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Line seeks to emulate Hello Kitty with an empire of cute

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Line’s characters. From left: Cony, Moon, and Brown.

In the afternoons of May, Singaporeans young and old waited for their turn in the blistering heat to enter a pop-up store selling merchandise of the cartoony characters from Line, a chat app surging in popularity worldwide. The love affair reached an apex when a man, disguised as a mascot of Line character Brown, proposed to his girlfriend.

The event echoed other fads which happened in the sunny island just a year ago, and a decade before that. Queues would form outside McDonald’s outlets around the country as folks sought to buy some limited edition Hello Kitty dolls. Passions ran high, causing arguments between grown men and fast food workers who would struggle to contain the crowd.

While Line’s characters aren’t as influential as the venerable feline, the app has rapidly gained mainstream awareness in parts of Asia. Launched in Japan in 2011, the chat app has accumulated 470 million registered users, with a significant number of them coming from outside the country. An initial public offering valued upwards of US$9.85 billion has reportedly been filed.

But unlike Whatsapp and Viber, which function as utility apps laser-focused on fulfilling a user’s communication needs, Line is both a platform and content creator. It designs, produces, and sells its own creations, and it’s succeeding.

Line essentially repeated what Sanrio, the inventor of Hello Kitty, did in its early days. By adding a flower design to rubber sandals, Sanrio founder Shintaro Tsuji discovered that he could sell more of them. “If you attach added value or design to the product, they sell in a completely different way,” he said.

The discovery led Sanrio to a formula that would sustain it to this day. A review of a book documenting Sanrio’s history notes: “he began commissioning cartoonists to create designs, eventually hiring his own to avoid paying royalties. Tsuji also obtained Japanese rights to Snoopy from Peanuts for Japan and exclusive (money-losing) import deals on Barbie dolls and Hallmark cards.”

So, unlike Whatsapp, which views the chat app from a purely functional standpoint, Line sees it as a cultural artifact. The approach has worked out well for its balance sheet. Sanrio makes around US$759 million in annual revenue, while Line is already generating US$338 million a year.

How did Line thrive?

From a pure usability standpoint, Line’s chat app seems ordinary among the competition. But consider what came previously. Before a text on a phone involved Whatsapp or WeChat, it was simply sent via SMS. Sending SMSes costs money. But Line, paired with a wi-fi network and a data plan, fulfilled the demand for constant multimedia communication.

Line emerged at a time when smartphone penetration in Japan was low but on the verge of booming. Just before Line launched to the public in June 2011, the country had a 14.8 percent smartphone penetration rate. The figure jumped to 40 percent in less than two years. This was a sweet spot for Line since many consumers were about to discover chat apps for the first time.

Line’s characters helped too. Brown, Cony, and Moon share a similar minimalist aesthetic to Hello Kitty. The designs feature the classic traits of cuteness: big head, round profile, and a clumsy look.

The app’s rise could also have something to do with the widespread acceptance and association with kawaii – the Japanese word for cuteness – that transcends not just nationalities, but also age and gender. As Japan emerged from the second World War, embracing cuteness meant being infantile and immature. That changed in the past decades as the country grew wealthier and social pressure to be mature lessened, observes Obata Kazuyuki, a columnist at quarterly magazine Nipponia. Or, girls who liked Hello Kitty, Doraemon, and other icons of Japanese pop culture simply grew up still liking them.

Aside from WhatsApp, Line is probably the only other massively successful chat app to have sizable traction beyond the home market. In April this year, it counted over 50 million registered users in Japan – barely over 10 percent of its total user-base – and had over 10 million users each in Taiwan, Thailand, Malaysia, Indonesia, Mexico, Spain, and the United States.

In contrast, only 40 percent of KakaoTalk’s users live outside South Korea, while WeChat had 100 million registered users beyond China in August 2013 despite a grand total of 355 million monthly active users.

The spread of Japanese pop culture and the kawaii concept around the world, and in East Asia particularly, could be nudging things along.

While Line’s aggressive marketing campaigns played a role in its spread, it probably also has to do with the timing of its launches, which hit markets that were experiencing a smartphone boom. In Mexico, smartphone usage doubled in 2012 and rose 50 percent in the year after. In urban Thailand, smartphone penetration reached 36 percent in 2013, up from 17 percent the year before.

Line is its own animal

Line borrows many elements from Sanrio. Cute mascots aside, it has ventured into merchandising and produced not one but two anime series based on its intellectual property. Both companies prove that it’s possible to build a global company from Japan. But the similarities end there. While Sanrio makes a huge chunk of money from licensing, Line’s main source of income is in-app transactions derived from games and stickers.

See: Line Game hits 300 million downloads as social gaming takes off

In fact, a closer look at Line’s product line-up reveals it is a Frankensteinian mishmash of a company. It’s like a more prolific version of Supercell with its stable of casual game titles. It functions like a less-focused version of Facebook with its strategy of breaking up features into different apps while using a common login system, spawning creations like Line Camera, Line SnapMovie, and Line Card. Could a Line OS be in the works?

The company’s schizophrenia is emblematic of Asian tech giants like Alibaba and Rakuten. While Facebook and Amazon obsessed over running complementary services, Alibaba and Rakuten function like conglomerates, dipping their toes into seemingly unrelated areas.

Line and its South Korean parent company Naver appear to be cut from this mold. Naver is essentially the Google of Korea, offering search, news, maps, browser toolbars, email, and other services. It runs Hangame, an online games portal with titles for the web and desktops, and acquired Livedoor, a Japanese internet service provider and blog platform.

The chat app, meanwhile, rose from the bottom up, emerging first as a way for staff to communicate when Japan’s telco network was damaged during an earthquake in 2011. This bottom-up approach is a trait typical of conglomerates.

Fundamentally, Sanrio and Line differ on one key point. Sanrio specializes in transplanting cartoon characters onto physical objects and media, and its business model has stayed unchanged for decades. Line, meanwhile, is a nimble software and internet services firm which has figured out virality and revenue.

While Line’s characters have not achieved the cultural ubiquity of Hello Kitty, it probably isn’t essential to the company’s longevity. In fact, the likes of Brown, Cony, and Moon could serve as test cases for a larger experiment.

Sanrio’s stagnancy – it’s revenues have stayed flat since 2010 – is an echo of Japan’s own cultural malaise. The country’s manga and anime industries are struggling due to digital piracy and a decline in DVD sales.

In comes Line, which has learned to make money by engineering a profitable set of pipes to distribute content. Along with selling established products (Avengers stickers, anyone?) on its platforms, Line recently began promoting user-created stickers – and that amounts to a way of crowdsourcing the next Hello Kitty.

This could prove instrumental to Japan’s soft power resurgence.

Editing by Steven Millward and Paul Bischoff

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