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It’s been four months since Tencent invested $50 million in Kik, giving the Canadian founder of the chat service, Ted Livingston, his unicorn horn in the form of a billion dollar valuation for the startup. More important, Livingston got a strategic partner that owns the largest web chatting service in China: Wēixìn, or WeChat as it is called in English. Its 600 million monthly active users chat and buy movie tickets and share birth announcements and do everything else on it nearly every day.
Like WeChat, Kik is a messaging app. Livingston founded it in 2009, and frankly, it’s surprising it’s still around. He's seen most of his rivals bought by Facebook (WhatsApp), or quietly acquired or shut down, like MessageMe, Beluga, Yobongo ... you get the picture. But the startup has some key things going for it. For one, it is popular among American teens. They like it mostly because their friends are on it. (ComScore says it's the 19th-most popular app among US millennials.) But they’re also drawn to the fact they don’t have to divulge their true identity; like Reddit, Kik allows anonymous handles.
By the numbers, Kik is a big deal. It reports 240 million registered users. Of course, many people who registered for it may not use it, and it’s hard to get a sense for how many people actually do. Comscore reported 15.6 million people used the service in North America in October. (Keep in mind, Comscore only measures adults, and Kik is popular among teens.) That’s still big, roughly the size of Moscow. But on the web, Big doesn’t count. Chat apps, like many web companies, are network effect businesses: as more people join them, they work better. Because they work better, more people join them. To succeed, companies must be Very Big. WhatsApp has 700 million active users, and its Messenger app has 600 million. What do you do if you’re the size of Moscow, but your competitor is the size of China?
Earlier this year, Kik had its moment of reckoning. Slowing growth had Livingston looking for a buyer or a strategic investment. “I made a list of everyone we could partner with or that could buy us,” he says. Most sale options meant giving up too much autonomy for his comfort. Tencent, however, sought a more strategic investment. As the Chinese Internet behemoth eyes North America, where its largest global competitor (rhymes with Lacehook) is mushrooming, it wants to better understand what drives chatters there. Kik’s interests also are strategic: Livingston wants his business to work a lot more like WeChat.
WeChat is the Everything App for more than half a billion users in China, as my colleague David Pierce wrote recently. They talk to their friends and colleagues on it, sure, but they also use it to buy movie tickets and order dinner. They follow social media stars, post and share photos, play the lottery, and shop on it. A Chinese friend recently received a wedding invitation on it, then booked his hotel through it. For a lot of folks in China, WeChat is the front door to the web. This supports Livingston’s theory: “Chat apps are the new browser,” he says.
Nearly every large chat application hopes to morph into a platform on which other developers build services. Facebook is opening Messenger to outside developers. Now people can send a GIF via Giphy without leaving the app. It also launched Business on Messenger, which lets businesses send receipts, notify customers when packages ship, and provide basic customer service. And it is experimenting with an artificial intelligence-powered personal assistant, M, that can answer users' questions.
But unlike in China, American Internet users have yet to embrace conducting business on chat. Livingston believes that’s because we haven’t found the right design for the software atop these platforms. He believes the future is bots, automated accounts that talk directly to users one-on-one. “WeChat calls them ‘official accounts’ and we call them bots, but it’s the same thing,” he says. Let’s say you walk into a J. Crew in Kik’s hypothetical future. You could ask the J. Crew bot any of the questions you might have about the store (where’s the sale rack, please, and what can I find there in my size?). That’s how it works in China, where more than 10 million third-party apps have official WeChat accounts. Livingston says more “official accounts” appear on WeChat each day than there are websites being created on the Internet in China. He's hoping the teens who love Kik also will grok bots, but so far, Kik's efforts have been largely largely experimental.
Such behavior has yet to translate to the West, where Kik hasn't seen broad adoption of bots by businesses. And the company lost 14 percent of its users in the past year, according to ComScore. Few Internet businesses begin growing again once users start falling off. (Again, blame the network effect.) And Livingston could have just sold out. He mentioned Yahoo expressed interest in buying the company, for example. (Yahoo has no comment.) But he sees himself as the underdog in a fight that could shape the future of the Internet in ways he believes could be dangerous. “This is a race to create the operating system for society,” he says, describing chat as a new operating system that follows users off their gadgets into the real world, powering every interaction. He believes one company shouldn't control that. "Can you imagine what things would be like today if AOL had won?" he says. “We have to ask ourselves, in the option where Facebook wins, is that OK for society? Are we excited about that for the future of our children?”
Livingston’s bet is that by learning from Facebook’s most significant chat competitor, Tencent, Kik can remain a contender. But these are network effect businesses. It's not clear there will be room for many competitors. If Facebook loses, Kik wins. Will that reality—in which one company controls chat—be any better?
