The Japanese app that is storming the worldJanuary 29, 2013: 9:28 AM ET
Line—a messaging app akin to Skype—is a rare hit digital export from abroad.
By Michael Fitzpatrick, contributor
FORTUNE -- What do you get if you cross emoting, goofy manga characters with free messaging and calls? Japan's only export app hit—called Line—which recently hit its 100 millionth download.
"Faster than email, more creative than text and cheaper than calling, what's not to love," says one Spanish fan on the company promotional video. He's not the app's only booster. Line is a slickly designed product that has garnered awards, including a prestigious Nikkei Superior Products Service Award 2012. So far, Line has some 41.5 million subscribers, mostly under 30 years old, in Japan alone.
What really sets Line apart from other globalised formats such as Microsoft's (MSFT) Skype is that it has come out of the Galapagos-like conditions of the Japanese tech scene: its wares rarely find fans abroad. "What's remarkable about Line is that is the first online service coming from Japan ever to become an international success," says Serkan Toto a technology consultant based in Tokyo. "Racking up 60 million non-Japanese users in just 19 months is a historic accomplishment." That is at a faster pace than even Facebook (FB) found subscribers.
The app is so wildly popular in Japan, covering about a third of all mobile users, that it is killing use of communication sworn by Japanese for over a decade now—mobile email.
Much of the app's popularity rides on one area where Japan has an unassailable lead, the design and playful use of emoji or Japanese emoticons. On the Line app they have grown into fully delineated characters such as the enigmatic Moon "You never know next what will be happing with this one". They are called "stickers," and are intended to help users get their message across in amusing ways.
Sales of such stickers, though many are free, are earning Line's creators NHN Japan healthy profits of about $4 million a month, according to sources familiar with the company. NHN does not share such figures. While other revenue comes from about 30 companies who pay several million yen a month for advertising on the service, such as distributing coupons. There is also steady earnings from an in-app game service.
Other services have not been so successful. Features such as a timeline, which essentially works like Facebook's news feed, have flopped says Toto. "It remains to be see if other functions NHN Japan keeps baking into the platform like horoscopes, coupons, a virtual world, a platform for kids, etc. will attract more users or alienate them."
Users driven to collect virtual stickers reside in Asia for the most part, where for years they have lapped up Japanese exports such as manga, and "Hello Kitty" characters culture more readily than elsewhere. But like other Japanese successes such as GREE and DeNA the app maker's parent company Naver, of South Korea, wants to make a bigger impact globally and on the US now.
With newly acquired pitchman Snoop Dogg in tow in the US to tell the kids how cool it is to message with Japanese-style characters, Naver is investing heavily in acquiring new users here. "We have had a tremendous organic take up initially by users with a connection to Japan and Korea but more recently we've seen broader engagement with the product," says Jeanie Han Naver USA's CEO.
"Many of our existing stickers have proved popular with users in the US particularly our flagship characters however, in addition over the coming months we will be producing more and more localized content for users in the US and Europe." One of Line's strong suits is that it promises not to mine personal data to make money, unlike some similar app makers, she adds.
Rhere are some challenges to the success of Line in US says Japan start-up guru William Saito. He points out that the requirement from users to register with their cell phone number is open to abuse. "From the first install, it indexes you based on your cell phone number. Thus, in this use case, I see an incredible security risk where, when (it's just a matter of time) the database at NHN is compromised, it could potentially release contact information of people who aren't even Line users," he says. "The day Bill Gates or the Japanese Prime Minister [a Line user] gets random calls from people, you can guess it was a Line leak."
He sees the attraction of the stickers, the ease of sending them and how creating a group chat is relatively easy but points out the selling of "cute" characters may not be as portable as it is in Asia. Nor is group chatting foreign to US residents. Nonetheless, Naver appears to putting as much effort, if not more, into making Line a hit outside Asia as it did on that continent. The hope is to make Line a worldwide hit.
"The challenge for Line will be that the chat apps that are popular worldwide are each used in different geographical silos," says Toto. "There is hardly any spill-over at the moment, and it's unclear if there will be a global winner in this race and if at all, which service that will be. "Personally, I have my doubts that the Japanese subsidiary of a Korean company can operate a globally successful social app, but I hope I will be proven wrong."