The fall… and rise and rise and rise of chat networks

At the end of October 2014, something very important came to an end. After 15 years of changing the way people communicated forever, Microsoft closed down its MSN Windows Live service.

Originally named MSN Messenger, its demise was not an overnight failure. Microsoft’s acquisition of Skype for £5.1 billion in 2012 meant it was only a matter of time before it was finally closed. China was the last territory to migrate the service to Skype; other countries did so 12 months earlier.

At its height, MSN Messenger had more than 330 million users after originally being launched to rival the emerging chat networks of AOL's AIM service and ICQ, followed by the entry of Yahoo Messenger. It was the social network of its day and as influential and dominant as Facebook is today.

The closure in October 2014 followed that of AOL’s Instant Messenger, which quietly axed its chat rooms in 2010. Two years later, Yahoo Messenger followed suit and closed its public chat service in 2012, explaining only that it was no longer a "core Yahoo product." More pointedly, the ubiquitous use of the mobile phone and messaging relevant to that more immediate platform had made them redundant.

The cessation of these networks signalled a nominal end to the first wave of chat networks before the tsunami of chat ingénues Snapchat and WhatsApp swept over them. While early chat networks went from thousands to millions of users, these chat networks have billions of users... and are worth billions of dollars.

WhatsApp was acquired by Facebook (who else?) for $19 billion (£13.5 billion) in 2013, and a $500 million (£350 million) investment in Snapchat in 2015 now values the company at more than $20 billion (£14 billion). More recently, the success of these giants has driven a new, third wave of chat networks, where emerging companies are offering all forms of niche content to attract and retain new users—but more on that later.

First, let's go back to the start and see how chat technology emerged to become the most important human connector of the age and how the rise of chat networks began.

Talkomatic

Like many digital technologies, multi-user chat started life in an American university and developed in a remarkably similar way to that of the Internet. In this case, the world’s first chat network happened in 1973 with Talkomatic, which was based on PLATO, a computer-based education program in Chicago’s University of Illinois.

It was primitive at its inception—Talkomatic had six channels, and only five people could chat at the same time—but what started as something for use in the classroom quickly became something for use outside of school; a place to chat with friends in a safe and personal environment. Sound familiar?

Talkomatic would continue to grow slowly over the next decade, but it was in 1980 when the emergent ISP CompuServe released its commercial CB Simulator to the general public that chat networks exploded into talkative life.

The CB prefix was important, because it represented citizens band radio, a technology that had earlier reached its apogee when the 1975 novelty song Convoy reached No 1 in the US, based on the worldwide fad for CB radio. This song by C. W. McCall was a three-way conversation between US truckers using CB radio and CB slang to create a narrative where users of the technology were able to undermine society’s mores, rather like the hackers of today. “We’re about to go hunting bear” (bear meant "police") was as popular a catchphrase in 1975 as any around in 2015.

Many chat pioneers liked to think of themselves as subversive, and the CompuServe CB simulator appealed to their outsider status. Like CB radio it had 40 "channels," and its similar CB nomenclature such as "squelch" and "monitor" only underscored this connection.

CompuServe CB was hugely successful, and other companies built on the shoulders of its gigantism when AOL acquired CompuServe in 1998 and used an updated chat network as one of its features to encourage Americans to buy dial-up subscriptions.

The company had launched Instant Messenger a year earlier and within 12 months had 19,000 chatrooms. What was once an almost insurrectionary network had gone mainstream. Over the next 15 years it would become a locked-in technology with further evolutions via the respective networks of Friendster and MySpace.

You call that a chat network?

So, that was the past. What's next? An October 2015 report, Connected Life, from market research consultancy TNS, polled 60,000 Internet users in 50 markets and revealed the sharp rise in instant messaging (IM) usage. More than half the planet’s population (55 percent) is using chat networks every day on platforms such as WhatsApp, Snapchat, Viber, and Line.

This trend is being led strongly by Asia, where daily usage jumps to 69 percent in China and 73 percent in Hong Kong. Chat networks are particularly dominant in emerging "mobile-first" markets, with daily usage rising in Brazil (73 percent), Malaysia (77 percent), and South Africa (64 percent). By contrast, some Western markets are lagging behind, including the UK (39 percent) and the US (35 percent).

“Apps such as Snapchat, WeChat, Line, and WhatsApp are sweeping up new users every day, particularly younger consumers who want to share experiences with a smaller, specific group, rather than using public mainstream platforms such as Facebook or Twitter," said Joseph Webb, global director of the Connected Life report. “As people’s online and mobile habits become ever more fragmented, companies need to tap into the growing popularity of IM and other emerging platforms. The need for a content-driven approach across IM, social and traditional channels has never been clearer."

In China, you can take out a microloan from within the QQ messaging app, and WeChat is coming soon.

With more than 606 million unique global users, one of the fastest rising networks is Viber, which gives its users the ability to connect in the way that works best for them for free, whether that is through individual or group text messaging, video and voice calls, or stickers.

Viber Games features mobile games for users to play socially against one another, using the Viber platform to send game invites, see what their friends are playing, and brag about their scores. It also features Public Chats, which allows its users to follow brands, celebrities, media, and entertainment content.

“Traditional social networks centre on the idea of users ‘broadcasting themselves’ to anyone who will listen. The recent growth in messaging app use reflects mobile users’ interest in real conversations with closed networks of friends and family," Viber CMO Mark Hardy told Ars. “With mobile now the primary screen, chat apps will continue to develop as leaders in the app space, expanding their services and functionality to act as a hub platform aggregating multiple mobile experiences. Now is the time for the chat apps to fully engage the huge audiences they have built."

Gamification... of chat?

Viber recently announced a $9 million (£6.3 million) acquisition of social gaming startup Nextpeer, the creators of a system that allows games developers to easily incorporate social gaming features into their apps. Such a social gaming feature is a huge incentive for chat network users to remain loyal to their network of choice and also one that drives user retention and acquisition.

Many of these new chat networks like to offer a games element, but one company, London-based Palringo, is offering a more innovative approach when it comes to games.

Palringo’s app has been downloaded more than 40 million times and not only offers in-chat games across more than 350,000 chat groups, it also publishes games on the main app stores to leverage its 40 million installed user base.

Some of these 350,000 chat groups have more than 2,000 members, and over the past 18 months the company has acquired mobile and social games developer companies in Finland and Sweden to bolster its games offering.

Its latest published game, Balloony Land, has been hugely popular on both the iOS and Android app stores, and, when prompted, players can click on the Palringo button within the game to further immerse themselves in the Palringo community.

Upcoming games from the company include Eternal Enemies, a clan-based game where users can play as Ninjas or Pirates and wage war against each other. Palringo then acts as a social and strategic hub where clan members share intelligence, pick targets, and unlock additional content in the game.

Palringo’s model appears to be working very nicely. Recently nominated for two categories in the annual Meffys awards, the company also came 7th in the Sunday Times Fast Track 100, a league table showing the 100 fastest-growing companies in the UK. This position was based on annual revenues of $14 million (£9.7 million), more than double those of 2013. On these figures, 85 percent of revenue was from games with a very steady profit margin of 50 percent.

“We’ve been in existence in different iterations since 2007, and it became increasingly clear two years ago that we should build a messaging-based business. Moreover, our data showed that our users wanted more than communication, they wanted entertainment," Palringo CEO Tim Rea told Ars.

“A lot of our customers were also on our network because if was fun to communicate with people they didn’t already know, but could come to know. That is people, who were into the same type of things, and not their existing base of people they did know."

Beyond mere chat and games

Another company operating in the same space as Viber and Palringo is North American chat company Kik. The company was spun out, rather like Talkomatic 30 years ago in Chicago, from academia.

In this case, it was a group of students at the University of Waterloo in Ontario who modelled the app on Blackberry Messenger, a strategy that was to be problematic when Blackberry later sued the company for copyright infringement.

Once this was settled out of court in 2013, the company’s growth accelerated, and it secured $38.3 million (£26.6 million) Series C funding in November 2014. Three months later Kik announced it had 200 million subscribers, most of whom were in North America.

Kik is continuing to grow, and at the end of last summer raised another $50 million (£35 million) from Tencent, the Chinese company behind WeChat (Weixin), a chat network that has more than half a billion users in China. With an updated figure of 240 million users, the company’s valuation is currently in excess of $1 billion (£700 million).

Kik, in the same way as its WeChat investor, offers more than just chat and games. From within the app, you can access payment and location tools to pay at restaurants or book a taxi; it's almost an Internet ecosystem in itself.

“More than 40% of American teenagers are active on our network. Chat is already the way this new generation connects with their friends, but there is a huge opportunity to power more of their lives by building a range of useful services that can be delivered through chat,” said Chris Best, co-founder and CTO of Kik.

China’s WeChat is certainly a chat network to emulate. While not particularly known for releasing numbers, late last year the company delivered a handful of jaw-dropping data points at owner Tencent’s Global Partners Conference in Chongqing. As of September 2105 there are now more than 570 million people on WeChat’s network, and the average user reads the equivalent of a novel every month. Unsurprisingly, it is dominated by younger users in the so-called higher and more populated "tier cities."

Tencent says that 15 percent of its users play games, of whom 75 percent play for more than ten minutes. Other features such as money platform Lucky Money and health platform WeRun are also hugely popular; like Kik, WeChat is effectively an app store itself, offering a multitude of services under the umbrella of one app. It’s not difficult to see why Kik is attempting to emulate WeChat’s business model.

Asia's love affair with stickers

Elsewhere in Asia, chat companies such as Line in Japan, Hike in India, and Korea’s KakoaTalk all dominate their respective territories.

Line differs from WeChat in that it offers emoji-like stickers to retain its audience. While the West has yet to deeply engage with stickers, they are a huge business in Japan. Line has more than 560 million users across Asia and has recently launched other services such as Line Pay, Line Music, and Line Taxi to further encourage its users to stay in its relatively unfenced (and welcome) garden.

In India, Hike is growing at an explosive rate, the market at the end of the rainbow being a subcontinent with more than 1.25 billion people. Founded at the end of 2012, the company has already raised $86 million (£60 million) through three rounds of funding and now has more than 100 million users. Hike expects to double that user count within 12 months.

Meanwhile, in South Korea, KakaoTalk has more than 140 million users and is used by an extraordinary 93 percent of smartphone users in the country.

So, what's next?

Finally, in this global roundup of the next chat network super-companies, we turn our attention to Telegram. Founded just over two years ago, the company says the platform now sends more than 10 billion messages daily and is "the fastest-growing chat app network in the world."