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Business

How Line spun a cast of quirky characters into chat app gold

CEO Takeshi Idezawa talks to Monocle about success in Asia and plans for the future

The company logo in the lobby of its Tokyo offices

TOKYO One of the first things you notice in the Tokyo offices of Japanese online messaging service Line is a giant brown cartoon bear sitting in the far corner. Scattered throughout the meeting rooms and hallways are other human-sized cartoon figures: a pallid guy with yellow hair; a rabbit; an all-white androgynous character; a yellow chick.

Line CEO Takeshi Idezawa, flanked by a giant version of Brown

These are among the cast of characters that have made Line a household name in Japan and across Asia. The company's app for smartphones launched in the summer of 2011, just three months after a massive earthquake and tsunami pummeled Japan's northeastern seaboard. The disaster had disrupted lives, businesses and communications, and the free messaging app, which is owned by South Korean internet giant Naver, created a means of reaching loved ones when phone lines were still down.

But what truly set Line apart would come a few months later: virtual "stickers" featuring cartoon characters that users could send to each other in lieu of text messages. Today, some 71 million people in Japan -- about half of the country's mobile phone users -- and roughly 130 million others overseas use Line. On any given day, the service handles more than 27 billion messages and there are now tens of thousands of stickers to choose from, some of them free, some available for a small fee, conveying the full gamut of emotions.

There are, of course, several other large messaging apps worldwide, from WhatsApp in the West to WeChat in China and Hike in India, which can collectively count about 2 billion monthly active users. Indeed, in many countries and particularly for younger generations, messaging is replacing calls as the primary method of communication. But because users are unwilling to switch between apps there is rarely enough room for two players in any given market, so near-monopolies are common. Instead we have a situation where a few giant services dominate in their home countries and fight proxy battles elsewhere.

Yet while all these services, including Line, are facing off across the globe, the Japanese giant has cracked a problem that has dogged its rivals: how to transform a practical tool for communicating into a proper money-making enterprise. The stickers, and the ad revenue that grew out of them, spawned a retail business with a presence in China, Taiwan, South Korea, Thailand, Indonesia, the U.S. and Japan, and are a big reason why the company rakes in annual revenues of 141 billion yen ($1.27 billion).

Moon, left, and Leonard keep the meeting areas clean

For CEO Takeshi Idezawa, this should be a moment to celebrate. But having steered Livedoor -- a Japanese internet company that went from darling to dud after its founder was arrested for insider trading -- through its darkest days, Idezawa knows how quickly fortunes can turn in the tech business. He is out to prove that Line isn't defined by cute characters. It's becoming an entryway into the internet and is developing products with the company's own artificial intelligence technology built in. We caught up with Idezawa at Line's headquarters in Tokyo.

Line's big break came in autumn 2011, a few months after the app was released. What happened? It was a mix of our own efforts and favorable market forces. Over three months we had developed a very basic messaging app exclusively for smartphones. By October 2011 we had added two new functions: one was the virtual stickers with characters; the other was free calls. About the same time we advertised on TV, Apple released its iPhone 4s, and excellent phones using Google's Android software came out. Suddenly smartphones went from being 10% of Japan's mobile market to about 30%. With a chat app, users invite other users and the service spreads that way -- it's known as a positive spiral. WhatsApp was already around but people were signing up for Line because of the cute character stickers and the easy-to-use interface.

Why do you think Line's stickers were such a hit in Japan and Asia? In Japan there's often ambiguity in the way people communicate with each other. You might not want to say yes or no. Instead you can send a character sticker with a vague expression. It's a non-answer answer, which is still a form of communicating. Our first character was Moon. It's hard to know whether it's human or not, male or female, but its expressions could be universally understood. It hadn't polled well in surveys with salarymen and young housewives but among high school girls it was a hit. They thought it was creepy and funny. And it just took off.

Now Moon and another character, Brown, a bear with no facial expression, and others have become money generators. They're in a TV anime, on Lamy pens and Samsung phone chargers and are sold at more than 20 shops in cities from New York to Shanghai. Oddly, you can't use Line in China but these characters are very popular there. Over a short period they have become famous and it's become a significant business on its own.

Nearly half of Line's revenues come from ads. Not many chat services have figured out how to do this. How did you? Our ads are not like those you find elsewhere. Users send a lot of stickers -- 400 million a day, on average. At first the stickers were free. Then we thought: what about Disney characters and Japanese anime [series] "Doraemon." So we started selling these. Then we had another idea: What if companies paid to offer their characters free of charge? A lot of Japanese companies have mascots. We first tried it to promote a Spider-Man movie. Users liked free stickers and didn't notice that what they were seeing was an ad. People skip TV ads and block ads online. E-commerce retailer Rakuten invented the Rakuten Panda for Line stickers -- and now it's famous. It's an ad that's great for brands and acceptable to users.

How does Line distinguish itself from rival apps WhatsApp, KakaoTalk (in South Korea) and WeChat? We refer to our app as a "smart portal." You can use it to do almost anything on the internet, such as booking a hotel or reserving a flight. It's different from using an internet browser. In the U.S. and Europe chat apps are mainly for messaging. Our services are all in the app, so many people use them without realizing. You can read the news or flip through manga. People are now more likely to access the internet with an app than a browser.

How else do people use Line? In Japan delivery companies have struggled with redelivering packages to homes because people are out during the day. The companies drop a notice into the mailbox but nobody looks at these; young people aren't using email much so that doesn't work. Instead of making a phone call, delivery companies are sending a message on Line and quickly getting through. Call centers now have operators using Line as an alternative to a toll-free number. It's better for young people who are saying: "Don't call me! It's rude!"

Some people use Line to split the bill when paying for meals. We started it two years ago as part of Line Pay. We thought how great it would be if you could send money to friends. In Japan wiring money from a bank account is a pain. The fees are expensive and not many people were using online payments. Line Pay is popular with younger users in Japan, Thailand and Taiwan. Total transactions in the most recent quarter surpassed 100 billion yen. It's an example of communication leading to a service.

Even the bottled water is branded

Why move into e-commerce? Rakuten and Amazon are dominant. We want Line to be so convenient that users can do anything once they open the app. Shopping is an important aspect of that. We have a system of points that users can put towards stamps and stickers or products they shop for. They can convert it to money and send that to friends.

You recently worked with a regional Japanese government on a trial suicide hotline. What are the possibilities for governments using Line? It was an experiment with Nagano Prefecture, which has the highest suicide rate among young people. We set up a Line channel so middle and high school students who were contemplating suicide could chat with someone. Nagano already had a call center but in two months the channel was used more than 500 times -- exceeding calls to the center in a year.

Boss attends staff meeting but rarely says much

What's next for Line? You recently began selling an internet-connected AI assistant speaker in Japan -- a product called Wave. We've been thinking about what comes after smartphones. That's where our Clova AI assistant and Wave speaker come in. We spent about seven months developing the product in collaboration with Naver, South Korea's dominant search engine. My 4-year-old daughter uses the speaker to send messages to me on Line and when I write a reply the speaker reads it to her. People assume that because we are up against Amazon and Google we will end up losing. But our approach is different: Amazon is coming from e-commerce, Google from search; Line comes from communication.

Pangyo the panda

What else? We're working with toymaker Takara Tomy on a product -- a stuffed toy, perhaps -- that has our Clova technology built in. The AI and voice-recognition technologies are ours; they enable the toy to reply to questions. We also have a product we're working on called Gatebox. The concept is that it's your life assistant. Clova AI tech is inside and it communicates through a 3D hologram. It's probably a bit odd from a Western perspective. This is what we're talking about when we refer to expressiveness -- it's not just a speaker; the hologram could be of a pet or a member of the family or your favorite character.

What about your plans for the U.S. and Europe? There was a period when we were expanding. About three years ago we decided to narrow our focus to Asia and specifically Japan, Thailand, Taiwan and Indonesia. In China our chat service is blocked by the government but it's possible to expand with, for instance, our photo-sharing app and we now have nine Line Friends stores selling character goods there.

What do you worry about? I think our biggest challenge is psychological; that we stop taking risks, we stop adapting and changing, and we become defensive. In this world, everything moves so quickly.

This article is taken from a longer report on Line in this month's Monocle magazine. To find out more about the magazine and to subscribe, visit http://monocle.com.

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