While Facebook's Whatsapp and Messenger are still not monetizing through its social network, WeChat has already begun to rely on its huge 800 million user network to generate a lot of money.
As the owner of WeChat, Tencent is seen by US investors as a highly-growing company (mainly from the path and process of realizing WeChat, a social software app with large users), but they still can't understand Tencent. One game is currently the main one. The other value of the income of the business.
The WeChat in the eyes of Western investors is this:
On the mainland, the business contacts and interpersonal relationships required for most commercial activities are completed through WeChat, not mail. WeChat's powerful features include free video calls, group chats, sharing hot topics, and transmission of various types of large files.
The Economist used a simple metaphor to illustrate the wide range of use of WeChat in China
The author's mother often only needs to scan the newly-recognized customer's WeChat QR Code to save communication messages instead of exchanging business cards. At the same time, my father uses WeChat online shopping, offline stores, utilities, AA meals, etc. Need some very simple process.
What's more, users can also use Micro channel to book performance tickets, make reservations for hospitals, hotels, etc., which means that almost all living needs can be solved through WeChat APP.
Indeed, the Economist can do an example of WeChat can be done, but did not emphasize and evaluate the maturity of each scene / application or the situation of competitors.
For example, the author believes that online shopping is impossible to open on WeChat at large scale. WeChat can only play an important role in diversion, which is why WeChat has rejected all the direct forwarding of Taobao products.
In addition, the Economist also gave a comparison between WeChat and FB's Messenger and WhatsApp, mainly to highlight that WeChat's monetization progress is faster and more diversified than the FB system.
It can be seen that when WhatsApp and Messenger have 1 billion mau revenue and the revenue is only 49 million yuan and 0 respectively, WeChat already harvested 1.8 billion revenue (2016 Q1 data) through nearly 700 million mau.
The monetization function is even more obvious. When WeChat includes advertising, ecommerce, content, O2O, and payment, WhatsApp only includes paid items.
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The high cost of Chinese SMS is the biggest reason that WeChat can do it in the early stages.
China’s text messaging costs are high, unlike the United States. U.S. large telecommunications companies use bundled SMS and other basic services to make the cost of SMS affordable. This means that in the U.S., mobile phone users do not need a dedicated SMS app (which explains why FB's Messenger and WhatsApp are not popular in the U.S.).
There are a total of 650 million smart phone users in China but 800 million WeChat users. This shows that China is equal to everyone is a WeChat user.
Many Chinese consumers directly skipped the PC era and entered the smartphone era directly. Due to the lack of application and experience of desktop windows for PCs, Chinese consumers are more likely to accept the demand for completing all daily life on smart phones (data support: half of China’s online shopping comes from mobile phones, and Only 1/3 of the United States).
The multi-app ecosystem has not been successful in Europe and the United States. Smartphone users in Europe and the United States tend to use a lot of different APPs, and each APP has special functions. However, in China, BAT's strategy is to include as many reasonable scenarios as possible in the same APP, such as text messaging, social media, games, mobile payments, and video.
Western Wechat's WeChat Network Effect
The growth of WeChat user's exponential level has created a large platform that allows for expansion in other areas - extending to areas such as payment and e-commerce. With the continuous increase in the number of users, Wechat’s potential liquidity value has become online and offline businesses, advertising, app developers (in-app applications) and so on.
Economist concludes Wechat's network effect
E-commerce is another driver of WeChat. WeChat earns intermediate fees through the user's massive WeChat merchant transactions. Once the user associates the bank card with WeChat, it will surpass expectations, as if the United States were established on a credit card. Three years ago, there were few purchases through WeChat, but now one-third of WeChat users have direct e-commerce payment habits.
At this point, the virtuous cycle has been quietly established. The more merchants and brands establish WeChat official accounts, the more consumer dependence and user stickiness are formed.
The following is a summary of the author's views and summarizes his thoughts on Tencent's opportunities:
1. Preemptive advantages of social software, cultural differences with Europe and the United States
The decentralized ecosystem of app in Europe and the United States is absolutely a powerful barrier to the establishment of strong network effects of instant messaging software. Therefore, it is unlikely that WeChat wants to establish a strong network effect in China and Europe as in China.
European and American users have become accustomed to solving different requirements and services on different APPs, so it is very difficult for a single APP to do so.
However, the situation in China is just the opposite. Many services have not yet been solved by the Internet or are relatively small. Therefore, an APP can aggregate multiple functions in China. This is where the WeChat/Tencent moat is located (first-mover advantage).
Just as FB has established its advantages overseas, WeChat's moat in China is also difficult to shake. FB has already had its own large-scale network effect in many countries. This is equivalent to directly cutting off the possibility of Weixin overseas expansion. However, if FB can enter China, then this rule also applies.
2. Wechat's internationalization obstacles, and lagging Western investors
Tencent is able to make overseas investors feel the power of its game business through the internationalization of games, especially mobile games. Compared with the game's internationalization, WeChat has made it difficult to become a mainstream instant messaging software even if overseas users are introduced through overseas expansion of the game. The best example of this is yy voice's similar role in World of Warcraft, which extends slowly to life.
Because the understanding of WeChat is difficult to sympathize with, the information of foreign investors on Tencent is certainly lagging behind. It is an important factor that cannot be rendered and influenced by the scene of Tencent. The obstacles to WeChat's internationalization have increased the perception of Tencent or WeChat changes, and the response to stock prices has thus lagged behind (it takes time to digest).
3. The deviation of Tencent's perception lies in the potential of WeChat.
The potential of Tencent is WeChat, an app that takes users from morning to night. Although Tencent's data has always been very beautiful, its main component is still the game, followed by advertising.
Although Tencent’s revenue this year is expected to be US$18 billion, this is only a small part of its potential. The opportunity for Tencent lies in its effectiveness and degree of commercialization/monetization of the WeChat platform.
Western ordinary investors do not have a target valuation or comparison of the realization and commercialization of the WeChat platform. This is mainly due to the unprecedented reasons. When the author was investigating, there were indeed many institutional investors in Europe and the United States who were very interested in the realisation of their platform. However, overseas investors paid more attention to the mining of in-depth data to calculate space and calculate market value.
When this platform is still unable to provide too much monetized data, foreigners are also more difficult to value. Now more people communicate with each other than their data in the WeChat advertising (price, number of pushes, range, etc.), and the applications of the platform in other areas are mostly guesses. Understanding and profoundly perceiving the potential behind Tencent’s huge WeChat users is the core of outperforming the company.
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