The Messaging Adoption Gap
Since the Smartphone breakout, we have been living in the messaging era. The radical convenience of this channel shifted our personal communication from emails and phone calls to messaging apps like WhatsApp. Interestingly, it didn't stay confined to our inner circle of family and friends for long. As consumers, we have become increasingly more open to messaging for personal, professional, and business purposes. Furthermore, in many cases, messaging apps have become our main source of information consumption.
We can see a vast messaging adoption gap when observing the adoption curve from the business perspective. Most businesses still largely rely on traditional channels like phone calls or emails to communicate with customers.
This adoption gap became more pronounced during and in the aftermath of the COVID pandemic, leading customers to expect instant gratification in all aspects of their life, whether they are playing, shopping, learning, working, etc. All things considered, customers are becoming highly demanding, hard to satisfy, and easily bored with the product and services we get from businesses.
As a result, the messaging adoption gap has a progressively negative effect on business performance:
- Increasing CAC: Global digital advertising expenditure reached $280B, with the average lead conversion rate at 2.35%. Furthermore, it’s becoming increasingly hard to acquire new customers.
- Lower satisfaction: 96% of customers will leave a brand for bad service and 54% is willing to do that just after one bad experience.
- Poor retention: A recent study Verint Systems, the Customer Engagement Company showed that customer loyalty and retention are declining.
While the game and its rules are changing and getting tougher, some baseline business truths stand their ground in the shifting tides. "Be where your customers are" has always been the main key to success for most businesses. Therefore, more and more brands are leveraging messaging for business purposes. Yet, overall, most haven't even begun to consider messaging as an answer to the rising challenges.
The adoption of messaging as a new channel from a business perspective is not entirely new. I have been observing this trend for quite some time in the Chinese market with the case of WeChat.
The WeChat Platform Ecosystem
Among the different messaging apps available globally, WeChat–dominating the Chinese market—is clearly the most successful one, boasting an unparalleled ecosystem. Today, WeChat has more than 1 billion Monthly Active Users (MAU) with more than 30 million businesses offering all sorts of products and services, generating $1.2 trillion in transactions.
The most significant advantage the WeChat story offers western businesses is the ability to look at and learn from the platform's evolution. A platform that has already successfully generated a massive ecosystem with multiple, fast-growing billion-dollar companies that leveraged the messaging channel to engage with customers. Many businesses look to the West to adopt innovative business practices, but there is a lot we can learn from what China is doing to capitalize on untapped opportunities as well.
Find a few interesting examples of successful messaging-driven businesses below.
Pinduduo ($70B) is the largest social commerce platform in China and in the world. It is the second-largest online marketplace in China by the number of users and the number of orders. It has pioneered the trend of social commerce by leveraging WeChat as the main channel to revolutionize online shopping in China.
Didi ($10B) is a Chinese ride-hailing company headquartered in Beijing. The company provides several app-based transportation services, and a key part of its success was partnering with WeChat to enable social ride-hailing service. Didi also contributed to the successful adoption of messaging payment by allowing users to pay for ride-hailing within WeChat.
Real Estate: Beike
Beike ($13B) is an online real estate platform that offers brokerage and financial services for Chinese renters and homebuyers. The company is among a selected group of 3rd-party partners with native integration with WeChat Wallet, which gives them access to nearly 1.1 billion monthly WeChat users, including 900 WeChat Pay users with access to the wallet portal.
Sounds interesting? Get more info about real estate messaging use cases.
Why bet on WhatsApp?
As we can see, China is already years ahead of us regarding messaging adoption, whereas most western messaging apps are still in the early stage of building their platform strategy.
For a messaging app to become a platform and enable a broad ecosystem like WeChat, I believe three things need to happen:
1. High local market penetration rate
2. Open and robust platform API
3. Native messaging payment adoption
1. High Local Market Penetration Rate
High local market penetration rate is measured by dividing the number of active users by the smartphone users of a country/region. For the most part, messaging apps leverage the user's personal contact network, so it's vital to think about market penetration at the local level.
I believe that for a messaging app to become a go-to business platform, the minimum penetration required needs to be above 70% in the local environment. This is the case when the network has enough user density to make it useful and attractive for businesses to offer 3rd-party products and services.
A high local market penetration could enable many new business use cases like the O2O (Online to Offline or vice-versa) experience. For example, in China, when a user goes to a restaurant, she can order the food directly by scanning a QR code. Once she finishes the meal, she can pay directly using her WeChat app. The O2O model dramatically extends users' use cases with the messaging app.
2. Open and Robust Platform API
WeChat has the most open and robust platform API, so we can take it as a benchmark to measure the platform score in terms of the number of features other messaging apps support with platform API.
One key feature WeChat has pioneered is the mini-program, which offers quick access to a mobile application inside WeChat without downloading the app. This significantly reduces user friction to try out new apps with low usage frequency, like eCommerce, travel, home service apps, etc. Furthermore, when accessing a mini-program, users are identified with their WeChat account, which makes the buyer experience frictionless—free of the hassle involved in creating a new account, and setting up payment and delivery information.
In contrast, if we look at WhatsApp, which is clearly the leading western messaging app, it has only started offering open API this year, and is still restrictive regarding how a business can build services on top of it.
3. Native Messaging Payment Adoption
Native messaging payment adoption is measured by dividing the number of messaging payment users by the total active users of the platform.
One key component of WeChat is allowing users to make payments for many different use cases: P2P payment, banking, restaurant, retail shopping, and so forth. According to official data from Tencent, Wechat is generating +$1.2 trillion in transactions. Hence, for a messaging app to truly thrive, it must enable native payment and get a high user adoption rate.
When WeChat first started, it leveraged multiple partnerships with leading consumer services like Didi (ride-hailing) or Ofo (bike sharing), which educated users about how to use messaging for payment. In the West, most messaging apps don't offer native payment services yet, mainly due to regulation issues.
Furthermore, user behaviors are harder to change with lots of good alternatives already available, like credit cards and mobile payment apps.
How to Measure Messaging Platform Readiness
In line with the points discussed above, I put together a comparison table of the leading messaging apps to measure their Messaging Platform Readiness MPR score:
Some notes about the comparison table:
- WeChat has obviously the highest score as it’s the most advanced platform ecosystem.
- Asia overall is more advanced in messaging adoption than the rest of the world. That’s why MPR is higher for some Asian messaging apps like Line (Japan) or KaokaoTalk (South Korea).
- WhatsApp has the highest local market penetration in multiple regions globally (mainly in Europe, Latam, and Southwest Asia). Moreover, it has already started testing payment solutions which is why I am personally very bullish on WhatsApp.
What is WhatsApp Led Growth
With all the economic uncertainty we are facing combined with Meta's effort to follow the WeChat path, western businesses have finally realized the importance of messaging adoption. Thanks to the MPR score, we can clearly see that WhatsApp is one of the leading messaging channels we need to adopt.
The next question is: How should companies leverage WhatsApp as a new channel?
I believe we are witnessing a historic moment of a paradigm shift. Looking for the most fitting way to describe it, I would use the term “WhatsApp Led Growth” (WLG).
The concept of WLG encompasses all the possible ways companies can leverage WhatsApp as the core channel to acquire, engage, and monetize customers and ultimately even build new business models on top of WhatsApp.
Brian Balfour, ex-VP of Growth of Hubspot, says, "As new channels emerge, past companies are destroyed, and new companies are created because of product <> channel fit."
See the evolution of the online dating industry as an example:
Match and others emerged during the first web boom and got most of their traction via banner ads. Then, SEO emerged as a major channel, and PlentyOfFish emerged as a contender. Next, social platforms came along, and Zoosk and others emerged. Most recently, mobile came along, and Tinder emerged.
All along the way, the same pattern repeated itself over and over again:
As a new channel emerges → Existing players try just to copy/paste the old playbook, which opens the door for new companies to rise with Product Channel Fit for the new channel.
When mobile apps first came out, many people believed they were just smaller screen websites without understanding the unique capabilities of the smartphone (always-on internet connectivity, camera accessibility, GPS, etc.). This is why if we think 'Messaging is just a shorter/faster Email experience,' we would be completely wrong.
To truly understand how to be successful in WLG, we have first to understand what makes messaging apps like WhatsApp so unique, and how it differentiates from traditional channels:
- BlueOcean market segment: Thanks to the proliferation of smartphones, messaging apps have huge market penetration. They are used by customers that weren't accessible before, like senior citizens, the less tech-savvy types, the non-PC users, etc. Many successful businesses have leveraged WeChat to reach blue ocean market segments and experience massive growth without competing with incumbent players.
- Continuous message history: Unlike emails or phone calls, messaging apps offer a continuous experience where you get all the information history with one single point of contact. This has enormous implications regarding how businesses should operate within a messaging channel. For example, companies could offer a full-funnel experience having multiple teams (marketing, sales, support, etc.) working together in the same channel.
- Exponential information exchange: Messaging apps combine the visual information exchange (sharing text, files, images, etc.) from email with the convenience of real-time communication (voice, video calls) from phone calls. As a result, not only the quantity of information exchanged in messaging apps between businesses and customers can grow exponentially, but also the quality as well. This could be very challenging at scale because when sending messages to customers—unlike with emails or SMS—people's natural behavior is to reply back with the expectation of immediate feedback from the business side.
- Deep social connections: Unlike social media, messaging apps are mainly used to communicate with people you have a close relationship with, often at a local level (i.e., your family, neighbors, or close friends). This increases the trust level in relation to the information you receive. At the same time, as per messaging groups and communities, information is very easily shared within your network. The combination of higher trust and ease of sharing generates a considerable opportunity for brands to grow using viral or referral loops to promote their products and services.
To sum it up, the key to success for WLG lies in offering products and/or services that can fully leverage the unique capabilities of the messaging channel.
The Arrival of WhatsApp-First Businesses
According to CB Insights, the funding level in the WhatsApp startup ecosystem has been growing significantly since 2021 and continues to get traction in 2022 despite the tech stock bubble uncertainty.
We can see that many entrepreneurs are already actively trying to adopt WhatsApp as a new channel and, in many cases, even build their entire business on top of the messaging app.
In 2020, Lisa Enckell, from the top VC fund Antler, was the first to coin the concept of Whatsapp-first to refer to startups that provide services on top of WhatsApp, allowing them to validate their business idea with customers quickly and cheaply. I partially agree with Lisa that WhatsApp is an excellent way to validate a new business at a lower cost. However, I believe it also has enormous potential to scale the business beyond the early stage.
The WhatsApp platform has matured quite a lot in the last two years. One great example is the recent End-to-End WhatsApp Shopping Experience Meta launched with JioMart in India.
WLG: The Early Bird Gets the Worm
The opportunity to build new business models using WLG strategies gains momentum as WhatsApp pushes through the early stages towards becoming a full-scale business platform. WeChat has already created a multi-billion dollar, 3rd-party partner market in China, and I believe the WhatsApp ecosystem will be even more significant. In fact, this was one of the driving principles for founding Landbot in the first place.
As WhatsApp Business adoption grows in the West, so does the potential for new revenue streams. What’s happening with WeChat in China serves as proof to early-bird entrepreneurs in the Western world that messaging apps for businesses are not only here to stay, but will also change the world of commerce as we know it. And those who capitalize on the opportunity WLG offers will be the ones who reap the lion's share of the reward.
To make this happen, I encourage everyone working in the messaging space to share their experiences and help make WLG a reality in the near future. If you are interested in learning more about the state and future of WhatsApp-led growth, check out our 2023 WLG Report that contrasts consumer preferences with current business communication and/or subscribe to our WhatsApp channel to get access to an exclusive Masterclass.