More consumers are going over the top worldwide and investors are pouring money into companies that enable consumers to communicate via the web, skirting older communications networks. The latest messaging app to raise significant funds is Canada–based Kik, which just raised $50 million from China’s Tencent Holdings Limited, the operator of major social and messaging platforms in China. Kik is now estimated to be worth $1 billion and has 200 million users. Earlier investors in Kik include Valiant Capital Partners and Foundation Capital.
Over the top, better known in telecommunications circles as OTT, means a system is using the Internet as the infrastructure to enable two-way communication instead of a technology normally associated with that style of communication such as traditional text messaging. Kik is a smartphone messaging application that lets consumers chat via their smartphones in places such as social apps or games.
Free mobile messaging services like Kik, WeChat, WhatsApp (which is owned by Facebook) and Viber mimic text messaging, except they use the Internet to connect users instead of the wireless voice networks that text messages use. That means consumers don’t have to pay for text messages, and the businesses that run these services get to display ads or in other ways monetize the consumer traffic they attract. Skype is another example: Instead of making a voice call, which costs money, millions of consumers connect with one another via the free Skype app.
Kik founder and CEO Ted Livingston announced the funding in a blog post on the Kik site. He said the money aims to help Kik win what he referred to as the chat race in the U.S.
While chat apps and services are quickly gaining huge numbers of followers, the market is highly fragmented across geographic regions. For example, highly popular in China are China Mobile and WeChat, with 763 million and 600 million users, respectively, according to a recent report by mGage, a mobile marketing and technology company. Meanwhile, Line is popular in Southeast Asian countries such as Thailand, with around 400 million users, according to mGage.
“I made a list of every major company we could partner with,” Livingston writes in the announcement. “Some were tech companies, some were content companies. Some were in the U.S., some were in Asia. Then, beside each company, I wrote two hypothetical stories with imagined outcomes about what we accomplished together in the first year, in both dream and nightmare scenarios. From these stories, I extracted a list of pros and cons and used them to prioritize the options.”
Livingston goes on to write that Tencent was at the top of the list in part because of its hugely popular QQ and WeChat services, which means it understands chat and what it can do, and that it has deep pockets suggesting it will be patient as Kik pursues growth.
Tencent also is focused on China, so it won’t clash with Kik’s goal to become the dominate chat player in the U.S., Livingston writes.
Kik wants to mimic what Tencent has done in China by expanding to other applications beyond chat. It’s already working with other mobile games and services such as music streaming services to extend its reach.
“Want to get a soda from a vending machine? You can use WeChat to scan the machine to start chatting and get the menu sent to you instantly,” Livingston writes. “Want 10 percent off a T-shirt? Scan the checkout to start chatting, complete a survey, and get the coupon sent to you. There’s nothing new to download, nothing new to learn, and nothing new to remember. Just scan, then chat. The chat app became a magic wand that empowered you to seamlessly interact with the world around you.”
Livingston said only five companies go about chat in the same way as Kik: Tencent, Line, Facebook, Snapchat, and Telegram—and it chose to partner with the one that owns the largest Internet market in the world.