Messaging app Kik has joined the so-called unicorn club with a $1 billion valuation in its latest round of funding. The Waterloo, Ontario-based company has raised $50 million from Tencent, the Chinese Web portal company which owns WeChat, another messaging service.
Kik has been a quiet but formidable competitor in the messaging wars, as Snapchat moves into media with its Discover platform and Facebook’s Messenger app expands its capabilities to include customer service. The company aspires to imitate the success of Asian messaging app companies like WeChat and KakaoTalk, which have become massive hubs for everything from commerce to media. Kik has 240 million registered million users. The company does not disclose how many of those users are active.
Earlier this year, Kik hired Qatalyst Partners to explore strategic options, including a potential sale. Kik CEO Ted Livingston says he made a list of every single company that Kik could potentially partner with, either through a sale or an investment, and imagined the best-case one-year scenario of each. He landed on Tencent, because he wants to mimic the company’s success with WeChat.
“They, more than anyone in the world, have accomplished in that market what we want to accomplish here in the US,” he said. It helped that Tencent was open to an investment rather than an outright acquisition. “It would let us stay independent and stay hungry,” he says. Further, he appreciated Tencent’s long-term view. “Financially, they could afford patience,” he said. “We don’t want to just build a chat app, it’s the whole chat ecosystem. Other partners would take a short term view.”
Kik has only begun to monetize its users, which consist mostly of teenagers in the U.S., through advertising and digital currency. Users can earn “Kik Points” by watching ads or interacting with brands, which they use to buy on digital stickers. Brands have accounts on Kik which interact with users; they can pay Kik to promote their accounts. So far 16 million users have chatted with 80 branded accounts.
This model follows that of Kik’s new partner, WeChat. Livingston says more “official accounts” are added to WeChat every day in China than there are websites being created to the Internet. Kik’s plan to become the “WeChat of the West” now includes an informal partnership with the actual WeChat.
WeChat and other popular messaging apps, including like Line and WhatsApp, have failed to break into the American market because there is no demand for free SMS messages — they’re already free or very inexpensive, thanks in part to Apple’s iMessage. But Kik broke in because it allowed people without a phone number, namely teens using iPod Touch devices on Wifi connections, to send messages. Now, Livingston says, Kik can thrive because of its network effects. “If you ask people why they use Kik, the number one answer, and there is no number two answer, is that it’s what their friends use,” he says.
Kik previously raised $70.5 million in venture funding. The company plans to use the investment to double its 100-person team over the next year.
An active startup investor, Tencent also participated in Snapchat’s $80 million Series B round of funding.