT growth

Source: mobilesquared research @mobilesquared www.mobilesquared.co.uk

By the end of 2014 there will be 1.36

billion smartphone OTT users, rising to

2.89 billion in 2017

Selected m

arkets

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

Source: mobilesquared research


Cumulative OTT users



WhatsApp goes top in 2018

Source: mobilesquared research, data based on existing growth levels @mobilesquared www.mobilesquared.co.uk

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 73.6 OTTs per day in 2014,

rising to 102.8 in 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

7% of global OTT users in 2014,

and 8% in 2018


2014, and 10% in 2018 1% of global OTT users in 2014,

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


OTT penetration

Twitter penetration

67%

33%

14%

24.4 mil

Market breakdown: China


Mobile subscribers


OTT penetration

Sina Weibo penetration

WeChat penetration

59%

38%

23%

1.21 bil

46%

Market breakdown: India


Mobile subscribers


OTT penetration


Twitter penetration

12%

6% 5%

894 mil

3%

Market breakdown: Indonesia


Mobile subscribers


OTT penetration


WeChat penetration

20%

16% 7%

282 mil

7%

Market breakdown: Japan


Mobile subscribers


OTT penetration

LINE penetration

Twitter penetration

51%

40%

15%

138 mil

37%

Market breakdown: Singapore


Mobile subscribers


OTT penetration

Twitter penetration

Tumblr penetration

83%

43%

23%

11%

8.06 mil

Market breakdown: South Korea


Mobile subscribers


OTT penetration

KakaoTalk penetration

LINE penetration

76%

72%

69%

30%

53.6 mil

Market breakdown: Thailand


Mobile subscribers


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: 70.3 mil Smartphone OTT: 55 mil 37.9 mil

22.4 mil

5.5 mil

Indonesia


16.6 mil 18.4 mil

14.7 mil

17 mil

China

Smartphone: 707.4 mil Smartphone OTT: 557.4 mil

111.5 mil

66.9 mil

423.6 mil

272 mil

11.1 mil

462.7 mil

South Korea


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 mil to 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.

http://cdn0.tnwcdn.com/wp-content/blogs.dir/1/files/2014/03/a90788c7-s.png

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 $40 billion 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/ @mobilesquared www.mobilesquared.co.uk

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…

http://nishithsblog.files.wordpress.com/2014/01/teenagers-are-opting-for-messenger-apps-over-facebook.png

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 @mobilesquared www.mobilesquared.co.uk

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 @mobilesquared www.mobilesquared.co.uk

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 @mobilesquared www.mobilesquared.co.uk

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

9 launches 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

http://www.zdnet.com/blog/igeneration/generation-y-email-is-unfashionable-and-outdated/2561

http://www.tigertext.com/

http://www.tigertext.com/

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?


[email protected] www.mobilesquared.co.uk Tel: +44 (0) 118 380 1601

Thank You

OTT Messaging Market Overview 2014

Technology