​Why the Chinese have transformed India's Hike messenger into a unicorn and what WhatsApp can learn from it

If messaging apps go the way of China in India, Hike could become a contender.
Written by Rajiv Rao, Contributing Writer

It is ironic that the reason why Chinese internet firm Tencent and manufacturing giant Foxconn have recently led a funding round that pumped $175 million dollars into Indian messaging app Hike is because it may accomplish what the Chinese themselves haven't been able to do in India -- take the battle to dominant American messaging apps WhatApp and Facebook in the country.

The investment takes Hike to over $250 million raised to date and has valued the company at a cool $1.4 billion -- an event that seemingly came out of nowhere while the rest of Indian ecommerce huffed and puffed in vain, as they saw their headcounts slashed, valuations downgraded, and venture funding evaporate.

Ostensibly, the reason why Hike has outstripped everyone else is partly because of how well it has done over the years. Numbers are a tricky business. Kavin Mittal, founder of the messaging app and thirtysomething son of billionaire founder of India's largest telecom company Bharti Airtel, claims it has over 100 million registered users, second only to Whatsapp in terms of engagement per user. Some say it is unlikely that more than 50 percent of those are active on a monthly basis. Research firm TNS puts Messenger ahead of Hike.

But this is just quibbling. The fact is that Hike has managed to cleave itself away from a sea of messaging apps in the country like Viber and race along with the bonafide leaders. It easily outstripped the efforts of perhaps the most dominant messaging app in the world -- China's WeChat, owned by Hike's new investor Tencent, which, despite pots of money failed to get a toehold in neighboring India.

Yes, having both Softbank and Bharti (owner of Airtel) as your chief investors can't hurt, but Hike and its founder haven't taken this pedigree for granted. Instead it has managed to woo a primarily youthful clientele -- 90 percent of its user base are aged under 30 and are largely responsible for sending each other 40 billion messages each month.

Still, that doesn't fully explain this serendipitous match between the Indians and the Chinese. Five years ago, WeChat, referred to as Weixin on the mainland, was a fledgling service in China. Today, thanks to a little help from the Chinese government, which banned Facebook along with a host of other social media and communication apps, WeChat has exploded with a user base that's over 700 million strong. What makes it a much talked about phenomenon is the fact that it earned around $1.8 billion last year, giving it an estimated market cap of a staggering $80 billion while both WhatsApp and Facebook Messenger have either held back on monetizing or haven't yet figured out a way to do so.

What makes this possible, as Connie Chan at Andreessen Horowitz explains, is the fact that while Facebook and Whatsapp monitor how many daily and monthly active users are on their networks, WeChat is concerned by the hourly need of its users. Instead of focusing on building as large a social network as humanly possible, WeChat is fashioning a mobile lifestyle for its customer base.

It is a phenomenal business model that The Economist describes well. A WeChat user will customarily use the app to hail a taxi, pay for it, pay for stuff at a physical store or during an online shopping expedition, make a doctor's appointment, buy movie tickets, and even pay the electricity bill. A WeChat user can utilize a "shake" feature to find nearby users (which quickly became China's version of Tinder), wave it at the TV to get more information on current programming, interact with viewers of the program, as well as send digital money to friends and family during Chinese New Year instead of physically mailing red envelopes as is the hugely popular custom. (The Economist reports that over 400 million users dispatched 32 billion packets of digital cash this year). There are probably thousands of other things you can do with WeChat that I've left out.

In other words, WeChat is not just an app. It is a "super app" with over 10 million retailers, brands, banks, car makers, pop singers, news blogs, and anybody or anything else that has something to sell, discuss, or disseminate within the app, much like web pages on the internet. It is an app-within-an-app, an operating system, a platform, an ecosystem, whatever you want to call it. It is essentially your life if you're in China, with you from when you wake up to when you go to sleep.

Clearly, Hike from the outset has been inspired by WeChat as well as its other Asian brethren Kakao Talk (Korean) and Line (Japanese) who also function in a similar vein in its localization efforts. Hike has a privacy option for its Indian users that allows them to chat in "hidden mode", away from the prying eyes of nosy relatives. In a country that has high data rates and patchy connectivity, it enables users to send SMS messages to friends who aren't using the Hike app. It has an ancillary gaming division that offers indigenous equivalents of games like Subway Surfer and Temple Run as well as other original products catered to the Indian market which apparently attract over 100 million play sessions a month. It also has integrated news features.

Hike's Mittal gives you the impression that going the WeChat way will be a no-brainer. "We have a big app problem in India -- app uninstall rates here are twice the global rate," founder and CEO Kavin Mittal told Business Today. "Hike can become a default platform. They can build on this platform," he added. Brand channels could act as the second pillar according to Mittal while sale of stickers and games, already localized and extremely popular on the app, could be the third.

Hike is far from a WeChat of today in terms of functionality and offerings, but clearly its evolution is pointing steadily towards the messaging apps of Asia, if not China. And considering India still has some 800 million people to connect to the net, it makes ample sense for the Chinese to bet against a WhatsApp or a Facebook Messenger in India by putting their chips on Hike.

This is Tencent's largest investment in India to date, earlier having plonked down $90 million in Practo, a medical portal. Its arch rival Alibaba has already made a substantial investment in payment solutions startup Paytm in addition to ecommerce biggie Snapdeal. The company is also rumored to be swimming the shoals of ecommerce in an effort to soon launch an incursion against Amazon and Flipkart, the two biggest players in the country.

Of course, what makes WeChat the juggernaut that it is, is its mobile payments solution, described by some as its "Trojan Horse", allowing it to seamlessly integrate payments into its ecosystem. Three years ago, only a few Chinese bought things using WeChat. Today, over half of its gigantic user base have their cards hardwired into the app according to The Economist, and a third are regular online shoppers, making WeChat and its 10 million virtual storefronts and its 700 million users one of the biggest virtual shopping malls in the world that generates real income.

Tencent recently revealed that it banked around $46 million in fees from its mobile pay service WeChatPay, representing 0.1 percent of $50 billion in just one monthly transaction. The annual forecast for 2016 is $550 billion in payments processed for Tencent -- almost double of how much US-based PayPal processes in a year. Almost overnight, it has become the biggest rival to China's largest payment solutions provider, Alibaba's Alipay, valued at $60 billion.

In some ways, India is a perfect place for the Chinese to target investments in India, especially in companies like Hike that leverage the country's exploding smartphone user base. Apparently, half of all things hawked over the internet in China happen over mobile against around a third of total ecommerce sales in the US.

India has by and large skipped the PC revolution and most people who will access the net will do so on their smartphones, not their computers. This means that India could have an even greater percentage of mobile ecommerce sales, which bodes well for companies like Hike.

That's the good news. The problem is that while a billion dollars of stickers, ring tones, and wallpapers are consumed by Indians -- and that number will swell -- paying for them over the net is a monumental problem, especially when it comes to rampant credit card fraud. "But the problem is the payment infrastructure is so poor in this country, even if I wanted to make money, I can't. That's the biggest reason. It needs to improve a lot before we try to make money," said Mittal.

Also, after being shut out from the world's largest and most lucrative market, Facebook, owner of Messenger and WhatsApp, is probably going to make sure that they go for broke in India, much like Amazon. There's no saying when WhatsApp could decide to up the ante by offering WeChat-like features too. And since it has a large lead, and since the app is pretty much the de-facto way that everything from used cars to goats are sold via messaging groups (not through storefronts) on a smartphone, it will be a no-holds-barred fight for regular users.

But for now, Tencent's WeChat is the benchmark to beat globally. With Hike in its stable, the tide has suddenly turned a little bit in a country that is going to see the largest migration of people onto the internet after China.

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