Bengaluru/Mumbai: Messaging app Hike Ltd is in talks to raise a new round of funds from China’s Internet giant Tencent Holdings Ltd as it seeks to catch up with market leader WhatsApp in one of the largest markets in the world, two people familiar with the matter said.

Mint couldn’t ascertain the exact size of the proposed round, but the two people cited above said Hike will raise at least $100 million. Hike’s existing investors Tiger Global Management and Bharti SoftBank may participate in the round, the people said, speaking on condition of anonymity, as the talks are private.

Indian smartphone users haven’t taken to Tencent’s WeChat messaging app, prompting the Chinese company to explore talks with Hike, which is seen as the local app that can best compete with Facebook Inc.-owned WhatsApp, the two people cited above said.

“Tencent came to India on its own and invested several million dollars in advertising and promotion, but was unable to make any dent in the market. Given that, it thinks partnering with a domestic player gives it access to a captive customer base that it can leverage. It has identified India as a key market for growth," one of the two people cited above said.

Hike and Tencent didn’t respond to emails seeking comment.

If the deal between Hike and Tencent goes through, it will represent another instance of India becoming the next frontier for a war between Chinese and American Internet giants. After dominating their respective home markets, online retailer Inc. and cab-hailing service Uber are desperate to establish themselves as market leaders in India. At the same time, three large Chinese firms, Alibaba Group, Tencent and Didi Chuxing are funding Indian start-ups to keep their American rivals at bay in the world’s last big Internet market.

Over the past year, Alibaba has invested in two Amazon rivals, Snapdeal and Paytm. Alibaba has also held talks to put money into another Amazon rival, Flipkart, Mint reported on 4 February. Chinese cab-hailing service Didi Chuxing picked up a stake in Ola last September to help the Indian company take on common enemy Uber.

Within a year of its launch, Hike became one of the most popular messaging apps in India. Over the past two years, however, it’s been overtaken by Facebook. According to a study by research firm TNS, released in October, WhatsApp emerged as the most popular messaging app among Indian Internet users, followed by Facebook Messenger. While the survey isn’t definitive—its sample size was 5,306—there’s little doubt that WhatsApp is currently the most popular messaging app in the country.

Hike, which was launched in December 2012 by Kavin Bharti Mittal, son of billionaire entrepreneur Sunil Mittal (chairman of Bharti Enterprises), has raised roughly $90 million from Tiger Global and Bharti SoftBank, a joint venture between Bharti Enterprises and Japan’s SoftBank Corp.

In January, Hike said it has more than 100 million users, of which more than 90% are in India. Hike launched its games offering in March. Tencent, too, has a portfolio of games, commerce, content and messaging apps but it is much bigger than Hike.

Messaging apps have to perforce look at commerce and games to increase revenue.

“To significantly scale up direct revenue stream from consumers, such as subscription revenue, will be a challenge for most messaging apps in India. There will be only a limited number of customers who will be willing to pay for premium services, given the price-sensitive nature of the Indian market," said Sandeep Ladda, leader, technology and e-commerce, PwC India.

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