What app has over 600 million monthly active users, drives $15.3B in mobile data consumption and contributed $1.76B to lifestyle spending last year1? It’s one that many users in the West have never heard of – but should understand: WeChat, a Chinese instant messaging app.
Owned by Tencent Holdings, WeChat has evolved from a simple social media application used to chat and share photos into a behemoth of a platform offering everything from peer-to-peer payments, taxi hailing, movie tickets, airline tickets, and most recently, no hassle loans. It has pioneered the messaging-as-a-platform business model, monetizing its user base in ways that WhatsApp has neglected and Facebook Messenger and Snapchat are just beginning to develop.
How has WeChat achieved such impact, and where will it go next?
Messaging as a Platform: The Power of Network Effects
Engagement: Messaging applications, and WeChat in particular, demonstrate high user retention and engagement compared to other apps – they are used more frequently (8.9x per day vs. 1.9x for the average app2), more deeply (WeChat users spent 209 minutes per month in the app on Android1), and over a longer period of time (messaging apps retain 62% of users after 12 months, vs. just 11% for the average app2). This level of engagement (aka “eyeballs”) gives WeChat the ability to offer additional (monetized) services to its users.
Scale: WeChat’s massive scale (63% of internet users in China) not only makes the app attractive to users (all my friends and colleagues in China used it daily), it attracts platform partners as well. Brands want to create official accounts to interact with their customers, and restaurants want to integrate into WeChat’s reservation platform if it means they can access WeChat’s 600 million active users.
First-mover advantage: WeChat’s huge growth was driven in large part by the massive growth in smartphone adoption in China. As users are coming online for the first time, they are not tied to online services like banks, shopping, and music. By pushing these new users to its own or its partner’s services, WeChat can increase user lock-in and add real value to users’ lives. For example, WeChat can now offer customers loans of up to $30,000 instantaneously and without a traditional credit check – giving people access to capital they otherwise may not have.
The Next Phase: Growing Pains?
In WeChat’s quest to become the portal for the internet, it is capturing value across industries from banking to gaming to transportation, and disrupting the traditional players in the process.
However, not all is rosy for the internet giant. Despite WeChat’s success in China, it has had trouble growing abroad. It has invested hundreds of millions of dollars in marketing overseas, primarily in emerging markets such as Latin America, Southeast Asia and Africa. And WeChat has achieved some success – it is the #3 chat app in India after WhatsApp and Facebook Messenger, and #2 in the Philippines (after Messenger)3. However, WeChat has struggled to grow in potentially lucrative markets such as the U.S., where low SMS costs means texting, rather than over-the-top chat apps, is still widely used, and it is losing to some homegrown foreign apps such as Zalo in Vietnam. While network effects work to WeChat’s advantage in China, they make penetrating new markets extremely difficult.
Meanwhile, Facebook recently announced its AI-based personal assistant M will live in Messenger, and Snapchat is pioneering innovative video-based interactions between brands and consumers. These social media companies still have a long way to go before reaching WeChat’s monetization prowess; however, Messenger’s global reach and Snapchat’s young teen user base are areas WeChat has not been able to penetrate thus far. These social media apps do not pose a threat to WeChat’s home user base (Facebook is blocked in China), but what will WeChat do as the Chinese economy slows down? Tencent can keep going deeper in the Chinese market, adding more services for its existing users, but will this be enough?
2Samsung Global Innovation Center