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WeChat – China’s Answer to WhatsApp

Posted on Wednesday, Aug 27th 2014

The $19 billion WhatsApp acquisition by Facebook attracted a lot of interest in the mobile messaging industry. According to a Canalys report for November 2013, WhatsApp was the leader among cross-platform social mobile messaging apps. But it appears that WhatsApp now has a bigger Made-in-China giant to compete with.

WeChat’s Offerings
Since WeChat was released by Chinese online services provider Tencent in 2011, it has registered a steep growth. The app allows mobile messaging across multiple operating systems and is particularly used by people to exchange video and voice messages among close friends. WeChat began in China, but has now expanded its international presence. Analysts estimate that the company has nearly 70 million users based outside China.

Unlike most other messaging apps, WeChat has several additional features that make it a preferred chat engine. Since the app is China-based, it is subject to much higher censor norms. However, the app is more intimate and private in nature as it lets users create an exclusive friends circle and create a more personal social networking space. Their Moments feature lets users send updates and comment on them with their friends circle while retaining a one-on-one interaction. Additionally, it boasts of a user-friendly speech recognition software that lets users communicate through voice messaging, thus eliminating the need to type out long messages on small smartphone keyboards.

WeChat’s Financials
Unlike WhatsApp, WeChat also has a more diversified revenue model. While WhatsApp relies on the annual $1 subscription fee, WeChat has other revenue options such as gaming, shopping, and banking. WeChat users have the ability to send their friends digital cash as gifts and even book appointments with doctors, schedule cabs, or buy snacks from vending machines. They earn revenues by charging for premium emoticons and letting people download games and make in-app purchases. In October 2013, WeChat had registered 80 million game downloads within a day, and they saw more than 570 million game downloads within three months of letting users download games through the app. Their online and offline mobile payments platform has also helped provide another revenue source.

Till recently, WeChat’s financials were kept under cover. Earlier this year, Tencent revealed that at the end of the previous year, WeChat had more than 355 million monthly active users, which grew to 396 million users by the end of the March quarter. Compare that with WhatsApp’s 450 million user base reported at the time of the acquisition in February.

Surprisingly, their revenues are significantly lower than the market estimates of $500 million annual rates. Tencent’s financials reveal that WeChat was operating on a quarterly run rate of $32 million-$49 million as of December 2013. Details on its profitability are not known.

WeChat’s biggest advantage, however, lies in their mass viewership in China. Any of the other international brands will find it difficult to break China’s strong government regulations. The likes of Facebook and Google have all failed to establish their leadership in that market. With both Internet and smartphone penetration in China increasing, WeChat definitely has a big advantage. They are already leveraging this leadership and have entered into an agreement with King.com for releases of a localized version of Candy Crush Saga.

And, they are not restricting themselves to China. The app is being marketed in Europe, South America, South Africa, and supports international languages such as Indonesian, Spanish, Hindi, and Russian. Not only will the international expansion benefit WeChat’s growing base, but will also help Tencent attract a wider base to their e-commerce operations.

Some analysts value WeChat at close to $30 billion, a significant premium from WhatsApp’s $19 billion price tag.

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