Token Sale

Kin Token Sale: A Decentralized Challenge to the Tech Oligarchy?

What is the Project?

Kik has announced its plans to create and integrate its own cryptocurrency, the first billion-dollar, multi-million-user company to do so. Kik, founded in 2009, is one of the leading messaging platforms amongst the teenage and young adult market, particularly in the US, with over 15 million monthly active users and above 250 million messages sent per day. However, Kik does not have the mass audience of Facebook, Google, or Snapchat to generate substantial amounts of revenue from selling advertising or customer data. Nor do they intend to monetise from reselling their customer activity and data.

Kik’s executive team has made clear its desire to find a new way to generate revenue from social media outside of the existing revenue streams which, due to economies of scale, are gradually becoming monopolised by the tech giants. The proposed cryptocurrency, Kin, will become a foundation of Kik’s transformation to a decentralised digital services business model as the team attempts to reshape the sector and take on some of the world’s largest tech companies.

The name of the currency, ‘Kin’, has been created to signify a new family of interconnected apps  located within a larger, unified ecosystem. Kik will be the first app to adopt the Kin currency. Kin will natively integrate into every Kik user’s wallet. By providing millions of users with a Kin wallet, the Kin team believe that the token could become one of the fastest cryptocurrencies to be adopted by a mainstream audience.

Project and Technology Status

Kik’s recent announcement of the Kin currency was preceded by several years of testing and research. Kik CEO Ted tLivingston stated that consideration of a cryptocurrency business model began soon after the growth of Bitcoin in 2011, inspired by the idea of creating an economy where people could natively earn and spend digitally within Kik.

Kik added Kik Points in early 2014 as an experiment to assess consumer willingness to transact in-app. The Kik Points could be used to buy exclusive content, such as emojis,  artwork, and stickers, which could then be sent to friends. In addition, bots were a common Kik expense, with one popular bot being the ‘Secret Admirer’ bot, which sent anonymous messages with varying levels of assurance depending upon Kik Points spent. Meanwhile, Kik Points could be earned by chatting with a Kik bot and watching advertising videos from Kik sponsors.

Between early 2014 and late 2016, when the project was sunsetted, users completed 253 million offers and spent their points earned on 74 million purchases.

The Kin Token

Similar to Kik Points, users will be able to spend Kin on a range of content produced by independent developers. The Kin whitepaper gave some use-cases for the currency on Kik, such as bidding to join VIP chat groups with celebrities, interacting with premium bots, and unlocking exclusive content. Bots, emojis, and stickers are likely to be the main drivers of growth on the platform for content producers.

In the future, other digital services are envisaged to use Kin across different apps. Jake Brukhman of Coinfund, a fund acting as a consultant to Kik, suggested in the Kin slack that it is up to the service providers themselves to decide how they integrate Kin. Some may choose to build models around transaction fees for their content; others may prefer speculative economic models or sharedrops.

This is a significant shift from the existing business models of other digital services such as Instagram, YouTube, and Twitter. These companies rely on the promotion of free, popular content, then amassing revenue from advertisers who purchase exposure to the views generated. Kin, however, will enable all content creators to generate an income relative to their popularity, without relying on advertising. Developers benefit directly from the volume of transactions generated by consumers, rather than indirect advertising income.

The rewards for content producers will be calculated by a central Kin Reward Engine, which is to be initially administered by the Kin Foundation. This engine will introduce a Kin daily reward to stakeholders according to an algorithm which directly reflects their proportional contribution to the ecosystem. Although the foundation will initially be centrally governed, it intends to guide Kin’s transition to a decentralised and autonomous network.

While Kik will be the first company to integrate Kin, the Kin foundation aims to make Kin the first and foremost cryptocurrency in digital services. In the future, other digital services providers may integrate Kin as a way to incentivise contributions from content providers.  

Token Sale

Ten trillion Kin are to be created on a fixed-supply basis for use in everyday digital services within the Kin ecosystem, with Kik as the first platform. The whitepaper implies that the Kin team has every intention for Kin to be used across various forms of digital services, although Kik does appear to be the only member pre-ICO. It will be implemented on the Ethereum blockchain as an ERC20 token, with every Kik account having an integrated currency wallet.

Ten percent of these tokens – 1 trillion Kin – will be allocated to the ICO with proceeds to used acquiring content creators via marketing and deploying the Kin foundation. 3 trillion Kin will be allocated to Kik, with 10% vesting per quarter for 10 quarters. The final 6 trillion will remain secured within the Kin Rewards system as part of their strategy to reward popular content producers, releasing 20% of the Kin rewards’ remaining supply in perpetuity per annum.  As the charts below illustrate, token creation will be heavily front-loaded, but given the large percentage granted to Kik itself as well as ICO investors–both groups that can reasonably be expected to be relatively stable long-term holders of the tokens–it’s possible or perhaps even likely that an overabundance of tokens  will be avoided during the initial years while the network is establishing itself.

The Kin Reward Engine will release a certain amount of Kin every day as a reward to developers. Initial statements seem to suggest that the reward will start at about $100,000 per day, increasing over time. For developers, their reward will be directly proportionate to the volume of Kin transactions related to their apps.

The Team Behind the Project

The Kik team is playing a central role in the development of the Kin currency. The company has been testing the idea for some time, with Kik CEO Ted Livingston serving as one of the central drivers for the transition to decentralisation.

Kik, incorporated in 2009, is an instant messaging platform that is primarily used by teens in the United States. Although its growth has not been equal to that of some other well-known social media companies over the last few years, it has still raised over $120 million dollars since January 2010. The last ‘Series D’ round in August 2015 raised $50m and was led by Tencent Holdings, owner of the hugely successful Asian messaging app WeChat, at a valuation of $1bn.

Despite their background in instant messaging technology, the Kik team has contracted the help of blockchain specialists to develop Kin. Coinfund and Cointree have partnered with Kik to add technical expertise to the project, and their teams should provide the necessary technical proficiency to a Kik team which lacks blockchain experience.

Cointree is an Australian Exchange site to buy and sell Bitcoin, founded by Uriel and Daniel Peled. Both founders bring significant expertise to the project. In particular, Daniel Peled founded a company called GetGems in 2014 which had a very similar premise to the Kin/Kik model, although the project fizzled out and the team shifted to work on a keyboard-based payment solution called PayKey. Paykey, a Fintech company that allows banks to provide P2P payments through social and messaging apps, raised $6m in late 2016. Both projects show that Daniel has been an early advocate of integrating digital payments with social platforms, making him well-suited to the Kin project. Coinfund, a Blockchain technology research and investment vehicle, has been highly involved, with Jake Brukhman taking a lead in the project. Jake has had previous roles in quantitative data research for the financial sector, as well as being a product lead at Amazon.

Kik also has some notable investors behind them who are active in the development of Kin. Union Square Ventures is one of their backers, with Fred Wilson being one of the leading proponents for cryptocurrency and tokens. Tencent is also one of the key investors in Kik. They may be attempting to use their knowledge of the Chinese market – namely WeChat –and applying it to Western companies.

Market Analysis

The Universe of Messenger Apps

Kik faces substantial competition in the instant messaging sector. In the US, Facebook dominates the space through the  Facebook Messenger as well as its $19 billion acquisition of Whatsapp.

Over the last few years, Kik’s growth has stalled compared to the phenomenal growth of both Whatsapp and Facebook Messenger. Even Snapchat, founded after Kik, has grown to similar user volume. See Figure 1:

Figure 1: User Growth of Instant Messaging Apps (millions)

In addition, Kik has struggled to monetise. Figure 2 shows estimates of 2016 revenue for the leading US social messaging platforms. Kik lags significantly behind the others. One particularly stark contrast is between Kik and Snapchat. While Snapchat has successfully monetised its platform, Kik still only earns revenue in the tens of millions, which is a very small revenue per user.

As seen in the next chart, a rough estimate of Kik’s Average Revenue Per User (ARPU) can be calculated at about $0.15. When compared to Facebook’s North American ARPU of $19 in Q4 2016, or WeChat’s estimated $7 ARPU, it is clear that Kik’s revenue is substantially below peer platforms.

We can see here total revenue numbers for the different platforms. Kik has a similar number of users to both Twitter and Snapchat, but it is considerably behind these tech giants in terms of monetisation.

  1. Digital Services Startups on the Blockchain

Unfortunately, Kik’s competition is not limited merely to the established tech behemoths. Other start-ups are also applying blockchain to the digital services sector, potentially challenging Kik from a different perspective. A team began developing Echo in early 2016 – a P2P messaging and payment platform. The founder, Christoph Hering, claims on his LinkedIn that “Echo combines the best features of WhatsApp and PayPal.” However, it appears to have not progressed far since 2016. The website shows that users can only sign up for Alpha Release.

More recently, Status raised over $100 million in under 24 hours during its ICO. It claims to be an “open source messaging platform and mobile browser to interact with decentralised applications that run on the Ethereum network.” The team allows users to access Dapps, send encrypted messages, arrange smart contracts, and transact digital currency to other users. They also allow developers access to their chat API and the ability to add their own Dapps.

Post-ICO, Status now has the funds to begin investing in a rival ecosystem to the one Kin also envisages. Status has already hosted a Hackathon to incentivise developers to find innovative new ways to use the API. The winner was an app called “WhoPays”, a new way to track expenses. While Status will have an empty canvas to take more risks and integrate some of the most cutting-edge Dapps, and arguably will appeal to blockchain purists as a company that was founded with the original intention of functioning as a decentralized entity, developing a user base from scratch within an already crowded market represents a serious hurdle.

In terms of evaluating potential competition from blockchain startups such as Status, Kin faces a different set of challenges than trying to compete with the entrenched tech leaders. While on the one hand a project such as Status faces a substantial hurdle simply in developing a user base equivalent to Kik’s, it may be that a native blockchain project is able to move more rapidly and to attract an audience specifically interested in a  decentralized, rewards-based community able to integrate the newest Dapps more quickly than Kin is able to transition its existing users to a new model. This question, however, when considered alongside of the substantial challenges Kik faces from the major tech leaders, only serves to illustrate the range of critical questions surrounding Kik, its token project, and its tokenized model.

Key Areas for Kin Growth

Bot Integration

Both Facebook and Kik have been increasingly using bots as a way to generate revenue. Ted Livingston claims to have 187,000 bots on the Kik platform, which he suggests could be more than Facebook, although Facebook’s bot figures are undisclosed.

Some see chat apps as the future of the internet, similar to what apps were when Apple introduced the iPhone App Store in 2008. One only has to look towards East Asia to see the predominance of chat apps in their tech ecosystem, where bots are used as a way to pay for services without having to browse the web.

Although still a fledgling technology, there are multiple ways to monetise bots. H&M and other retailers have used bots on Kik as a new way to market products. Instead of the typical one-way communication, retailers can now create a two-way dialogue to market products in a more conversational manner.

As they become more sophisticated, chatbots could also be used as paid advisors or conversationalists. Microsoft developed a chatbot for the Asian market with a distinct personality called Xiaoice which now has over 40 million users. These bots aren’t just a cultural phenomenon unique to East Asia; Smarterchild chatted with over 250,000 in the early days of AOL and Windows Live Messenger. Now, there’s reason to believe that these advisory bots could make a return as a premium part of the Kik ecosystem, allowing users to chat with bots that have smarter and more unique personas than Smarterchild had, with replications of celebrity personalities, or a range of other possibilities.

The greatest hurdle to growth may have previously been that the youth demographic has less access to traditional payment methods to consume bots’ services. This is why Kin could be so effective – giving younger users (and others) the ability to make payments without the need for a credit card or bank account avoids any initial obstacles to product fit.

Monetising Emoticons and Chat Features

LINE in China reported a staggering $268 million in sticker sales in 2016 amid Asia’s messaging boom. Stickers are an increasingly popular part of social media, combining detailed illustration and pop-art with emojis. Instagram and Snapchat have both added stickers to their features, which have been particularly popular amongst their users.

Kik points validated the popularity for in-app emoticon purchases, so now Kin could provide a way to monetise these transactions by allowing people to buy exclusive stickers to share with friends and peers. LINE generated over $1billion in revenue during 2016, of which over 25% came from sticker sales, with an ARPU of $5. If Kik can use Kin to create a similar revenue per user and payment ecosystem for digital services, then it could easily break the hundred-million-dollar threshold.

Data Privacy

Since Kik does not aim to monetise from advertising nor the sale of customer data, it contrasts hugely with the growing monopolisation and sale of data by the tech giants, particularly Facebook. By providing a digital messaging platform that values privacy, it gives consumers a private alternative, while also providing the Kin ecosystem with a genuine USP.

In Kik, users create a unique username, which is not linked to a device or identity. This contrasts with Whatsapp, which is connected to a phone number, and can therefore be linked to a Facebook identity. Kin will allow social messaging payments and content consumption to occur within the Kik ecosystem while maintaining anonymity, which Whatsapp and Facebook Messenger are currently unable to provide.

Conclusion

With the successful conclusion of Kik’s presale last week, quickly raising $50 million before the upcoming $75 million public ICO, initial questions regarding the project’s prospects, and its appeal to investors, appear to have been substantially addressed. A number of additional questions, as well as points of potential significance, nevertheless make the Kin sale an ICO worth following, both for investors in the project and observers of both the tech and blockchain sectors more broadly.

One question concerns the capacity of relative upstarts to thrive within an increasingly centralized universe of web-based social and communication apps. Within the shadows of Facebook, can a company such as Kik, with a user base measuring in the millions–large by any measure–yet with modest revenues and ARPU, realistically hope to compete, or even to survive? (And if this question must be asked of a company of the scale of Kik, what are the odds for an emerging company in the face of this competition?)

By creating a decentralized ecosystem within which Kik can operate, where, as Ted Livingston describes, Kik’s interests will be perfectly aligned with both its users and those of developers operating on its platform, the company has developed a novel response to the prevailing model within the elite oligarchy of dominant tech firms. While Kik is not alone in pursuing this approach, as mentioned above, an easy argument can be made that Kik transitioning its existing 300 million users to a blockchain-based system is fundamentally different than a company developing its system from scratch. But as the introduction of the Kin token will allow Kik to assume a new role closer to that of a participant in decentralized platform, and to become the center of a new digital services ecosystem, it offers an unprecedented way of attempting to compete with the top ranks of tech leaders. It also transforms Kik almost overnight into the first distributed company to have a user base measured in the millions. The Kin token spreading rapidly from this lofty starting point, elevating the network and attracting additional users, developers, and related businesses even as the value of the tokens is bolstered as a result of increased activity on the network, suddenly becomes much less difficult to imagine. Kik’s success in this regard would thus be highly significant in illustrating how blockchain based, decentralized projects can challenge the position of entrenched, even iconic, oligarchy of dominant tech companies.

Another important question concerns the mechanics of the Kin token. Even in a context where Kik grows its user base while generating demand for the Kin token, the underlying economics of the token itself, where 20% of the initial 6 trillion of reserved tokens will be released annually, challenges Kik to develop in a way that creates, and sustains, demand for the substantial quantity of tokens to be distributed by the reward engine. This challenge is inseparable from the question of whether a tokenized crypto economy will appeal to a teen demographic, and requires consideration of whether this community could drive the required value creation. Seen optimistically, however, the idea of a participatory community rewarding users for their participation and attention may, in fact, be ideally suited to teens who often have more time and energy than money. In an ideal scenario–one clearly imagined by Kik’s leaders–Kik might even parlay this base with a teen audience into the centerpiece of a developing participatory network expanding across a range of activities and ultimately developing far beyond the influential teen community in a manner imagined in the above paragraph. The answer to these questions will likely be central to the success of Kik and the Kin token.

Finally, lingering slightly beneath the surface of a world where users and their information and activities are increasingly tracked and monetized, and where users often seem to have lost all interest in even lamenting the loss of privacy and control over their data, might Kik’s approach to respecting customer privacy eventually emerge as a position to be widely appreciated and embraced? Particularly when the emerging ecosystem the Kin token aims to create promises to attract users based upon the merits of its participatory model that rewards users, one wonders whether the “bonus” reward of offering privacy and control of one’s data as an additional perk might not unleash a larger, longer-term process ultimately leading to a greater appreciation of, and demand for, users retaining control of their data. Of particular interest will be to observe how the dominant companies on the tech scene respond to this a unique challenge. Those companies surely have the resources to engage with Kik and its Kin token should Kik and Kin begin to find traction in their approach. Ironically, however, doing so would undermine precisely the position of dominance that has allowed them to grow to the positions they currently occupy.

However the story of Kik and its ICO unfolds, the answers to these questions promise to have a significance far more greater than the fate of the Kik network and whatever value is attached to the Kin token.

 

Primary authorship of the article rests with Sam Dooley.

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