Reliableknowledge.Factsyoucantrust.Insightsyoucanuse.
January13,2016
TencentiscreatingawholeuniverseinitsWeChatapp,andcouldbecomeAsia’spreeminentinternetcompanyindoingso.
AlexZoucan’timaginelifewithoutWeChat.TheHongKong-basedprivatebankerandBeijingnativeusesTencent’subiquitousmobileapptopayhisbills,hailataxi,orderfoodandshop.“Ispendabout40%ofthetimeIusemysmartphoneonWeChat,”hesays.“It’susefultochatwithmyfriends,butit’stheconvenienceoftheotherfunctionsthatmakesitsoimportanttome.”
TencenthasusedWeChattocreateamobileecosystemforChina,whichhasmoresmartphonethanPCusers.Bysteadilyintegratingvalue-addedservicesintotheapp,Tencenthasmadeitincreasinglyusefultobothconsumersandbusinesses.
AnalystsaresanguineaboutWeChat’spotential.NomuraSecuritiesestimatesWeChat’saveragerevenueperuser(ARPU)isatleast$7—seventimestheARPUofWhatsApp,thetopmessagingplatformglobally.
Atthesametime,WeChat’sdisruptivecapacityisformidable.IthashobbledtextmessaginginChina—onceabigrevenuesourceforChina’stelecomcarriers—andcurbedthecloutofSina’sWeb-basedmicro-bloggingserviceWeibo.
WithadominantpositioninChinaandTencent’svastresourcesatitsdisposal,WeChatcouldbecomeoneofthemostpowerfulappsintheworld.
Inearly2011,TencentlaunchedWeChat.Withinayear,theapphadattracted50millionusers,andbythefirstquarterof2014itboasted396millionusersglobally,accordingtodatacompiledbyTencent.
Rather,“WeChatarrivedintherightplaceatthetime—justasaffordablesmartphonesbecamewidelyavailableinChina,”saysJamieLin,co-founderoftheTaipei-basedAppWorksaccelerator—Asia’slargestbystart-upalumni—andanexpertonthemobileinternet.
Critically,TencentmadevoiceinputaprominentfeatureofWeChat,bettingChineseconsumers—manywhohadneverlearnedtotypeonaPC—wouldpreferspeakingtocumbersomeChinesecharacterinput,Linobserves.
“‘Pushtotalk’letmigrantworkersinChina’sbiggestcitiesinstantlyspeaktotheirparentslivingintheremotecountryside,”Linsays.“Allthatwasrequiredwasasmartphoneandinternetconnection.”
ThatwasanearlyexampleoftheinnovativethinkingbehindtheWeChatapp,“thefirsttimevoiceinputwasintegratedintoasocialmediaplatformonthemobileinternet,”hesays.
Tobesure,monetizationhasbeenimportanttoWeChat’smeteoricascent.However,“WeChatwasnotthinkingaboutmonetizationuntil2013,”whenitbegansellinggamesandlauncheditspaymentandofficialaccountplatforms,Liusays.
Indeed,whenWeChatlaunched,China’sotherinternetgiantsdownplayeditsearningpotential,Linnotes.“AlibabaandBaidudidn’ttakeitseriously,”hesays.“Theysaid,‘youwillnevermakemoneyonit;it’sjustfortextmessaging.’”
Howwrongtheywere!WeChathasn’tjustmademoney;it’sbecomethego-tomobileplatformforChina’s667millioninternetusers.
Official,orpublic,accountsareintegraltothesuccessoftheWeChatecosystem.Therearemorethan10millionoftheseaccounts,whichWeChatapprovesafterabriefapplicationprocess.Sincethecostofopeninganofficialaccountislow,theyareavaluableplatformforsmallbusinesses.AndsinceWeChatuserscantypicallycompletepaymentwithoutopeningtheirmobilebrowser,itiseasytomakepurchaseswithintheapp.
TheWeChatpublicaccountKidsbookmamareachedmonthlyrevenueofRMB500,000($78,800)byMay2015,justayearafterlaunching,accordingtoWalktheChat.Managedbyapublisherandwriterofchildren’sbooks,theWeChat-onlyshopisusuallyopenforbusinessjustoneweekamonth.Thatcreatesanimpressionofscarcityandincentivesquickpurchases,whilecustomerserviceisprompt,saysChen.
WeChatcanalsobeapowerfultoolforexistingcelebritiestoboosttheirstarpower.LogicalThinking,runbytalkshowhostLuoZhenyu,isoneofthemostpopularWeChataccountsinChinawith3,500,000followersand30,000paidmembers,accordingtoWalktheChat.
Luoisabletoreachahugenumberoffollowersinstantlywithadailyvoicemessagesentat6:30am.HisfollowersarethengiventheopportunitytobuytheexclusiveitemshesellsinhisWeChatstore.Thoseincludebooks,seatsatprivate-diningevents,artworkanddesignerfurniture,saysChen.Forinstance,“beforesellingabook,heletshisfollowersknowthebookcanonlybepurchasedthroughhisaccount,”shesays.
AnotherpillaroftheWeChatecosystemispayments,usedbyabout20%oftheapp’susers.Thesetupprocessisquick,requiringuserstosimplylinkanATMorcreditcardtotheiraccounts.Oncethatisdone,theusercaninstantlymakeapurchaseonWeChatWalletservices,allofficialaccountsandviaanyassociatedpromotions.
“It’sincrediblyconvenient,especiallyforpayingacreditcardbill,”saysDerekWang,asalesmanagerforanadvertisingagencyinShanghai.“It’sfasterthanpayingviaamobilebrowser.”
TaxihailinghasbecomeoneofthemostpopularaspectsoftheWeChatWallet,buoyedbyitsintegrationwithChina’spopularride-hailingappDidiDache—inwhichTencenthasalargestake.OnceDidiDache—whichlatermergedwithAlibaba-backedKuaidiDachetocreatethecurrentcompany,DidiKuaidi(theappsremainseparate)—integratedwithWeChatinJanuary2014,DidiDachedoubleditsregisteredusersfrom20millionto40million.
Tencentisfurtherdevelopingthefinancial-servicesarmofWeChatwiththeWeilidailoanservice,whichallowscustomerstoborrowuptoRMB200,000withoutguaranteeorcollateral.TheserviceisoperatedbyWeBank,aninternetbanklaunchedinJanuary2015byTencentandChinesefinancialfirms.Withit,Tencentintendstoprovidemicro-loanstoconsumersandsmallbusinesses,towhomChinesebankstypicallyarehesitanttolend,usingdatagatheredfromhundredsofmillionsofhandsetusers,analystssay.
WithaccesstoallthatuserdatacomestheresponsibilityforTencenttosafeguardit.Yetitisquestionablehowwellthecompanyispreparedtocombatcybercrime.InMay2014,cybercriminalsusedabankingTrojanmalwaremasqueradingastheWeChatapptopilferthefinancialdataofChineseAndroidusers.Whenthemaliciousappwaslaunched,apageappearedrequestinguserstoprovidetheircontactandbankinginformation.Thatdatawasthensentbacktoanemailaccountcontrolledbythecybercriminals.
Morerecently,WeChatwasinfectedintheSeptemberhackingattackonApple’sXcodesoftwareusedtocreateiOSapps.Thehackersembeddedmaliciouscodeinthoseappsbydupingdevelopersintousinga“tainted,counterfeitversion”ofApple’ssoftwareforcreatingiOSandMacapps,Applesaid.Aftertheincident,WeChatsaidthatnouserinformationhadbeenstolenorleaked,andemphasizeditspreparednesstodealwithsuchattacks.
Meanwhile,followingformerUSNationalSecurityAgency(NSA)contractorEdwardSnowden’srevelationsofWashington’sspying,peoplearewarierthanbeforeaboutprotectingtheirprivacy.SomeWeChatusersoutsideofChinaworrytheirpersonalinformationissubjecttogovernmentsurveillance.“IdoworrysayingsomethingoffensivetothegovernmentonWeChatcouldaffectmyabilitytotraveltoChinainthefuture,”saysaJapaneseresearcherformerlybasedinBeijingwhodeclinedtobenamed.
AccordingtoWeChat’sTermsofService,“WeandouraffiliatecompaniesmayshareyourPersonalInformationwithinourgroupofcompaniesandwithjointventurepartnersandthird-partyserviceproviders,contractorsandagents…”includingfor“security”purposes.
LinofAppWorksdoesnotthinkthatpolicywilldeteruseoftheappoutsideofChina.“Besides,theNSAiswatchingusersofWhatsApp,”hesays.“Youhavetobecarefulaboutanythingyousayonanysocialmediaplatform.”
AtougherchallengeforWeChatwillberecalibratingitsChina-centricplatformforaglobalaudience,analystssay.Afterall,competitionisnilathome,whereChina’sGreatFirewallmakesitdifficulttoconsistentlyaccesstopglobalmessagingappsfromLinetoKakaoTalktoWhatsApp.
NothavingtofaceforeignmessagingappsathomemeansWeChatislesspreparedtodealwiththemontheirhometurf.“Intheshortterm,WeChatwillhaveahardtimecompetingwithlocalchampionssuchasJapan’sLine,SouthKorea’sKakaoTalk,India’sHikeandtheUS’sWhatsApp,”Liusays.
Indeed,outsideofChina,WeChatseemsbestknownamonginternationaluserswithaconnectiontotheMiddleKingdom.Thoseusersfindtheapphandymostlyforitssocial-networkingfunctions.
PhilipTomlin,aBritishmarketresearchanalystbasedinLondon,saysheusesWeChattokeepintouchwithfriendshemetwhilelivinginChina.“AlotofthemarenotonFacebookandWeChathasthe‘timeline’functionsoit’seasytoseewhatthey’vebeenupto,”saysTomlin,whoworkedinShanghaifrom2011to2014.“IntheUKthough,it’snotamainstreamappyet.”
EveninChinese-speakingTaiwan,WeChattrailsmarketleaderLinebyaconsiderablemargin.JayLin,aTaipei-basedsoftwareengineer,attributesthattotheTaiwanesedislikeofvoiceinputandaffinityforJapanesebrands.“MostTaiwanesearereservedandprefertotypeonmessagingapps,usingstickers[ofwhichLinehasmanymorethanWeChat]toexpresstheiremotions,”hesays.“AsaJapanesebrand,LineismoretrustedherethanWeChat.”
Still,WeChatremainsdeterminedtoexpandinternationally.InHongKong,ithasfaredbetter,buoyedbythecloselinksbetweentheformerBritishcolonyandtheChinesemainland.WeChatistheNo.4socialmediaplatforminHongKongwitha23%marketshare,behindFacebookMessenger,FacebookandWhatsApp,accordingtoaMay2015reportcompiledbytheHongKong-basedwebdesignfirmGo-Globe.
“IuseWhatsAppformydailycommunicationallovertheworld,whileWeChatisimportantwhenweneedtocommunicatewithfriendsandbusinesspartnersinChina,”saysPatrickChan,DirectoroftheHongKong-basedmediaservicescompanyKenetMedia.“WeChatisagoodchannelformarketingonthemainland,”headds.
WeChathasdoneevenbetterinMalaysia,whereithasa95%smartphonepenetrationrate,accordingtoMarketingMagazine.LocalinitiativesareakeypartofWeChat’ssuccessintheSoutheastAsiancountry.ThoseincludeworkingwithMalaysiandesignersonlocalizedstickersandusingtheappastheofficialplatformforvotingandinteractionwithfansonentertainmentsites.
InSingapore,WeChatisworkingwiththeride-hailingserviceEasyTaxi.Thelaunchinthesummerof2014wasa“tremendoussuccess,fueledbythesamekindofpromotionaldiscountsthathelpedWeChatbecomeapreferredserviceforbookingtaxisinChina,”WalktheChat’sChensays.ThatstrategyhelpsWeChattobothboosttheusagerateoftheappanditspaymentsystem—whichiscrucialtomakingitprofitableinthelongterm,sheadds.
WeChat’sglobalventuresremainatanascentstage,butitlooksunstoppableathome.Theapp’somnipresencecanbeexplainedinpartbytothe“networkeffect”,accordingtoMichaelWu,anequityanalystatMorningstarResearch.“Combiningmassivescale,strategicvision,andtop-notchexecution,”WeChathasbeenableto“monetizeitspopularityintoalucrativebusiness,”WuwroteinanOctoberresearchnote.
Fornow,“Alibabadominatese-commerceinChina,”acknowledgesChenofWalktheChat.“Tencent’shistoricallybeenstrongerinsocialmedia.”
Still,thatcouldchange.Foronething,Alibabahasstumbledinmobilebefore.ItsfirstmobilemessagingappLaiwangwasafailure,arrivinginthefallof2013whenWeChathadalreadybecomedominant.Laiwangfailedtoaccumulatealargeuserbase,whileWeChathasonlycontinuedtogrow.
ChenbelievesthevibrantecosystembuiltaroundWeChathasbeencriticaltoitssuccess.ThatecosystemallowsTencenttoleveragetheresourcesofallthecompaniesproviding“off-the-shelfservices”foritsplatform,enhancingtheuserexperience,shesays,adding:“ThisecosystemismuchmorelimitedforAlibabaandAlipay,andgrowingatamuchslowerrate.”
Inearly2014,US-basedLinkedIn,theworld’slargestprofessionalsocial-networkingplatform,becameWeChat’sfirstmajorglobalpartnerinChina.ThepartnershipmadeitpossibletoaccessLinkedIn’sjobhuntingandrecruitmentfunctionsthroughtheWeChatapp,whileLinkedIngaineddirectaccesstoChina’spreeminentsocialnetwork.
TheWeChatecosystemisfurtherexpandingastheappmovestotaptheemergingInternetofThings(IoT)throughitsopenhardwareplatform.AsofAugust,WeChathadgrantedfreeuseofitspublicplatformtoover2,400manufacturersofintelligenthardwareandmanymillionsofindividualswhousetheappforsocialnetworking.
GivenWeChat’subiquity,exclusionfromtheplatformcouldcrimptheprospectsofbusinessesinChina—particularlythosethatrelyonsmartphones,analystssay.TheUSride-hailingappUberfacesthatpredicament,afterbeingbannedfromWeChatearlierthisyearfollowingthemergerofrivalappsDidiDacheandKuaidiDache.
“WeChat’sbanonUberislikelytohaveaprofoundimpactonUber’sgrowthinChina,especiallyinthelower-endsectoroftheride-hailingmarket,”saysLiuofMIC,addingthatDidiKuaidialreadydominatesthatmarketwithacombinedshareofmorethana90%.Uber’sbestbet,shereckons,istotargetthehighendofthemarket—especiallyforeignbusinesspeople—whereDidiKuaidiisnotasstrong.
Anddespiteitstravailsexpandinginternationally,WeChat’sglobalprofileisrising:Westernmessagingappsarenowironicallyborrowingsomeofitsmostinnovativefunctions.“WeChatisinfluencingWesternmessagingapps,pushingthemtowardsocialcommerceandplatformintegration,”saysWalktheChat’sChen.Forinstance,FacebookannouncedinAugustthatitwillimplementsomeofthefeaturesWeChatpioneeredinmessagingappsinitsownFacebookMessenger,includinggames,paymentandpermittingbusinessestoprivatelycommunicatewithcustomers.
Thosechangesareoverdue,LinofAppWorkssays,notingWeChatremainswellaheadofitsWesterncounterparts.Facebook’sfirststabate-commerce,theill-fatedGiftsplatform,failedtogeneratesubstantialrevenueforthecompanyandwasshutdowninJuly2014afterlessthantwoyearsofoperation.
“Eventually,it’sgoingtobepossibletoleaveyourwalletathomeinChinaandpayforjustaboutanythingwithWeChatonyoursmartphone,”Linsays.“It’sgoingtohappeninChinabeforeithappensintheUS.”
Tencent,meanwhile,issettobecomeAsia’smostpowerfulinternetcompanyonthebackofrisingadoptionoftheWeChatplatform.HSBCreckonsWeChatisworthapproximately$83.6billion,orhalfofTencent’smarketcapitalization.
Toputitcandidly,“withoutWeChat,Tencentwouldhavebecomeirrelevantbynow,”Linsays.
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