Startups are winning Japan’s news app war. A VC explains how

Shinichi “Shin” Takamiya is general partner and Chief Strategy Officer at Globis Capital Partners. He co-wrote this analysis with Emre Yuasa, a senior associate at Globis. Their firm has invested in SmartNews and Uzabase (operator of NewsPicks), but no confidential information has been used in writing this article.

News curation is an attractive frontier in the mobile app business because it has the potential to become the next mobile portal. The news app war that has engulfed Japan since 2014 has proven that there are three ways to win in this market – newspaper strategy, magazine strategy, and platform feeder strategy.

SmartNews and Gunosy have chosen the newspaper strategy. NewsPicks and Antenna favor the magazine strategy and have been successful in building a vibrant and devoted community interested in business news. The platform feeder strategy, on the other hand, is where LINE News and Yahoo Japan News make their mark.

We will examine these strategies, their key value propositions, and key success factors, based on the lessons observed in Japan.

What’s so exciting about news apps?

News is unique because it is consumed by everybody every single day, and that makes news apps well positioned with their universal appeal and high engagement rates to become a mobile portal as strong as Google or Yahoo were during the PC era. More people read news on their mobile phones than on their PCs in 2014. The engagement rates, which show how actively the apps are used by dividing the number of daily users by the number of monthly users, for SmartNews and Gunosy approach 50 percent, an exceptionally high figure for apps with millions of users.

These two metrics – large user base and high engagement rates – provide strong user traffic to monetize on. One way to monetize is from ads. It has become evident that classic banner ads are too distracting for tiny screens on mobile phones. Instead news apps can favor native ads which will not disrupt the user experience since they have a similar look and feel to the regular content.

Both SmartNews and Gunosy launched their own ad networks in 2014. The market is welcoming them as native ads are expected to grow 30 percent annually for the next several years.

Another way to capitalize is to send traffic to other services. Gunosy announced in October 2014 a plan to partner with 11 different services to share traffic among each other. Gunosy can leverage its vast data on user interests with service providers trying to reach various demographics.

The strategic importance of the mobile portal and the huge profit opportunity it ensures are the primary reasons entrepreneurs and investors are fighting hard to become market leaders. Let’s take a look at the different ways these companies are all pursuing the same goal.