WeChat — The Swiss Army Knife Made in China

One of my favourite companies in the world is Tencent. A Chinese Internet giant which has a presence in nearly every aspect of the Chinese web market, including social media networks, web portals, online games, and e-commerce. The company is, however, most known for its instant messenger service, Tencent QQ, which has later evolved to WeChat on smartphone devices. You might wonder, why am I so interested in just another messaging app?

In October 2015, Julien Codorniou, Facebook’s Director of Global Platform Partnerships said in an interview done by Wired: “We are one percent finished..one day there will be companies built on Messenger and we are the beginning of that ecosystem.” Facebook has enormous ambitions with its chat app, but WeChat has already accomplished everything that Facebook Messenger wants to be. It has made a successful platform that Facebook has strived to have a long time. WeChat touches every aspect of users’ lives — apart from messaging and calling, you can also pay bills, get bank statements, transfer money, book doctors appointments, order food, hail a taxi, check in for flights, recognise music, keep up with celebrity gossip, search for a book at the local library, meet strangers around you, and even donate to charity.

To make a clearer point, here are some of the key comparators:

WeChat Lucky Money — PayPal equivalent — Based on the thousand-year-old Chinese tradition of gifting money in red envelopes. Between 2014 and 2015, 1 billion “red envelopes” were sent through WeChat and 50 million users are sending red envelopes everyday. This service was launched in 2013 and the number of active users is set to double in early 2016.

WeChat for Bills and Payment — Apple Pay equivalent — WeChat can be used to pay for almost anything, with options that go for beyond those seen in the West currently. Through WeChat, users can pay for their water, electricity, gas, broadband, mobile, tax and credit card bills. Users can also enter a store, scan a product’s barcode within WeChat and get a list of the Chinese e-commerce sites that stock the product in question.

WeChat Taxis — Uber equivalent — Book taxis directly in WeChat through rideshare services such as Didi Kauidi in China or EasyTaxi in Singapore. Users can see the driver’s details and location, as well as communicate with the driver within WeChat. At the end of the trip, users can easily pay for the ride through a WeChat payment.

WeChat for Merchants and Brands — Shopify/eBay equivalent — Retailers and brands can easily set up their own shops and start selling on WeChat using Weidian (English name: YouShop). It has opened up peer-to-peer selling on a massive scale, as well as a portal for bigger brands who can directly recommend products and target promotions to individuals.

WeChat for Banking — Ally Banking equivalent — Private bank called WeBank (30% owned by Tencent) which promises to introduce a camera-based facial recognition in the near future for setting up a bank account and approval of bank loans.

The app-within-an-app model

WeChat now has millions of apps within its platform. To compare, only 700 apps are plugged into the Facebook Messenger app and only about 70 of them are visible to the user. The advantages of a platform on an app can result in a better experience for the customer, as they can avoid downloading apps each time. For example, instead of having to download the McDonald’s app, users would add it on WeChat and have access to the functions that a regular app would provide. Developers would also be pleased about this movement to app-within-an-app as it eliminates the need to develop their apps for multiple OS’s. In my opinion, the downside of this model is the process of more clicks/taps to reach a service you want to use. Ev Williams, co-founder of Twitter, argues that the formula for success on the Internet is to “Take a human desire, preferably one that has been around for a really long time..Identify that desire and use modern technology to take out steps.” He would probably be against this movement.

The monthly active users (MAU) measure is what social media companies are looking at in the West, but I think it is outdated. The attention economy is the new currency of business and WeChat’s goal to help users throughout their everyday lives seems to be already successful. Whatsapp, the biggest messaging app in the world, has over 900 million MAUs but in regards to revenue it sits at only $1 USD per user, while WeChat’s average revenue per user is estimated to be above $7 USD with just 650 million MAUs. The key driver to such high revenue is due in great part to WeChat Lucky Money and the possibility to pay bills through the app.

Tencent is leading the world

I am currently reading a book called Civilization by Niall Ferguson which goes through how a few small polities on the western end of Eurasian landmass, beginning around 1500, came to dominate the rest of the world. Mr Ferguson concludes that we are living through the end of 500 years of Western ascendancy. I think I have found a very modern example of this, as there is no other technology that is more closely examined and discussed in Silicon Valley than messaging. A company which has its headquarters in Shenzhen, China, is currently leading the world of big data and the opportunity to capture every point on the demand curve for customers. I do, however, think that Facebook with its Messenger and Whatsapp will still be the messaging giants of the West, but it won’t be simple to copy WeChat’s success.

Tip on how to buy in

Although Tencent is listed on the Hong Kong Stock Exchange, which makes it even more attractive for foreign investors, I would advise another way to own a part of Tencent. Koos Bekker from South Africa bought a 46.5 percent stake of Tencent when it was just a start up providing instant messaging services on the computer. It transformed his company, Naspers, into Africa’s biggest media company and South Africa’s biggest company by value. As a result, the performance of the Naspers has become closely linked to Tencent, with a 98.5 percent correlation between the pair’s share prices over the past five years. The reason for this is because the Chinese market and Tencent’s success dwarfs everything else, even though Naspers has been successful in a number of areas and also has a portfolio of Internet services that covers about 40 countries. If you buy Naspers, you will get a share of Tencent, but also Naspers’ portfolio nearly free on top of that. This is very much the same idea as buying Yahoo! to have a stake of Alibaba.

This has been a fun article to write as I recently started to develop an increasing interest in tech as it is starting to become a bigger part of the world investment indexes. I will most certainly write more about tech companies in the near future and perhaps go through the portfolio of Naspers.

What did you think? Would love to hear your thoughts. And hit that heart button below; it means more people will see this article. =)