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Mobile Messaging Apps: WeChat in China

Posted on Wednesday, Apr 2nd 2014

Facebook may have bought WhatsApp to consolidate its leadership in the mobile messaging apps segment, but market dominance in China still remains a distant dream. Government regulations coupled with the country’s language and cultural differences have caused most technology giants including the likes of Google, Yahoo, and Amazon to rethink their China strategy. Similarly, while the rest of the world uses either the Facebook Messenger or WhatsApp as their preferred mobile messaging apps, China has been dominated by home-grown WeChat.

WeChat’s Offerings
WeChat was released in 2011 by Chinese online services provider, Tencent. The app began at Tencent’s research center in 2010 and was soon released to the Chinese market under the name Weixin, which means micro message. By the end of 2011, within a few months of its release, WeChat had seen adoption increase to 50 million users. Three months later, WeChat had clocked 100 million users. The app is now rumored to have a following of more than 400 million users of which 70 million users are located outside mainland China. WeChat’s rapid growth makes it the fastest growing social networking app.

Like its peers, WeChat allows users to exchange text and multi-media messages over a data connection. WeChat also offers a walkie-talkie version that lets users record brief voice messages for each other instead of typing out texts. The app is available across major platforms for a free download. Besides allowing for messaging, WeChat is a hub for social networking as it lets users play games and connect with each other.

Recently, Tencent announced the acquisition of a 15% stake in China’s second largest e-commerce platform, JD.com. Tencent is expected to integrate WeChat’s mobile payment offering with JD.com as part of the deal.

Mobile messaging service is a fast growth market driven by increasing internet penetration and smartphone access. According to recent reports, China’s biggest mobile phone service provider, China Mobile has seen revenues from SMS fall 20% since 2009, when they had reported $9 billion in SMS revenues. The steep decline is attributed in part to the growing adoption of these messaging apps.

WeChat’s Financials
WeChat earns money through additional services it offers such as premium emoticons and a free gaming platform that helps it earn revenues through featured in-app purchases. WeChat also expanded their monetization plan by launching an online and offline mobile payments platform. More recently they have been testing the use of WeChat to book taxis, hotels, and airline flights and to control televisions and home appliances.

Little is known about WeChat’s revenues, but analysts estimate that they are on a $500 million run rate this year. WeChat’s biggest advantage lies in the big lead it has gained in the fast growing Chinese market. Government censorship regulations have kept other social media players like Facebook and Twitter outside of China. Recently, Facebook has talked of plans of entering the Chinese market through local tie-ups, but it may be a bit too late for them. Meanwhile, WeChat is now looking at expanding their presence outside of the Asian markets. They are aggressively marketing their offerings in Europe and Latin America. But WeChat’s biggest problem with international expansion may lie in the fact that with their servers located in China, they still have to follow censorship rules imposed by the Chinese government and will always be viewed by international users with skepticism about privacy concerns.

Last year, there were rumors that Tencent would probably list WeChat on the Singapore stock exchange. But Tencent has denied such intentions and the company remains privately held.

The company is a good example of the fact that the mobile messaging category is eminently monetizable.

This segment is a part in the series : Mobile Messaging Apps

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