Line Files to Go Public

A Messaging App Created in the Aftermath of a Disaster

Earlier this month, Japanese messaging app company Line, a fully owned subsidiary of the South Korean company Naver Corporation, announced plans to file an initial public offering (IPO) in July 2016 on the Tokyo and New York stock exchanges. It’s expected to be the biggest IPO for a technology company this year, and will raise well over $1 billion.

The messenging app Line was launched in Japan in 2011 by the South Korean company NHN, (an Internet company and the largest search engine in South Korea, which later became Naver Corporation). The app was created quickly by a team of 15 people in the aftermath of Japan’s 2011 earthquake and tsunami to overcome downed communication lines. Over the following years, Line enjoyed phenomenal growth, propelling it to become the country’s dominant mobile messaging platform. Line claims to have 218 million monthly active users on its app and is considered one of Asia’s most popular messaging services, with specific strength in Japan, Indonesia, Thailand and Taiwan, which together account for 152 million monthly active users.

The app has managed to carve out a niche in Asia, becoming extremely popular among Japanese teenagers, although user growth of late has been showing signs of slowing down. Competition in Asia has been fierce, with counterparts Viber (owned by Japanese firm Rakuten) and WeChat (owned by China’s Tencent) vying for users.

Line is not simply a messaging tool like WhatsApp and Facebook Messenger. Similarly to most Asian messaging services, it has evolved as a platform. It offers a range of content including music, video, games and news, and also provides online-to-offline services that allow users to hail a taxi and make restaurant reservations, for example. In a bid to tap new sources of revenue and attract more users, Line said in March that it would launch a host of new services, including a low-cost mobile operator, and expand its mobile-payment service.

Line generates revenue mostly from sales of digital stickers (which users send to each other), games and advertising. In 2015, Line’s revenue was ¥120 trillion ($1 billion), up 39 percent from 2014. This might look modest compared with the $17.9 billion that Facebook generated in 2015. However, it’s a good achievement for a messaging application, and its competitors will surely be keen to analyse this in detail.

At the top of the range set for the IPO, Line is expected to raise over $1.2 billion. The company says it intends to use the proceeds to make a push into the US market, taking on rivals Facebook and Snapchat on their home turf. In its efforts to keep up with rivals, Line has added new features including online payments, bots, end-to-end encryption, and also voice and video calls.

The messaging market in the West is quite crowded as it is, but historically it has been very dynamic, with new entrants coming and replacing established players — we only need to look back at BlackBerry’s BBM service. There seems to always be room for one more, and rivals should be careful. For mobile operators, this means yet another competitor, trying to carve out chunks of their SMS market. What Line brings to the market is messaging as a platform, which none of the dominant Western messaging apps have. Whether Western consumers will like the proposition remains to be seen.