Momo Goes Public, Putting a US$3.2 Billion Price on Chinese Loneliness
By easing the loneliness of 60 million active users, Momo has reached a market value close to Weibo's.
By easing the loneliness of 60 million active users, Momo has reached a market value close to Weibo's.
Last night Momo listed on the Nasdaq at US$13.8 a share and rose 26% on its first day of trading. At the closing price of US$17.02, it was worth US$3.174 billion.
It took Momo just three and a half years to go from product launch to ringing the bell in New York. It is, without question, the only Chinese social networking app to succeed since WeChat. Yet through three and a half years of rapid growth in mobile social networking, Momo was never the favorite. From the start it was pinned into the slightly awkward role of "hookup tool," and its five versions are about the best evidence of how often it has had to change course.
Doubts remain, and profit is still far off, but Momo has gone public all the same. The US$216 million it raised gives it more room to try different directions and work out how to make money from its 60 million active users.
Momo is gradually turning into an interest-based community that brings people together by location. From the early "hookups" to today's mobile games and offline groups, 60 million users still open it because they are lonely.
Momo's market value is now only US$100 million below Sina Weibo's. In other words, Chinese loneliness has been valued at US$3.174 billion.
China's Third-Largest Social Network
By user numbers, Momo is still some way behind the giants. Its monthly active users have passed 60.2 million, far more than its foreign counterpart Tinder, but several times fewer than the nearly 500 million active users of WeChat, which launched around the same time. Even Sina Weibo, whose user activity has reportedly fallen sharply over the past two years, has more than twice as many active users as Momo.
If Momo wants to become what Tang Yan describes, an "open social platform" for anyone, it will need to grow faster.
The "Hookup" Past It Can't Shake
After three and a half years and five versions, Momo prefers to call itself an "open social platform." What it cannot shake is the reputation it earned early on as a "hookup tool." Asked whether that reputation had helped promote the company, founder and CEO Tang Yan pushed back: "I completely disagree. At the very least, it does more harm than good."
Whatever Tang thinks, millions of people first heard of Momo through the "hookup tool" label and this video by internet celebrity Mike Sui.
"Hey, beautiful, add me on Momo."
"What the heck is Momo?"
"Remember, Momo is a hookup tool!"
When Mike Sui delivered those lines, which come close to being an advertisement, in a medley of accents in both Chinese and English, he spelled out what Momo's "stranger socializing" pitch had always meant. The original video on Youku has now been played 7.85 million times.
Mike Sui posted the video in April 2012. Youku's data show that 60.3% of its viewers were men and 59.9% were aged 22 to 29: Momo's user base exactly. In early March that year Momo had barely 2 million users; by the end of July it had jumped to 10 million, mainly because of this video and the press coverage that followed.
Once most new users were joining for the "hookup tool," what the app had originally been designed to do no longer mattered.
Besides, Tang Yan once described Momo with these lyrics from Zhang Chu's song "Bright Road":
Nobody knows where we're going, If you're lonely, come join us. You're still young, they've grown old, You want to show yourself off, don't you?
The sun shines on your shoulders, Lighting up your shy face. You're still fresh, they've gone ripe, You're worried about your virginity, aren't you?
How Big a Need Is Loneliness?
Momo's rise is no surprise: loneliness and boredom have always been a market opportunity. From the anonymous chat rooms of the late 1990s, to the forums that thrived in the Web 1.0 era, to the photo, interest-based and even stranger-socializing apps that investors doted on over the past two years, one thing has never stopped: people's urge to connect and pour their hearts out to one another.
From 2007 on, 3G and 4G networks spread and smartphone prices fell. Once phones could do more than make calls and send texts, social life naturally moved to the mobile internet: Twitter, Sina Weibo, Xiaonei, Pinterest... For those few years, social products were red hot.
According to a Chinese internet user behavior report that CNNIC released in September 2013, mobile internet users spent an average of 109 minutes a day on entertainment on their phones, 60.6% of all the time they spent on their phones apart from calls and texts.
Across the Pacific, in the United States, social networks have even become an important part of romance. According to the How Couples Meet survey, 30% of American newlyweds in 2010 had met online.
As the mobile startup wave and social services took off, the location-based social app Momo arrived at just the right moment, in 2011. Together with WeChat, it took up half of the public conversation about social products in China. Under labels such as "stranger socializing" and "hookup tool," Momo grew ever more popular. And once Momo caught on, more Chinese social apps appeared, especially location-based dating and meetup services aimed at strangers.
Our analysis of data from IT Juzi shows that social products went through a growth peak after Momo launched in 2011:
Some of these services copied Momo's model and stirred controversy. "Weiyou," launched by Sina Weibo in 2012, was accused by Momo CEO Tang Yan of copying his product; it stopped being updated a year later. Other startups are doing fairly well with a stranger-socializing label and a model built on paid virtual goods, such as Weiju, founded by Jiao Yi, formerly of the YY Voice team. Similar products include Youjia, Bilin and tataUFO, and all of these teams have raised at least a Series A.
Even Microsoft's XiaoIce became popular by addressing human boredom, as a chatbot that helps you kill time. 100 days after launch, XiaoIce had held a total of 500 million conversations across platforms, had 3 million registered users, and averaged 825 lines of conversation per user per month.
How Do You Ease Your Loneliness on Momo?
Momo's transformation has been slow. Tang Yan and other Momo executives rarely give interviews, and once the "hookup tool" reputation spread, every interviewer asked what they made of it. Each time, their answer was slightly different.
January 31, 2012
"Think about why we went on QQ years ago. Wasn't it to find online friends? And now these people (the critics of 'making friends with strangers') are griping about it. Were men looking for male online friends? Weren't they looking for women too? It's just that nobody uses QQ to find friends anymore."
"I think 70 or 80% of it is men looking for women and women looking for men, but I picture the process as fairly decent: after real communication, people get to know each other and become boyfriend and girlfriend, or even sex partners. Either is fine."
August 3, 2012
"Next, we will invest more in building the brand, change the product to move beyond the rather narrow way of socializing it offered before, and use more tools to keep the community healthy."
August 25, 2012
"The typical Momo user is lonely inside but at the same time has a strong desire to socialize."
December 6, 2012
"We have never stressed that Momo is for making friends with strangers. Perhaps the name has misled some people. To refresh our brand image, we may even change the name in the future."
"In its first stage, Momo's core function is to help people get to know each other, and in this stage Momo has served as an instant-messaging app. The next stage will change the traditional way people get acquainted, organizing relationships between people around places."
October 24, 2013
Momo product director Lei Xiaoliang:
"Momo's only purpose is to help users meet strangers nearby and keep in touch with friends. Every feature we add is meant to give users a richer experience and more choices."
March 3, 2014
"The 'hookup tool' label isn't that important. That's just how news works. It's never going to report that so-and-so met through Momo and became friends. Only when someone meets through Momo and gets raped or killed is it news. Even if only 10% of users are doing that, it gets blown up."
November 10, 2014
"I don't think we're entirely innocent, but we really didn't do it on purpose. Washing off the 'hookup tool' label will take another two or three years. I hope to get rid of it, but it certainly won't happen quickly."
"We want to build an open social platform for everyone. That's right, everyone: men or women, old or young, married, dating or single."
From promoting "stranger socializing" at the start, to working to refresh the brand, to finally accepting the label with resignation, Momo's management redefined the company several times, and each time the product went through a new version.
Version 1.0 focused on making friends with strangers, 2.0 pushed location-based groups, and 3.0 added location-based message boards, completing the shift to an interest community. In 4.0 Momo added a sticker store and paid membership perks and began looking for a business model. The latest version, 5.0, expanded membership features and added a personal star rating for trustworthiness, making the community even more "healthy."
Momo today really is more than a "hookup" app, even though its purpose is still to ease your loneliness. People open Momo for all kinds of reasons, but on it you can find people to play ball with, get tattoos with, bet on the lottery with, or take photos with, and you can find people from your hometown, your line of work, or your age group...
Like Douban Groups, which drew a huge user base by positioning themselves as interest communities, Momo lets you find a group built around almost any interest or trait. But it is faster and more direct than Douban: you know these people are right around you, and you might be able to eat or work out with them right away, or at least chat.
People still open the app because they are lonely, but the ways of dealing with loneliness have multiplied.
At the Nasdaq listing, Tang Yan credited Momo's success to "getting the positioning right," saying "everyone tends to move offline relationships online, and Momo wants to rebuild social relationships on top of the network." Seen that way, Momo may actually be China's most successful O2O (online-to-offline) company: it has successfully moved online relationships offline.
How Will It Make Money?
Momo's future cannot escape the questions of business model and profit. Going public only three and a half years after its birth is a fine start, but it also means the company will now be measured and tested in a mature capital market.
It is easy to predict that from now on investors will have only one question for Momo: when, and how, will it make a profit?
Judging from its roadshow slides, Momo is pinning its hopes of profit on future growth in China's smartphone users and on extracting more revenue from its user base.
On a slide titled "Huge Monetization Potential," Momo divides its business model into three parts: content, users and traffic. Content and traffic will rely mainly on advertising. Besides display ads, Momo will work with Alibaba and 58.com to promote O2O services and become a gateway to offline spending. Besides continuing to push its paid memberships, Momo has found a new source of profit in games. According to an earlier interview with product director Lei Xiaoliang, encouraging users to make friends inside games is the key to getting them to pay.
Momo currently earns 20 US cents per active user, far below YY's US$1.55 and the US$2.50 earned by Tencent's QQ and WeChat. Momo sees that gap as its room to grow.
Overseas markets may also become key to Momo's future profits, with the United States likely the first. Momo has already opened an office in San Francisco to develop an entirely new social network product. During a media link-up at the Nasdaq listing, Tang Yan said, "It is very hard for social software to spread from developing countries to developed ones, but easy to go the other way. So Momo hopes to start in the United States and expand with the mindset of building an entirely new product."
Almost every social network is eventually replaced by a younger one. Having burned through nearly US$100 million in three years, what Momo most needs to do is earn that money back before it goes out of style.
Translated from the original QDaily article. Original publication date retained.