Why chat app Kik is doing an ICO

Facebook’s global head of sales, Carolyn Everson, revealed on CNBC this week that Instagram Stories now boasts 250 million daily active users. That number means Instagram Stories is crushing Snapchat Stories, the feature it directly copied, which has 160 million daily active users. Instagram Stories first surpassed Snapchat Stories in April, just four months after it launched, and now, six months after launch, it has extended its lead.

That’s bad news for other small tech startups—even those that aren’t direct competitors to Snapchat and Instagram. It’s proof that big, powerful tech giants like Facebook can copy a hot feature or broad strategy from a small competitor and quickly scale and outdo them thanks to their massive built-in user base. Google did it to its search predecessors. Google and Apple have been doing it to each other in smartphones for years. Amazon did it to brick-and-mortar bookstores.

“Copied and crushed,” as Ted Livingston, CEO of Kik Messenger, puts it. Copied and crushed, indeed. And Kik, an early text messaging app that amassed 300 million users, desperately wants to avoid being the next victim. So it’s turning… to cryptocurrency.

“These big companies are increasingly monopolizing digital services,” says Livingston. “It’s getting harder and harder to compete. We’re seeing this consolidation into just a few big, bland services. Even if you’re Snapchat… you’re saying, ‘What are we going to do?’”

Livingston blames a gap in monetization ability as the biggest factor. Entrenched, powerful tech giants like Google and Facebook are the only ones who have a size that allows them to sell ads on their platforms while keeping their core services free to users. Smaller players are stuck with a dilemma: plaster their app in ads that might alienate new users when they’re still in growth mode, or don’t sell ads and scratch your head over how to bring in revenue.

Hence: cryptocurrency. Kik plans an ICO (initial coin offering) in which it will sell a supply of its own digital token, kin, in exchange for ether, the token of the blockchain network Ethereum.

An alternative to venture fundraising

In an ICO, a company launches an open sale of its own coin or token in exchange for an existing cryptocurrency. You could buy 100 kin coins and pay in bitcoin or in ether.

It is a high risk strategy, but it is the hottest new workaround for tech startups to raise capital instantly without having to do a new venture funding round. (Indeed, Kik has already raised quite a lot of venture funding the traditional way: $120 million to date, including $50 million in 2015 from Chinese tech giant Tencent; Kik is a billion-dollar-valued “unicorn.”)

Livingston says he’s been interested in cryptocurrency since way back in 2011.

In 2014, Kik experimented with something akin to digital tokens: it added Kik Points in an attempt to “build an economy inside of Kik” and Livingston says it resulted in a huge spike in transaction volume on the app. “Was it a cryptocurrency, not a cryptocurrency? They didn’t know, they didn’t care,” he says. “All they knew was when they provided value they earned Kik Points, and when they wanted to spend value, they spent Kik Points.”

Kik users will earn and spend kin

While Kik started as a simple chat app, it’s more of an open platform these days, with service bots, stickers, and all manner of virtual goods. Livingston hopes that kin coin can become the de facto currency of the Kik realm, the grown-up version of Kik Points. Kik users could pay in kin for rewards on the app, and developers could receive kin in order to build bots and other services on top of Kik. “I could host a great group chat, I get paid in kin, and then I can buy a sticker and spend kin,” Livingston explains.

While Kik is betting big that going crypto can help it monetize and compete, some might say that Kik already got copied, or beaten, by apps like WhatsApp or Snapchat. Kik predated Snapchat by a year (it launched in 2010) and came one year after WhatsApp, but Livingston last year acknowledged that Kik’s growth has plateaued. And despite 300 million registered users, Livingston says the number of active monthly users is just 15 million—much smaller.

Kik’s core user base has always been teenagers, and teens today have more options than ever for apps that offer chat, photo, and video sharing: Instagram, Snapchat, Facebook, WhatsApp are simply the best known.

So it might be too late for Kik to regain a foothold, crypto or not.

Nonetheless, Livingston is all in on the ICO.

Disclosure: The author owns less than 1 bitcoin, purchased in 2015 for reporting purposes.

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Daniel Roberts closely covers digital currency and blockchain tech at Yahoo Finance. Follow him on Twitter at @readDanwrite.

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