WeChat: One Messenger to Rule Them All?
Can WeChat Succeed in Building a One-Stop-Shop?
Mobile messaging has become second nature, and as its use grows, features upon features will be created to simplify our lives. Most Westerners have never heard of WeChat, but at 468mm MAUs (as of Q3 2014), it boasts the most complicated suite of features and is quickly becoming interwoven into the daily lives of the Chinese. Beginning as a simple messaging tool in 2011, WeChat can now help users hail taxis, shop online, and even transfer money. With each new update, WeChat is evolving towards a one-stop-shop.
As WeChat makes its run to the top, there are three key hurdles it needs to overcome: (1) To bundle or unbundle? (2) Balance of power among the BATmen (3) Government intervention.
To bundle or unbundle?
Evolution is natural for businesses, but as they bundle together more features, they need to be careful not to lose their core identity. Adding too many features could also render them inefficient.
When Facebook entered the mobile messaging space, it tried to port all of Facebook into a mobile experience and failed miserably. Realizing this was not realistic, Facebook unbundled itself into several standalone apps — Facebook, Facebook Messenger, Paper, etc. To date, Facebook Messenger serves roughly 500mm MAUs worldwide, second to WhatsApp. Line, the mobile messenger most popular in Japan, also compartmentalized offerings into integrated but separate apps to avoid fatiguing user experience.
WeChat’s growth is unparalleled as it leverages its ever-growing user base to gain traction on new products. It has managed user expectations and habits as it grew from messaging to a Swiss army-knife. However, such a strategy is short-sighted and runs the risk of bloating. Think about it — why hail a taxi through WeChat via DiDi Dache if you can do so via the DiDi Dache app (requiring one less click)? Eventually, with all these new products and features third party developers are building into the WeChat ecosystem, WeChat becomes an OS within an OS. Effectively, WeChat could grow its walled garden from a messaging app to an app ecosystem to building its own WeChat phones. But is this the next step?
Conversely, if WeChat doesn’t want to get into the hardware space, it can unbundle and spread screen space onto several apps. Each app will be dedicated to a single purpose, which also increases more room for advertising (WeChat began testing promoted ads on user Moments in January 2015). If WeChat keeps bundling, the limits of smartphone screen size could lead to poor user experience and ultimately WeChat’s demise.
As WeChat bloats, more nimble and focused startups could capitalize on its lack of efficiency and ease.
Balance of power among the BATmen
In China, the internet and digital media space is dominated by the BATmen — Baidu, Alibaba, and Tencent. Each company controls one aspect of the industry. Baidu owns search, Alibaba owns ecommerce and online payments (Taobao, TMall, Alipay), and Tencent owns communication and people (WeChat, Weibo).
In February 2014 during Chinese New Year, Tencent challenged Alibaba’s AliPay (online payment system akin to Paypal) by launching its own payment system, WeChat Payment. Through handling traditional red envelopes electronically, WeChat enabled users to send and receive, after linking their bank cards to their WeChat accounts, virtual red envelopes containing cash. Over 8mm users participated, sending over 40mm envelopes, each containing RMB 10 ($1.65) on average. The event fostered a customer base for Tencent’s online payment services and other apps such as taxi hailing. Despite AliPay launching a similar campaign one month earlier, Tencent’s campaign gained more popularity because of the nature of WeChat as a social platform. However, Alipay is still the pre-eminent epay system in terms of revenue and users.
In May 2014, four months after accommodating users to WeChat Payment, Tencent attacked Alibaba head on by launching mobile stores within its platform. This move enabled in-app mobile shopping experiences and required businesses to create their own stores to target WeChat’s monstrous user base. Furthermore, all user-shared links to Alibaba-owned Taobao and Tmall were banned. While the user experience for mobile shopping within WeChat can’t compare to that of Taobao, it will be interesting to see how Alibaba responds.
In June 2014, WeChat partnered with Sogou to power a search engine where users can find all content generated on the WeChat platform. Tencent acquired a 36.5% stake into Sogou in 2013 and merged its own search service Soso into Sogou. While not in direct competition with Baidu’s search engine, WeChat is broadening its walled garden to include search capabilities.
As ecommerce, search, and communication technologies start to overlap, so will the BATmen’s fight for control and marketshare. To win, perhaps innovation, rather than more features, is key. For example, to compete against WeChat, Alibaba pivoted its search app Laiwang away from person-to-person chat and towards groups. After all, messaging is only one part of the social networking map.
Government intervention
Imagine if you could open a bank account with Amazon, Google, or Facebook. Would you do it? Now, imagine if those accounts were earning 5-6%+ per annum, as opposed to the lowly 1–2% you get at a Bank of America or Chase. This trend in privatized consumer financial services has already begun in China where the BATmen each have funds. However, the real battle is between Tencent WeChat’s Wealth and Alibaba’s Yuebao, who each have captive audiences.
The financial industry in China is innovating, and China’s government is watching closely. In mid-2013, Alibaba launched a personal fund called Yuebao, which teamed up with Tianhong Asset Management to manage over RMB 500bn ($81bn). By selling funds through platforms such as Alibaba and WeChat, fund managers can target savings formerly locked in Chinese banks. Furthermore, Tencent launched China’s first private internet bank in December 2014 with RMB 3bn (~$482mm) in assets. But you’d be wrong if you think the Chinese government is not watching. For example, in March 2014 it banned QR-code based online payments and virtual credit cards, affecting Alipay and WeChat’s usage of QR codes for in-store mobile payments.
The Chinese government has fostered a very systematic way of opening up certain industries to free market forces. For example, with manufacturing, all goods were set at a certain price. Once infrastructure and order was in place, China slowly relinquished control, allowing forces of supply and demand to take over. Once a lower-tier, fundamental industry was functioning properly, China moved upstream. Now, it seems the time has come for the financial industry.
As WeChat grows in power to become the one-stop-shop for Chinese users, it is very possible its growth will become its demise. Oftentimes, when apps attempt to do too much, they risk losing focus and hurting user experience. However, so far WeChat has been able to build useful features into an ecosystem around its core communication tool. If it can continue to do so without losing focus of its core use, strike a balance of power with Alibaba and Tencent, and maintain its relationship with the government, WeChat could very well rule them all.
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