Messaging apps could ignite an Indian retail revolution

In November last year, stylish Chinese phone company Xiaomi sold 150,000 of its Mi3 flagship smartphone in less than 10 minutes on Chinese messaging app WeChat, which has around 260 million users, mostly within China, and is second only to US-based WhatsApp. (WeChat has even introduced an in-app purchasing system since then). Not to be outdone, in mid December, Japanese messaging powerhouse Line (270 million users worldwide) orchestrated a "flash" sale of iPhone 5 cases in Thailand, which apparently sold out in 24 minutes flat.

This is the kind of potential that India's retail sector would salivate over. The gateway to new riches online lies through the messaging app — a relatively new service in India, but rapidly becoming the de facto means of communication, especially amongst youth. No surprise, then, that this has resulted in the death of what was perhaps the most popular telecom service used by Indian customers until recently: The SMS.

I wrote about all of this here when profiling the plans of Kavin Mittal, the son of Airtel founder Sunil Mittal, to start a data revolution through his instant messenger "Hike", as well as a gaming company called "Tiny Mogul". The grim reality for telcos here is that voice revenue growth in India has flatlined, and telecom companies are therefore desperate to drive data usage.

The strategy in developing and marketing a messaging app, as I mentioned in that piece, is basically a blades-to razors-model. The (most often free) app is simply a conduit to actual money that one can rake in via sales of widgets, also called "in-app" purchases to soup up skills in a mobile video game. Also good revenue earners are emoticons, although I can't imagine why anybody would want to use those annoying things.

So far, the Japanese and Koreans have shown themselves to be rulers of how to extract juice from their messaging apps. Reports suggest that South Korea's Kakao Talk will ring in about $200 million in revenue for 2013, according to the company's forecasts, versus just $42 million the previous year, which also saw a healthy net profit of $6.5 million. Japan's Line's revenue was $157 million in the third quarter alone, compared to just $10 million a year ago, a staggering 1,500 percent increase.

So, it's not so surprising that considering the size of the market in India, a hectic scramble is taking place for market share. Apps like WeChat and Line are spending huge advertising budgets to attract new customers by leveraging global superstars like Lionel Messi and Bollywood stars.

It is important to mention that amidst this euphoria about the marriage of technology and retail is the sober, grim reality of India's retail policy when it comes to foreign investment, something that I had written about here. E-commerce, specifically, is largely a gray area since the Indian government still has no clue about how to treat it. Until there is some clarity on this front, using messaging apps to drive up retail sales will sadly remain a pipe dream.