Now & Next is a feature written by the ExchangeWire Research team. Every four weeks, we review the latest research, provide impartial insight and analysis of current trends, and provide predictions for the future of advertising and marketing technology. This feature focuses on chat apps.

In recent years, chat apps have gradually replaced text messages as a medium of instant communication. Easy to use, and often with extras such as video, audio or file sharing functionalities, chat apps are among the most popular apps, and used on a daily basis. Reflecting the move to mobile, chat apps have been snapped up by social networks to enhance their offerings – and to provide new platforms for the display of advertisements or implementation of other functionalities that help monetise a service that is usually provided for free.

Chat apps are a channel of communication between registered users of a service that can be directed one-to-one or one-to-many, where messages and calls are transmitted via data connections and the mobile web. Usage of mobile phone messaging apps was projected to reach 1.4 billion users in 2015, up 31.6% year-on-year. This corresponds to a market of 75% of all smartphone users worldwide who use a messaging app at least once a month. eMarketer forecasts that the number of chat app users worldwide will increase to two billion and represent 80% of smartphone users by 2018.

The chat app evolution

Chat apps evolved from instant messaging, the real-time relay of chat messages via the internet. Short messages were initially exchanged between two parties. Some IM applications even provided push technology to show real-time text, i.e. texts that appear on the recipient’s screen character by character, as they are composed. The forerunners of modern chat apps first appeared in the mid-1990s with providers such as ICQ, and AOL Instant Messenger. Other providers jumped on board and developed their own software; (e.g. MSN and Yahoo), using their own proprietary protocol and client that worked within the respective chat network only.

The launch of Jabber in 2000 was a major breakthrough, with the open-source application standardising the Extensible Messaging and Presence Protocol (XMPP). This opened the door to other IM protocols, allowing to run multiple clients. Thus, multi-protocol clients can utilise any IM protocol by simply using additional local libraries for each protocol. In 2010, Facebook entered the messaging world with Facebook Chat, offering IM functionality to their users. Such server-side chat features quickly became ubiquitous on social media – whether it is Twitter, tumblr, or Tinder, the behind-the-scenes, private chat and messaging functionality is a service expected by many users. In reality, these chat features are beginning to replace conventional text messaging via the mobile phone.

No slow-down

Messaging apps are a growth market with no sign of slowing down: according to comScore data on mobile messaging app audiences, Facebook Messenger, GroupMe, and Line saw the most growth between April 2014 and April 2015, with increases of 138%, 92%, and 73% respectively. Facebook Messenger grew from 37.9 million to 90.2 million users in one year, GroupMe almost doubled from 2.7 million to 5.2 million. Line grew from 2.7 million users to 4.7 million users; all other top chat apps increased their user numbers (except Skype and Kik).

However, the messaging landscape is strongly fragmented, with countless instant messenger apps vying for users' attention. Nonetheless, a clear market leader has emerged, with Facebook dominating the market with strong offerings such as WhatsApp and their standalone Facebook Messenger. Combined, Facebook draw a massive one billion monthly users for WhatsApp, with the Messenger close behind garnering 900 million MAUs. At number three in a global ranking of messenger apps, Chinese messenger QQ Mobile racks up 853 million MAUs, an April 2016 study found. This global statistic already reveals that chat app use is characterised by regional differences. While the use of Facebook's offerings seems to span the world, other chat apps are particularly strong in specific markets: The top three chat apps in the US, for instance, are Facebook, Skype, and Twitter. While Facebook also leads in the UK market, Skype is at number three in the British Isles, and WhatsApp is the second most-used chat app. In Germany, on the other hand, WhatsApp is the market leader, followed by Facebook, and Skype. China has come up with their own solutions – not least motivated by the differences in language and script. According to eMarketer, WeChat, QQ, and Sina Weibo are the top three chat apps in China.

Increasingly, other players are entering the chat market, too. Even though founded as a photo-sharing community, where interaction is based on visual communication, Snapchat already stresses the chat element in its name. And with 150 million DAUs, the app is popular particularly among young users. Russian chat app Telegram is particularly strong in its Russian homeland, and in South America, and attracts users with functionalities that are not yet standard in other, ostensibly more popular apps. Widely lauded for its security features – enabling secret chats, for instance – Telegram also incorporates a money-transfer feature that is frequently used by their 100 million monthly active users. These diversified apps, that combine chat functionality with other features, are a force to be reckoned with.

Future

The future of chat apps not only looks bright – but has already started. Services, such as WeChat in China, or Facebook worldwide, are working on expanding the capabilities of chat apps. The magic word is 'chat bots'. Facebook recently integrated service offerings, such as Uber, into their Messenger and introduced Messenger Bots in April 2016. WeChat in China is even a step further: the service enables activities such as online shopping, reserving a restaurant table, or booking a taxi and making an appointment with your hairdresser – all thanks to chat bots that jump in when they detect the intention of the user.

These technological advances provide huge opportunities for marketers. Automated messaging courtesy of chatbots could, and already do, facilitate customer services such as bookings, shopping etc. Based on artificial intelligence and deep learning, they create personalised one-to-one interactions that will not only make communication between brands or merchants with their respective customers easier, it will also push sales as the direct line between brand/seller and user is established, consolidated, and exploited for advertising purposes.

Their advantages are clear: chat bots are invisible, yet ready-made in popular messaging apps. They are always running in the background, ready to jump in as soon as users hint at purchase intentions, or act in a way that allows the bots to offer their services. With low maintenance and automatic upgrades, they do not require any input from the user; and, best of all – from user perspective – is the fact that they are not intrusive like advertising, but add clear value because they offer practical help, and conduct services for them.

Moreover, this currently largely unused marketing channel offers plenty of added value for marketers, too: chat bots are a source of first-party data with a large potential for contextual data thrown into the bag. As soon as the current lack of inventory to this channel has been overcome, marketers will be able to leverage messenger services and add this in-app channel to their cross-device campaigns. Effectively engaging consumers in-app, chat apps are made for targeted marketing, as they have the potential for reaching a huge number of users who are already actively engaged with specific topics and content, and, thus, open to relevant brand messages.

Therefore, bots are the future in mobile marketing. With mobile messaging apps among the most regularly used apps on users' phones, they are already right where brands want to meet their consumers – in the chat apps used daily by customers all over the world.