Kik gets $50 million from Tencent to become the WeChat of the West

Ted Livingston explains why the Waterloo-based chat service is partnering with the Chinese Internet giant

Kik’s 100-person staff (Kik Interactive)

Kik’s 100-person staff (Kik Interactive)

In the race to be the dominant chat app in North America, Kik Interactive just gained a powerful ally: Chinese Internet giant Tencent, corporate parent of the WeChat messaging app. Waterloo-based Kik today announced that it had closed a US$50-million strategic investment from the Chinese behemoth.

The deal values Kik at $1 billion. Kik has more than 240 million registered users, with a strong base among U.S. teens, some 40% of whom use the messenger.

WeChat (it’s called Weixin in China) is the most successful example of the platform model for messaging, in which users can access products and services from within the chat app itself, with the app provider receiving royalties or a cut of spending in return. It’s a model Kik says it pioneered, and one that Tencent’s investment will help it achieve in full. “For the last four or five years, it’s been about building a core platform that these services could be built on top of,” founder Ted Livingston said in an interview. “But now that we have that it’s about getting some of those services themselves.” That could mean the company makes more acquisitions—Kik bought GIF messaging startup Relay last year—investments in promising services, or partnerships.

The money will also be used to double Kik’s headcount, which numbers 100 employees at present. Many will work on the core chat app in Waterloo, but some will be hired for the company’s service teams in New York, Los Angeles and San Francisco.

Tencent’s decision to build WeChat was inspired in part by the debut of Kik in 2010, and the two companies have had some contact ever since. But the deal came together after Kik launched Promoted Chats, a feature which allows users to “talk” to a branded chatbot.

The same month—November 2014—Livingston wrote a post on Medium entitled “The Race to Become the WeChat of the West,” in which he outlined Kik’s desire to emulate the Chinese company’s success in building a chat platform. He sent it over to the people he knew at Tencent; it was well-received. “We both had this same picture of where chat was going,” says Livingston. “It had taken us about four to five years to come to that same common place where we actually agreed what it was going to be and how it was going to work. I think that got everybody really excited.”

Tencent’s investment is quite the endorsement—it suggests that the original WeChat believes Kik can indeed be the WeChat of the West. Livingston says the deal does more than provide capital for growth. “In some ways it’s very little about the money,” he says. The investments allows Kik to tap into Tencent’s vast expertise in the messaging space.

Tencent isn’t commenting on the deal, but the company may see investing in Kik as a superior alternative to entering the U.S. market themselves. As Livingston points out, messengers like WeChat, Japanese market leader Line and South Korean giant KakoaTalk have all tried to crack North America, to little avail. “At their base, these chat apps are just utilities and commodities—I send you a message and you send me one back,” he notes. “It’s very hard to break in when the only reason people give for using a chat app is ‘That’s what all my friends use,’ and none of their friends use your chat app.” You can’t create an ecosystem around an app with no or few users—no third-party developer wants to build services for an unloved platform.

Thanks to Tencent’s money and nous, Kik’s chat platform could be here soon.