Kakao’s road to success and why Mxit’s demise isn’t all its own fault [GMV]

Ask Kakao Co-CEO Sirgoo Lee what the number one factor behind his company’s recent success has been and he’ll tell you it’s all been down to timing.

Speaking at the 2014 edition of the Global Mobile Vision conference in Seoul, Lee says the point at which the company decided to go mobile was particularly important.

Until 2010, the company had been building a web-based instant messaging service, but with the arrival of the iPhone in Korea in 2009, it decided to switch tack.

Today, KakaoTalk has more than 100-million users, brings in more than US$200-million in revenue and the company is on the verge of a merger with Korean search company Daum, which is expected to see the birth of a new tech giant.

So what, if anything, could an instant messaging service like Mxit, which finds itself in an increasingly desperate battle for relevance in the age of the smartphone learn from its success?

The perfect conditions

Well perhaps the most comforting side effect of viewing its recent slump through the ascent of another company’s ascent is realising that it’s not all its own fault.

As you most likely know, Korea has some of the best connectivity infrastructure — both mobile and fixed line — on the planet.

That ubiquitous connectivity has helped drive the appetite for smartphones in the country, to the extent that at least 73% of people in the country own one.

That means that when KakaoTalk launched, it did so into a market that was ready for it. Its founders didn’t have to grapple with keeping a group of loyal feature phone users happy while it tried to break into the smartphone space.

Mxit’s seeming schizophrenia, by way of contrast, can at least partially be explained by the fact that it has had those worries. At about the same time as KakaoTalk was launching, South Africa’s smartphone penetration was sitting at around 20%. It’s grown exponentially since then, but at the time maintaining a large focus on feature phones still made a lot of financial sense.

The prevailing conditions in Korea also meant that Kakao could build a substantial, and sustainable, base with one product before expanding and exploring other markets.

Beyond instant messaging

Of course, it is possible to build a successful standalone instant messenger, just ask WhatsApp. KakaoTalk’s strength however has been in the diverse array of features it’s managed to bake in.

As Lee points out, KakaoTalk isn’t so much an instant messaging service these days as it is a social platform.

Perhaps the most vivid example of that is its gaming section, which has been a runaway success since launch, with one title bringing in more than US$1-million a day.

What makes the games on KakaoTalk different to the ones available on competitors such as Line and WeChat is that its are built in partnership with outside developers using KakaoTalk’s API, rather than by a specialised in-house division. “That’s limiting”, says Lee who believes taking this approach to all of its Mcommerce products could one day mean that Kakao has more than a million profitable partners.

The are other successes too. KakaoStory for instance allows you to share status updates, mood buttons and photos with your friends and has more users in Korea than Facebook.

Then there are stickers, the Mcommerce staple whose appeal is apparently unique to South East Asia, gifting and unique advertising products, such as Plus Friend, which allows users to receive messages, announcements, coupons from celebrities and brand name stores.

Most of these features now make it money, but both the size and type of its user base have given it the freedom to tweak with them and make sure that it keeps rolling in.

Mxit also tried a lot of things, most notably during Alan Knott-Craig Jr’s shot tenure. From the early days, it had its own form of Mcommerce in the shape of Mxit Moolah, the virtual currency that allows you access to certain services on Mxit and which can either be bought using real cash or earned. There were geo-payments, games, headline-grabbing acquisitions and a massive rebranding.

All of it seemed to have come to naught though when differences between Knott-Craig and the Mxit board saw him step down a little over a year after buying it.

It’s all about the money

A large part of the board’s issue with the maverick CEO, or so it seemed to many outside observers, was that it wasn’t really clear how all those innovations were going to result in a positive change to the balance sheet.

That, says Lee, was never a problem for KakaoTalk. From the beginning, the company has had plenty of funding. This has, in turn, given it the freedom to focus on the quality rather than the profitability of its products.

“When you think too much about how you’re going to make money, you’re going to lose out on quality,” the Kakao CEO says.

We will never know which, if any, of the products launched under Knott-Craig would’ve been really successful. If its user base continues to decline as rapidly as it has been over the past few months though, it probably wouldn’t be too cruel to suggest that they had as much as chance of succeeding as the slew of features that have launched in the post Knott-Craig era.

Still, with a little time and little more focus on quality over product, who knows?

Uncertain future, uncertain present

Despite KakaoTalk’s successes, there are still things it admits it got wrong along the way. One of the biggest problems it’s encountered is growing its user base outside of Korea.

“There are a lot of questions around global expansion for KakaoTalk,” says Lee. “Opportunities were missed”.

Most of its growth has come from other South East-Asian countries, where advertising campaigns have seen it attract solid download numbers. The trouble is a lot of those people don’t really use the app once they’ve opened it. It’s a problem that’s plagued most of its Asian competitors along with the likes of BlackBerry and, indeed, Mxit.

Getting that kind of expansion means two things: making sure that your app is sticky and that it appeals to local sensibilities. It doesn’t matter who you are, you have to get those things right.

Given that there are so many uncertainties in the present then, what does the future hold? Well KakaoTalk is betting on the Internet of Things. It already allows you to interact with your fridge (as long as it’s an LG).

But that’s just the first step. The company also wants to help you communicate between multiple machines and connect your internet-enabled appliances with a variety of services.

Lee is also profoundly aware that the rise of wearable devices will inevitably change the way we interact with services like KakaoTalk and that company will have to make provision for that.

As for Mxit? Well, it’s still here nearly two years after Knott-Craig’s departure. Has it used up its “one last chance“?

That’s not clear right now, but it could all come down to timing.