Written by: James Wang, ARK Analyst
It’s no exaggeration to say that the future of messaging apps is the future of mobile. Six out of the top ten most used mobile apps are messaging apps according to research firm Quettra. Including social apps, that number jumps to eight out of the top ten apps. With smartphone sales slowing down, understanding the trajectory of social and messaging apps is key to understanding the future of mobile.
In this article we’ll try to do just that—paint the current landscape of social and messaging app adoption as it stands now and make some predictions on where the most important apps are heading. Specifically, we’ll use the logistic function (S-curve) to estimate the trajectory of the most important applications.
The chart above shows and ranks the growth of global social and messaging apps over the last six years as measured by monthly active users (MAUs). We used MAUs for this purpose since it is the most widely reported metric. 1 A very notable omission in this chart (due to lack of disclosure) is Apple’s iMessage app, which likely serves hundreds of millions of users given the almost 800 million iCloud accounts in use.
Viewed next to its peers, FacebookFB is the most valuable social network in the world. 2 Not only is it the largest service by a huge margin, but it continues to grow despite its enormous base. Facebook has consistently grown by 3-5% per quarter for almost four years with no sign of slowing down. Of course, there is no assurance that this rate of growth will continue.
Looking at Facebook’s growth in greater detail we can see two distinct phases, as shown above. Between its founding in 2004 and 2012, Facebook’s growth was driven primarily by PC users. At the end of 2012, Facebook launched its first native mobile app for iOS and Android, marked in green, which we believe accelerated its second phase of growth. Without the latter boom, Facebook likely would have petered out at around one billion users and be a far less valuable company. Today, its user base averages 1.7 billion.
By 2020, five billion people are expected to use smartphones. The addressable market for Facebook will be four billion people, given it is banned in China. If the current growth curve holds, Facebook potentially could reach three billion users by 2020 or three quarters of the world’s smartphone users outside of China.
Number two in the global rankings is WhatsApp, a simple SMS replacement app that recently crossed the one billion user mark, and is also owned by Facebook. 3 Though not well known in North America and Asia, WhatsApp is used widely elsewhere in the world, as shown below. For example, in Brazil, nine out of ten doctors use WhatsApp to communicate with patients .
While other messaging apps have embraced stickers, games, video, and various gimmicks to differentiate themselves, WhatsApp has taken a minimalistic approach, focusing on text and picture sharing. We believe this simplicity maximizes its appeal and addressable user base relative to novel apps, such as Snapchat and Pinterest, that require users to form new habits.
Currently WhatsApp has no business model—the app is free and does not serve ads. It has been reported that its long term plan is to enable businesses to message consumers and potentially derive revenue from related transactions.
As shown in the graph above, after a period of 10-16% sequentially throughout 2014, WhatsApp’s growth has moderated to 5–6% in the last three quarters. If WhatsApp is nearing market saturation, growth could decelerate further and flat line at around 1.1 billion users. However, in our opinion, the more likely explanation is that the recent data points have some sampling error, as companies give user milestones at inconsistent intervals. If so, the overall growth trend has not changed dramatically and WhatsApp could approach 1.5 billion users by the end of the decade.
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QQ, WeChat and QZone
Ranked number three, five, and six respectively are QQ, WeChat, and Qzone, services owned by China’s internet giant TencentTCEHY. 4 QQ is a PC and mobile messaging service with various paid premium offerings. WeChat is a mobile-native messaging app, giving Tencent exposure to commerce and payments. Qzone is a social network website similar to Facebook.
While QQ and Qzone originate on the PC and are relatively mature services, WeChat continues to grow at a rapid clip, 9% per quarter. It is worth noting that Chinese users often use multiple accounts per service, explaining why QQ has more active users (~900m) than China’s online population (~700m). We estimate the average QQ user has 2.1 accounts while the average WeChat user has 1.4 accounts. For context, Facebook believes that less than 5% of its accounts are duplicates.
Tencent has attempted to grow WeChat internationally but reportedly without success . Messaging outside of China is increasingly dominated by Facebook’s WhatsApp and Messenger.
Despite WeChat’s lack of traction internationally, its growth in China shows no sign of slowing down. As shown above, WeChat’s MAU growth actually has accelerated from 7% per quarter in the second half of 2014 to 9% in the first quarter of 2016. Given one billion Chinese internet users by 2020 and 1.4 active accounts per person, WeChat is on a path to saturate the market with around 1.4 billion accounts by the end of the decade.
Facebook Messenger
After WhatsApp, Facebook Messenger is the second most used messaging app in the world, crossing one billion MAU’s last quarter, making it the fastest growing messaging app in history. 5 Pushing users to install the Messenger app when Facebook users attempt to message each other on mobile, Facebook is the reason for Messenger’s rapid growth.
As you can see from the chart, Messenger’s growth curve has been somewhat lumpy and its long-term potential is hard to predict based on the few data points available. In the chart, we plot two possible trajectories showing a potential range between 1.2 billion and 2 billion users. However, two billion might be too conservative. For example, if Facebook were to reach 3 billion users by 2020, Messenger likely would track Facebook users closely. Further, Facebook has made it possible for users to sign up to Messenger without a Facebook account, meaning Messenger’s addressable market theoretically could be all smartphone users.
During the second quarter of 2016, Messenger’s growth accelerated suggesting that the app is not near saturation. We would like to see more data points before drawing any conclusions.
Number seven in the global rankings is another Facebook property, the photo sharing app Instagram. 6 Recently the company announced that it had crossed 500 million users—slightly earlier than what we had predicted last November. About 60% of monthly active users access the service daily, not quite as high as Facebook’s 66%, but quite impressive nevertheless.
We have found that Instagram is showing incredible adoption among celebrities and high profile brands . Nike, Starbucks, and H&M have added more followers on Instagram than on any other social network while many celebrities have garnered more followers on Instagram than Facebook and Twitter combined, as shown below.
Based on the latest data, we estimate that Instagram will surpass 750 million users, 100 million more than our previous estimate, by 2020 as shown below.
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Twitter’sTWTR user growth has been the most predictable of all the social networks, following the S-curve to a tee. 7 Unfortunately, since reaching the end of the curve, Twitter’s monthly active users have flat lined at around 300 million. Company management hopes to rejuvenate the growth in Twitter’s MAUs, but despite many attempts hasn’t figured out how to do that yet.
Why Twitter stopped growing has been debated ad nauseam . A poor onboarding process, an unfriendly user experience, instances of abuse, and a lack of clear product definition are commonly cited reasons. Twitter’s management has made various attempts to address these issues including:
While these changes have received a great deal of coverage from the tech press, they have not made the product dramatically better for the average user. As such, active users have continued to trend flat.
But things needn’t stay this way. Twitter as currently defined—a real time news service built around 140 characters and media clips—is interesting to about 300 million people. A substantial redefinition of the service, perhaps around live video, could make Twitter far more appealing and kick off a second leg of growth.
Snapchat
The youngest and fastest growing social network in our group is Snapchat. Barely five years old, it has already gathered 150 million daily active users and growth appears to be accelerating. 8
Snapchat is living proof that it’s possible to evolve the product definition rapidly and gain new users without alienating the core install base. Snapchat started out as an ephemeral photo sharing app but, over time, has added videos, Stories (bundles of user generated content), Discover (bundles of professionally created content), and Lenses (augmented reality selfies). Each addition has been received enthusiastically and advertisers now pay roughly $40 for a thousand views , which is a rate that rivals prime time TV advertising revenues.
In contrast to Twitter, Snapchat is at the beginning of its growth curve. Unfortunately, with the current data available, it’s not possible to make an educated guess on its ultimate user base: the S-curve fits 400 million or a billion users with similar levels of error. The key variable is the size of Snapchat’s addressable market. If it were to appeal only to millennials, the size of a population of 1.8 billion people, then one billion users isn’t out of the question.
The millennial population will increase to around two billion by 2020. 9 Assuming 65% smartphone penetration 10 and a 40% uptake among global millennial users (comparable to the level of Snapchat uptake among US teens ), Snapchat could grow to approximately 500 million monthly users or 300 million daily users. 11 However, Snapchat is starting to gain traction among older users, with a 14% uptake among US smartphone users aged 35 or higher. Consequently, its user base could potentially scale much higher.
Conclusion
To recap, if the top social and messaging platforms noted below continue to conform to their S-curves, we currently estimate that their MAUs in 2020 could be around.
Obviously these are estimates, and long-term estimates are subject to large degrees of error.
One major caveat of this analysis is that it assumes minimal cannibalization. In reality, many of these applications have similar use cases (especially WhatsApp and Messenger) and will compete increasingly for user attention as Internet growth matures. That said, we estimate that the sum total of these users will be 9.5 billion. With five billion Internet users, this estimate may mean that the average user will have fewer than two active apps, which seems reasonable.
Finally, we believe that during the next five years, Facebook’s domination of global communication, far from waning, likely will increase. By 2020, Facebook could own more than seven billion active accounts across its four services: Facebook, Messenger, WhatsApp, and Instagram. Meanwhile Tencent is on a path to capture virtually all Chinese Internet users with its suite of messaging apps. The wildcard is Snapchat. The millennial favorite is catching on with older adults and could become a new platform for TV and augmented reality . Exciting times are ahead.
1. Snapchat’s reported daily active users were converted to monthly active users assuming 60% of monthly users are daily users. ↩2. Based on information contained in reports, press releases and other documents filed by these Social and Messaging App Companies with the U.S. Securities and Exchange Commission (“SEC”) as well as materials disclosed on the websites of such Social and Messaging App Companies (“Reports”). ARK Investment Management LLC analyzed and internally ranked the social and messaging apps based on information in those Reports. ↩3. Based on information contained in reports, press releases and other documents filed by these Social and Messaging App Companies with the U.S. Securities and Exchange Commission (“SEC”) as well as materials disclosed on the websites of such Social and Messaging App Companies (“Reports”). ARK Investment Management LLC analyzed and internally ranked the social and messaging apps based on information in those Reports. ↩4. Based on information contained in reports, press releases and other documents filed by these Social and Messaging App Companies with the U.S. Securities and Exchange Commission (“SEC”) as well as materials disclosed on the websites of such Social and Messaging App Companies (“Reports”). ARK Investment Management LLC analyzed and internally ranked the social and messaging apps based on information in those Reports. ↩5. Based on information contained in reports, press releases and other documents filed by these Social and Messaging App Companies with the U.S. Securities and Exchange Commission (“SEC”) as well as materials disclosed on the websites of such Social and Messaging App Companies (“Reports”). ARK Investment Management LLC analyzed and internally ranked the social and messaging apps based on information in those Reports. ↩6. Based on information contained in reports, press releases and other documents filed by these Social and Messaging App Companies with the U.S. Securities and Exchange Commission (“SEC”) as well as materials disclosed on the websites of such Social and Messaging App Companies (“Reports”). ARK Investment Management LLC analyzed and internally ranked the social and messaging apps based on information in those Reports. ↩7. Based on information contained in reports, press releases and other documents filed by these Social and Messaging App Companies with the U.S. Securities and Exchange Commission (“SEC”) as well as materials disclosed on the websites of such Social and Messaging App Companies (“Reports”). ARK Investment Management LLC analyzed and internally ranked the social and messaging apps based on information in those Reports. ↩8. Based on information contained in reports, press releases and other documents filed by these Social and Messaging App Companies with the U.S. Securities and Exchange Commission (“SEC”) as well as materials disclosed on the websites of such Social and Messaging App Companies (“Reports”). ARK Investment Management LLC analyzed and internally ranked the social and messaging apps based on information in those Reports. ↩9. Assume millennials make up 25% of global population of 7.7 billion by 2020, the same percentage as today. ↩10. Five billion smartphone users out of 7.7 billion people ↩11. Assuming a ratio of 60% daily active users to monthly active users (DAU/MAU), same as Instagram. ↩ARK's statements are not an endorsement of any company or a recommendation to buy, sell or hold any security. For a list of all purchases and sales made by ARK for client accounts during the past year that could be considered by the SEC as recommendations, click here. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list. For full disclosures, click here.