Aug. 26 (Bloomberg) -- Seventeen-year-old Pranav Sahni’s father doesn’t know he has a girlfriend.
That’s because the teenager, who lives in the northern Indian town of Nainital, uses a chat application called Hike on his Moto G smartphone that lets him hide messages. The app was developed through a venture between SoftBank Corp. and New Delhi-based Bharti Enterprises Pvt and competes with Line Corp.’s messaging service and Tencent Holdings Ltd.’s WeChat.
“Most Indian parents want to know what their children are doing with their phones,” said Sahni. “My parents sit behind me on the couch and look over my shoulder. With Hike, I can just close the application and restart and the hidden chats are gone. I don’t have to delete my messages. I can read them whenever I want.”
Smartphone apps that allow free messaging and voice calls have become one of the hottest areas of competition among Internet companies as the services eat into wireless carrier revenue from traditional calls and texts. Hike’s privacy feature helped catapult it past WhatsApp Inc. and Facebook Inc.’s Messenger to the top of the Android download charts in India last month. The free app has more than 20 million users in a market with more than 1 billion mobile subscribers.
The messaging service, in which Tokyo-based SoftBank and Bharti have invested at least $21 million, doesn’t plan to allow advertising and hasn’t outlined how it plans to make money, Kavin Bharti Mittal, who runs the venture’s product and strategy business said by e-mail. Mittal is the son of billionaire Sunil Bharti Mittal, the chairman of Bharti Enterprises.
Chase Coleman’s New York City-based Tiger Global Management LLC, and BhartiSoftbank will together invest an additional $65 million in the app, Hike communications manager Vartika Verma said by phone today. She declined to say what value investors gave Hike in the latest fundraising round.
“India has a big population and low smartphone penetration, so it will obviously become a big market,” Justin Lee, a Seoul-based analyst with BNP Paribas SA, said by phone. “There is no single dominant messaging app player in India.”
WhatsApp, which Facebook agreed to buy for as much as $19 billion, has more than half a billion users globally and had 48 million active users in India as of April, according to Praveen Menon, an analyst with Bloomberg Intelligence. The country is the second-largest wireless market by users.
SMS in Retreat
Services like Hike offer a way for wireless carriers like SoftBank and Bharti to recoup money lost from a decline in revenue from traditional short message service texts, known as SMS, and voice calls, said Rahul Raghavan, a Chennai-based digital technology investor with Ventureast.
“If I’m Bharti, I’m thinking I’m losing all of this SMS revenue, how do I get back in the game?,” Raghavan said. “The answer is I create my own WhatsApp.”
Free messaging services are also taking off in more developed markets such as Japan.
Tokyo-based Line Corp. has almost 500 million users and said second-quarter revenue from its core business more than doubled to 18.2 billion yen ($175 million) as it expands globally. Sales of digital stickers, used to embellish chats, to Line users generates about 1 billion yen a month, a spokeswoman, Hazuki Yamada, said.
The company submitted an application for an initial public offering to the Tokyo Stock Exchange, people familiar with the matter have said.
“Our goal right now is to build Hike into a highway for the Internet,” said the younger Mittal. “We’re currently building our infrastructure, that being our users. We’ll talk more about monetization around the 100 million user mark.”
Hike launched its Hidden Mode feature this summer with a marketing campaign targeted at young people living at home.
“What’s that? A dirty joke?” read one promotion on Hike’s website. “A secret sweetheart? Ooh, late night plans! Hey, we’re not judging. But your mom and dad might.”
The hidden feature allows users to protect messages via a password and is available for phones that use Google Inc.’s Android operating system. Hike will soon release a version for mobiles running Microsoft Corp.’s Windows system. The version currently available through Apple Inc. doesn’t conceal chats.
Forty percent of Hike users are hiding more than one conversation, according to Verma. “The need for privacy is heavily felt in this market,” she said.
Young adults in India often live with their parents until marriage and family homes frequently accommodate several generations.
“As we can see in Japan and the U.S. mobile instant messenger services are one of the most popular apps for smartphones,” Mariko Osada, a spokeswoman for SoftBank, said by phone. “They are also expected to play an important role in the prospective mobile Internet markets in India from now, so we invested in the venture.”
Osada declined to provide a valuation for Hike.
Hike’s platform also allows messaging between traditional texting and smartphones, which is building appeal in India, where about 70 percent of the population still use phones with limited Internet capability, according to PricewaterhouseCoopers.
While 26-year-old software engineer Saurabh Chawla used WhatsApp for years to message his friends and family, he recently moved some conversations to Hike to keep them private.
“I hide my chats from my parents,” Chawla said dressed in jeans and a T-shirt with the words “Nothing 2 Lose” at the entrance of an upscale mall in South Delhi. “I don’t have a girlfriend, but I want one, so obviously I chat with girls. My parents wouldn’t like that.”
Hike could generate revenue through music or games, said Neha Dharia, an analyst with Bengaluru-based Ovum. The service might also follow the route of Line and South Korea-based Kakao Corp., which have tied up their messaging apps with e-commerce platforms, according to the analyst.
The app may expand into other developing markets such as Africa or East Asia and will likely find it difficult to grow in other places where established services already dominate, said Donghwan Oh, an analyst at Samsung Securities.
Twenty-one-year-old Sonal Dhanjal shares a room and bed with her sister in her family’s home in South Delhi and says she downloaded Hike because her younger sister looks at her phone.
“I still use WhatsApp more,” she said while waiting for the subway in New Delhi. “But now everyone is getting Hike, too. You can hide your chats. No other app will let me do that.”
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