Tencent Lets WeChat’s Rapid Growth Do the Talking

Tencent Holdings Ltd.’s free messaging service, WeChat, has seen its popularity grow among both individual users and businesses, even amid a dispute with the Big Three telecom operators [China Mobile, China Telecom, and China Unicom].

Since launching in January 2011, WeChat, the mobile text and voice messaging application, now has more than 300 million users. The rapid growth has caught the attention of various businesses seeking to explore opportunities on the platform.

Guan Peng, the chief executive officer of Internet service provider China35.com, said: “WeChat will be a gateway to mobile Internet. There will be many opportunities for third parties by opening a public account.”

Since WeChat launched public account services for business in August, it has attracted a large number of companies, such as media outlets, retailers, and e-commerce providers who use the platform for promotions or to offer services to customers.

Dong Jiangyong, co-founder of Venture Capital Fund, said that with further development of WeChat’s Application Programming Interface (API), which enables marketers to automate many functions with their subscribers, WeChat will offer more business opportunities.

However, Tencent has not established a clear business model for WeChat. Tencent said it has been exploring ways to balance all the business activity and the user experience.

“Both the developers and WeChat are seeking better coordination and balance,” said Du Minglun, an investment head of Innovation Works, an incubator for tech start-ups.

Ma Huateng, chairman and CEO of Tencent, said: “There are various ways to use WeChat. Some are created by users and we never thought of them.”

Ma said the most mature business model on the WeChat platform is the value-added services provided to the mobile online community and gamers, but there was still lots of room for innovation.

However, pressure from telecom operators has caused uncertainty for Tencent and WeChat. The Big Three telecoms want to charge the app because of the bandwidth it uses, causing speculation that the popularity of WeChat will be hurt.

A New Battlefield

Zhao Fei, founder of Web game developer Beijing Leiyoo Information Technology Co., said his team benefited from WeChat. Leiyoo, which opened its account in February, gives its followers quick access to mobile games. Zhao said the company added 8,000 new users in one month at no cost.

Zhao expected interaction with users to improve as the WeChat platform developed, which will enable its company to offer more diversified services—and profit models.

WeChat has been working on the development of new functions for enterprise accounts, Ma said. But another company source said that except for mobile games, other WeChat applications for commercial use need time to develop.

Tencent has encouraged businesses to open accounts on WeChat. “We hope to build a platform and channel to connect with different business models,” Ma said.

People like Chen Lingfeng have joined the exploration. As an independent Internet commentator, Chen has more than 30,000 followers on his WeChat account and has sold thirteen ad orders for a total of 10,000 yuan.

Chen said WeChat is changing the rules set by traditional media and will encourage the development of more independent media. Nevertheless, traditional media outlets have also started to use the WeChat platform to offer content to subscribers.

Service and consumer goods providers are also eyeing WeChat as a marketing platform. In January, Southern Airlines, one of the country’s largest passenger carriers, launched check-in services on WeChat, attracting more than 20,000 users. Hotel operators and e-commerce providers have also used WeChat accounts to promote new deals and products for free.

Ye Kai, founder of Internet business consultant Huntor, said the enterprise market will be a major target for WeChat in the future as its open platform and resources integration capacity will attract more and more start-ups.

Guan said the most popular accounts on the WeChat platform include news, entertainment, and consumer services, such as hotel and restaurant reviews and ways to make bookings.

Changing Landscape

Angel investor Cai Wensheng said the rise of WeChat was changing the landscape of the mobile Internet market and weakening the position of other mobile applications.

Indeed, companies like online legal consultant legalsiri.com have moved away from the idea of launching a mobile app to instead opening a WeChat account. Zhang Xinxin, CEO of legalsiri.com, said the company changed its plan at the end of last year and now its official WeChat account has more than 30,000 subscribers.

More than 3,000 consulting services are offered through the account every day, said Zhang, who said WeChat enables the company to offer more private and targeted services to customers. More importantly, costs and technology requirements for operating a WeChat account are much lower than developing an app, which is usually in the tens of thousands of yuan. Zhang expected the company’s number of WeChat users to reach 100,000 by the end of this year.

Guan said WeChat would become like an app store in the future, offering a platform connecting large numbers of users to apps and access to services.

Caixin learned that Tencent is also working on building a payment system on WeChat and has launched a pilot program to complete quick transactions through the platform.

But many in the industry said Tencent has remained cautious about further opening the platform to business accounts. Guan said that Tencent closely monitors the accounts and has closed several because they disturbed users by frequently sending ads.

Ma said earlier that the company was still exploring the rules for business account operations and would make the user experience a priority.

WeChat is still at the stage of cultivating a user base and should not be in a hurry to commercialize, Du said. “If WeChat has more than 1 billion users, it will become a super platform on mobile devices, like Facebook.”

The Telecoms Row

However, WeChat’s fast growth is causing tensions with the Big Three telecom operators.

Since mid-March, there have been reports that China Mobile, China Telecom, and China Unicom were negotiating with Tencent regarding WeChat operations. That triggered speculation that the telecoms operators were mulling ways to charge for the service.

The telecom operators argue that WeChat uses a lot of network resources and affects the quality of other services.

A telecoms researcher at the Ministry of Industry and Information Technology (MIIT) said the Big Three complained that the surging data usage by WeChat users has burdened networks, which could cause a shutdown.

Shang Bin, a telecoms analyst, said that when “services like WeChat send too many requests to the server, it can cause trouble for the system.”

However, the telecom operators may also be annoyed by WeChat’s impact on traditional telecom business.

The free data service is eroding the market for traditional voice and text message business. The Ministry of Industry and Information Technology said that with the rising popularity of the over-the-top (OTT) services—mobile Internet services offered through telecom networks such as WeChat, instant messenger QQ, and microblogs—the number of ordinary text messages fell 10.6 percent in the first two months of the year compared to the same period last year.

One China Unicom employee said the standard text message business would continue to decline. And the MIIT researcher said the fundamental question was whether the parties involved would be willing to break the current pattern.

Shang said telecom operators have invested heavily in infrastructure and relied on high profits to offset the costs. “Now, services like WeChat have eroded their highly profitable businesses like text message and voice service, forcing operators to find a new growth point,” Shang said.

The MIIT researcher said the ministry has received proposals from telecoms to ban WeChat, but rejected them.

Miao Wei, the minister of industry and information technology, said on March 31 that MIIT was studying the issue and would consider allowing operators to charge Tencent. Miao said the amount would not be high.

Critics say such a move showed that the Big Three were using their market dominance to impede competition and hurt innovation.

“Telecom operators don’t have a clear plan,” a source close to China Mobile said. “I think it is too early to charge [WeChat]. The more important thing should be exploring a sustainable business model with OTT providers and creating a larger market.”