Asian OTT players Tencent and NHN to target large social messaging markets

Telecom Lead India: Asian over-the-top (OTT) service players — Tencent and NHN — plan to target large social messaging markets, including the US.

In September 2012, Tencent’s Wechat (called Weixin in China) had a user base of over 200 million users, while NHN’s Line had over 60 million users.

Recently, reported that OTT is set to disturb SMS revenue of operators. Telecom operators will lose $54 billion in SMS revenue by 2016 due to social messaging services on smartphones. According to Ovum, the $54 billion SMS revenue loss is more than double the $23 billion operators are expected to have lost by the end of 2012.

“Known for its messaging, digital gaming, and social networking services, Tencent is taking a long-term view with Wechat, building a large user base before focusing more heavily on monetization,” said Ovum consumer analyst Mark Ranson.

“Tencent knows from experience that building scale and loyalty among users is the key to long-term profitability in the value-added services (VAS) market – and with a market capitalization of approximately $61.5 billion, it can afford to wait. Tencent’s planned Wechat digital game center is likely to be the best opportunity to create significant revenues from the service,” Ranson added.

NHN generates most of its revenues in Korea and Japan. Its Naver web search service and Hangame online game portal are its biggest revenue streams. NHN sees its Line messaging application as key to improving its mobile platform business and creating growth by entering new markets. It also sees digital games as central to its monetization strategy for Line.

Both companies have been built largely on revenues generated from fixed network online game services, and are naturally planning to expand on this success in the less mature mobile game market.

Tencent and NHN’s current and future competitors should be aware that the companies’ expertise in online gaming and the monetization of online content, combined with their strong finances, will make both players credible threats in most markets they enter.

Ovum earlier said that OTT players are changing consumers’ messaging preferences, and the pressure they are exerting on operators’ messaging services is forcing them to offer increased SMS bundles and to experiment with messaging pricing models, further dampening revenue growth. Since Rich Communication Suite (RCS) is not expected to reach the mass market before 2014, mobile operators will have to rely on innovative pricing strategies and partnerships.

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