Should Facebook Watch Out For This Upstart Competitor?

source: http://www.flickr.com/photos/johanl/

source: http://www.flickr.com/photos/johanl/

With 163,071,460 total users in the United States and a population penetration rate of 52.56 percent, it may seem like a difficult proposition for a small social networking application from Japan to break through Facebook’s (NASDAQ:FB) hold on one of the most active “liking” and “status updating” cultures in the world. But Line — a chat application first launched in Asia — reached 100 million users about three times faster than Facebook, and developer NHN Japan Corp is putting its growth goals before its profit targets in its attempt to take on the United States-grown social network on its home turf.

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This year, we want to capture North America,” chief strategy and marketing office Jun Masuda told Bloomberg. “We’re not focused on being in the black. It isn’t time to cash in yet.”

To extend the application’s reach, the company is refining its strategy, setting up a marketing team based in the United States, and planning joint promotions and content-delivery agreements with local companies, the publication reported Thursday…

In the company’s estimation, Line is ready to take on the U.S. market, citing its staggering growth statistics: Line reached the 100-million-user mark 19 months after its June 2011 debut, Twitter took 49 months to reach that level of wide-spread popularity, and Facebook took 54 months.

In total, Facebook’s social network has more than 1 billion active users — with 82 percent of them outside the U.S. and Canada, while Twitter has surpassed 500 million users.

Line has already distinguished itself from Facebook and Twitter, both of which have an established layout and glossary of associated verbs. NHN Japan’s service features group messaging, and it has become known for cartoon characters that users can include in chats.

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Clark Fredricksen, a researcher at EMarketer, informed the publication that incumbent chat providers are not strong enough to avoid losing users to Line. “In the U.S., things are clearly evolving in the direction of instant messaging and chat, and having a mobile experience across devices is important,” he added. “There’s clearly an opportunity, but also major platforms that are big enough and innovative enough could head off any threat from a foreign competitor.”

NHN — which also also operates South Korea’s biggest search engine — has gained approximately 40 percent in Seoul trading since June 1, 2011, compared to an 8.9 percent drop in the benchmark Kospi index over the same period. For perspective, Facebook’s stock has dropped 32 percent since its initial public offering on May 18 2012.

However, Analysts have postulated that Line’s success in Asia will not be able to be translated to the United States. While the app is available to users of Google’s (NASDAQ:GOOG) Android, Microsoft’s (NASDAQ:MSFT) Windows Phone, and BlackBerry’s (NASDAQ:BBRY) operating system — and it has topped Apple’s (NASDAQ:AAPL) ranking of free downloads in 41 countries, according to NHN — Asian consumers are more accustomed to paying for apps and services than those in Western markets. Line’s basic service is free, but it generates revenue by selling stickers, games, and corporate accounts.

A main reason for its popularity in Asian countries is that users in the region are particularly concerned about privacy. Facebook has status updates and Twitter has its tweets, both of which are circulated to a user’s network. Conversely, Line is focused on person-to-person messages.

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Yet, NHN is still betting that the service’s appeal will grow. No official target has been listed, but Bloomberg noted that it estimates growth will balloon to between 500 million and 1 billion users in the next two to three years, pushed forward by this year’s 250 billion won ($224 million) marketing campaign.

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