THE INTERNATIONALIZATION

STRATEGY OF WECHAT Can WeChat become a world-beating mobile app?

SUMMARY

WeChat, initially a Chinese social messaging app,

seeks to go beyond social networking and

entertainment through gaming, new devices and

opportunities. As mobile commerce and mobile

payment transactions boom in the world, Tencent

via their flagship app WeChat are positioning

themselves to become a key international player.

How are WeChat and Tencent disrupting market

leaders all over the world?

Laetitia Odini Global Business Operations

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Introduction

WeChat is a Chinese mobile messaging app launched in 2011 by the Chinese gaming and social-media tech giant

Tencent. Weixin is the Chinese version of the app, designed specifically for its domestic users while WeChat

serves international markets. In 2013, the growth of WeChat and Weixin in monthly active users has been

exponential. According to Tencent, it passed from 195 million to 355 million users by the end of the year. (Tencent,

2014) (See Appendix 1)

How did WeChat change the nature of messaging apps by integrating new innovative features? What is the

strategy of Weixin in China and WeChat in international markets? What challenges do they face? Is WeChat

going to become the world’s leading mobile app? Will WeChat revolutionize the e-commerce industry?

The success of Weixin in China

WeChat as part of Chinese modern life

Today, China is WeChat’s largest market, with millions of active users. Weixin has faced a rapid expansion since

its launch, and enhanced user engagement. It has evolved over the years from a basic communication app into a

multi-functional platform. As consumer behaviors change, new features were launched to meet the

communication, social, gaming, shopping and even banking needs of the Chinese. But the popularity of WeChat

in China is also based on the fact that it is the first to create new trends, new features and new social needs. As

Poshu Yeung, vice president of the international business group at Tencent explained in an interview: “We are

building the WeChat experience around users’ needs through innovations in user experience and products.”

(Yeung, 2013)

In China, as soon as there is a new social trend, it is embraced in a mass movement. In 2012, Sina Weibo, a

microblogging website similar to Twitter had an incredible success and became the new phenomenon in China.

A year later, everyone was talking about Weixin/WeChat, the new social messaging app which would

revolutionize the mobile market in China, and make everyone forget Weibo.

In 2012, mobile phones became the main devices for accessing the Internet in China. Global mobile traffic

increased thanks to China. WeChat is focusing on the Chinese market for obvious reasons: with its billion mobile

phone users, of which about 40% have a smartphone, (Osawa, 2014) the country overtook the USA as both the

world’s largest e-commerce market in 2013, and the world’s largest smartphones market since 2012. This opens

up huge opportunities of growth and monetization for the industry of mobile purchases and WeChat.

Today, Weixin is part of the modern Chinese culture and life. When you meet someone in China and want to

keep in touch, you share your WeChat ids or personal QR code to become virtual friends. It simplifies the

everyday life of Chinese users. The app has an impressive commercial service available to its Chinese users. To

capitalize on its popularity among the younger population, Tencent for instance partnered with Ubox to set up

300 WeChat vending machines in Beijing’s subway stations. By scanning QR codes, WeChat users can buy snacks

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at a lower price if they pay with their app. (Millward, 2013) WeChat users can also order and pay a taxi driver

using WeChat, thanks to a partnership with Didi Dache (Millward, 2014) or buy online movie tickets.

WeChat consolidated its position in China by continuously adding new entertaining and innovative features

which would facilitate the everyday life of the Chinese and reinforce user engagement.

Weixin’s business model: Value-added services and money-maker

According to the Economist, WeChat is expected to bring in 6.8 billion yuan ($1.1 billion) in 2014 and about 40%

more in 2015. This profit would come from selling its users virtual goods such as online stickers and new avatars,

as well as from its e-commerce platform, mobile games, as well as its wealth management and banking services.

(The Economist, 2014)

The business model of Weixin has become more lucrative, mature and sustainable as the latest version of the

app was launched, surfing on new digital and mobile trends. It is based on three major features:

1. Value-added services: Sticker shop, virtual goods …

The last version 5.0 of WeChat released in 2013 integrates a sticker shop in its app from which customers can

purchase stickers. This was a total success in China, as Chinese consumers enjoy adding animated features to

their messages.

2. Gaming

Mobile social gaming has been a key focus of Tencent from the start. It has a research and development team

exclusively dedicated to the development of new games. Tencent uses a clever and atypical way to monetize its

mobile platform via games: first it attract many users by offering free downloads of WeChat games. Second, it

encourages players to share scores and compete with friends. Last, once users are in the game, Tencent

convinces them to buy value-added services such as extra lives or new weapons. According to Tencent, online

games revenue reached RMB 8.475 billion1 (US$1.38 billion) in 2013, a record mainly due to the growth of

WeChat. (Tencent, 2014) WeChat games are very successful in mainland China. Tencent revealed last year that

five mobile games released for Weixin users had already passed 570 million cumulative downloads by the end of

2013.

3. E-commerce and payment services

In 2013, e-commerce transactions revenues of the Tencent group increased strongly, reaching RMB 3.324 billion

(US$541.1 million), 19,6% of total revenues. (Tencent, 2014) Tencent is betting its future on the growth of

WeChat and e-commerce. The last version of the app integrates online-payment functions: through WeChat

Payments, its users can bind their bank accounts to the app. To convince its users to do so, Tencent is

developing partnerships with popular companies and brands in China, such as the taxi-hailing service Didi Dache.

Payment services help WeChat differentiate itself from other mobile apps. WeChat payments are accepted in

locations all over China. Mobile payments can be done in WeChat by scanning a QR code or barcode.

1 This figure also includes games from other platforms of the Internet giant such as QQ

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To monetize Weixin, Tencent uses innovative promotional strategies. For instance, Weixin recently organized an

exclusive sale for the Chinese smartphone-maker Xiaomi. The latter sold 150,000 of its latest model in less ten

minutes. For the Chinese New Year, WeChat launched a new money gifting feature called Xinnian Hongbao

which imitated the concept of the traditional Chinese ‘red envelopes’ of money given to family and friends

during the celebrations. The main difference is that users can only send the envelope after binding their bank

card to the app. The feature went viral and Tencent announced that in two days, five million users had

exchanged over 20 million envelopes filled with money nationwide. (WEI, 2014) The most impressive part of

this story is that in two days, WeChat had won five million new bank accounts.

Future strategies for WeChat in the Chinese market: “m-commerce” and offline-to-online

opportunities

Despite their status of established leader in the mobile industry in China, Tencent continues to invest to

reinforce their position. According to the group’s 2013 financial report, they are planning to do so by improving

user engagement, building new partnerships, becoming an e-commerce platform and ceasing offline-to-online

(020) opportunities in China. (Tencent, 2014)

The biggest opportunity for WeChat remains the e-commerce offline-to-online industry, both in China and

overseas. As social media and mobile spaces are converging, WeChat wants to become a key player in this

evolution. Since March 2014, Chinese consumers are able to buy almost any item or service by using WeChat,

from Starbucks coffee to a Xiamo smatphone. With an efficient payment system, Weixin Payments and the

development of official brand accounts for retailers and other companies, WeChat has started the e-commerce

revolution. (Millward, 2014)

WeChat also represents a vague of new opportunities for international companies. Through WeChat, game

developers, content producers and brands will be able to access the Chinese market and other international

markets.

In addition, the group announced their wish to invest in long term opportunities, namely online video,

developing Weixin Payment system and focusing on the international expansion of WeChat.

The Internationalization Strategy of WeChat

To expand its user base, WeChat is intensifying its partnerships and marketing campaigns across the world.

The exponential growth of WeChat outside of China

In August 2013, WeChat claimed it passed from 50 to 100 million registered international users in only 3

months. There are no official figures which give the number of overseas users today, but considering its

astonishing user growth rate, WeChat could possibly have become the most used messaging app today across

the globe. According to Xinhua, WeChat total users reached 600 millions users worldwide in October 2013

(Xinhuanet, 2013)

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In March 2014, WeChat announced it had crossed the symbolic bar of 100 million downloads on Google Play

Store internationally. This proves the amazing pace at which WeChat is expanding in foreign markets.

Poshu Yeung, the vice president of Tencent IBG explains WeChat is more successful in markets with stronger

social connections such as Latin America, Italy, India and Southeast Asia, as well as Hong Kong and Taiwan. For

instance, in Malaysia, the penetration rate of WeChat is 90% among smartphone users, while in Indonesia, 50%

of smatphone users have already downloaded the app. (Yeung, 2013)

WeChat Version 5.0 and gaming

At the beginning of the year, WeChat launched its 5th version to its global users with a range of new features: it

includes five in-app games, it allows users to add animated stickers to their conversations (and the only one on

the market to do so). It also integrated to its service a camera app “Story Cam” which helps you create, edit and

share photos.

WeChat also recently launched mobile games for international markets. It transformed WeChat, like its Chinese

equivalent, into a social multi-functional platform, different from other traditional messaging apps. The WeChat

Game Center drives the global strategy of WeChat on international markets. Poshu Yeung explains in his

interview that in-app games enhance social interaction and sharing among users on the network. (Yeung, 2013)

How WeChat is marketed in selected international markets Strategy: local aggressive

marketing campaigns

To foster its growth overseas, WeChat has set up “Official Accounts” with international renown brands such as

KFC in Indonesia, 7-Eleven in Taiwan or Nike in Hong Kong. (Yeung, 2013) Lionel Messi, a famous football player,

became the product ambassador of WeChat in 2013 and part of a $200million advertising campaign to enhance

the app across Europe, South America, and other countries with football fans who could become prospective

users. (Anon., 2014)

WeChat is expanding local marketing to new countries like Japan, Brazil, Qatar, and Egypt where there are fewer

competitors and vast market opportunities. Local partners play an important role in their expansion strategy

toward specific markets, and help them adapt to local markets. WeChat and the Tencent group have given the

priority recently to grow their user base in South-East Asia through partnerships and strategic alliances. For

instance, it partnered with the telecom operator StarHub to offer prepaid cards for users in Singapore. WeChat

Singapore is now shifting its focus on e-commerce. In Malaysia, it used the food & beverage industry as an

intermediary to promote the app, offering discounts to users.

But WeChat is also trying to expand in the US market according to its Chinese website. It partnered with Google,

one of Facebook’s biggest rival, to launch a large advertising campaign. The strategy was to encourage users to

connect their Google and WeChat accounts. People could win a $25 restaurant coupon if they managed to get

five friends to join WeChat. (中夫美妻话美国, 2014)

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A key challenge in WeChat’s international expansion is the ability to adapt to local culture and solve language

issues. The WeChat app today is available in 18 languages. (Tencent Inc, 2014) Also, although WeChat is

available across borders, its apps and updates lag behind the Chinese version Weixin. If Tencent reverses this

habit, it could become extremely competitive. Finally, will WeChat be able to enter the competitive US market

dominated by Internet Giants Facebook and WhatsApp?

Will WeChat become a world-beating app?

According to The Economist, Tencent has created a better business model than Western Internet Giants by

extend its services beyond social networking and entertainment with online games and e-commerce.

How WeChat is challenging the dominance of WhatsApp and Facebook

While Tencent’s main sources of revenue come from Value-added services, Facebook’s main sources of revenue

come from advertising. (See Appendix 2) (The Economist, 2013) Now that Facebook has acquired WhatsApp, we

can compare all social platforms.

WeChat and WhatsApp are based on two completely different models. While WhatsApp is a minimalist and

focused app whose main revenue source comes from the 99cents subscription fee, WeChat offers much more

than a voice and messaging service. It has transformed itself into a monetized multi-serviced platform which

enables its users to carry out many activities within one same app. In the bigger picture, WeChat and Tencent

have models of monetization based on innovation and not just advertisement, unlike Facebook.

With 450 million active users each month and 1 million daily new users, WhatsApp remains the world’s most

popular messaging app. (Facebook Inc., 2014) But for how long will this domination last? WeChat is catching up

very fast, with already 350 million users at the end of the 2013. WeChat is expanding fast in emerging markets,

especially in South-East Asia and Latin America, while WhatsApp captures users in the US and Europe. In

emerging markets, the competition is fierce as well, with the growing presence of both apps, as well as other

Asian rivals such as Kakao Talk.

Both apps are targeting the same age groups. A recent survey from GlobalWebIndex shows that WeChat has

seen the most dynamic growth in active users of 16 to 19 years old: an incredible increase of 1 021% between

quarters one and three of 2013, leaving its rivals far behind. (See Appendix 3) (GlobalWebIndex, 2013)

Nevertheless, WhatsApp remains more popular among teens in the US and Europe. A recent survey showed that

it was still the leader in social messaging in five combined key markets: US, Brazil, China, South Africa and

Indonesia. (On Device Research, 2013) (See Appendix 4) For now, the growth of WeChat in this age group is

contained to China and South-East Asia. Now that WhatsApp is associated with Facebook, it will be much harder

for WeChat to crack the US market. Similarly, WhatsApp will face important challenges in China where Facebook

is banned.

Although WhatsApp isn’t likely to copy all of WeChat’s features, it will probably inspire Facebook find new ways

to monetize its social messaging app. Both players could also play a major role in the development of the online

banking sector to help money transfers across the world.

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Challenges for WeChat in its domestic market

In mainland China, WeChat also has fierce competitors. Alibaba, the e-commerce giant, has become its most

serious rival. Alipay, Alibaba’s e-wallet, today is China’s top e-payment method. But with the growth rate of

WeChat and the Weixin Payments service, this domination is likely to shift quite soon. (Millward, 2014) Both are

investing heavily through acquisitions or research and development in a race to dominate the Chinese market.

Thanks to the popularity of WeChat, Tencent may have a slight advantage over Alibaba in the thriving “m-

commerce” industry (The Economist, 2013). But for now, Alibaba is still one step ahead of Tencent: when

WeChat invested in Didi Dache, the taxi-hailing app, Alibaba had already made the same deal with a rival

company Kuaidi Dache, offering users to pay using Alibaba’s mobile Alipay Wallet. They also both introduced at

the same time online-to-offline payments for movie tickets. The main difference between both platforms is the

international presence of WeChat.

Many other mobile messaging apps such as Line and Kik also have added games, stickers, video and call

features. To differentiate itself WeChat needs to move further into the mobile commerce industry. Today, LINE

and KakaoTalk are seriously competing with WeChat on the South-East Asian markets. But WeChat has taken

one step ahead of its competitors by becoming a multi-functional platform. Will this differential innovative

strategy be enough to gain market shares in Asian countries?

Besides, WeChat and Tencent will have to pay attention to Chinese politics and decisions. In China, the

government is increasingly setting up regulations that will set strict limits on online payments. This could put a

stop to WeChat’s ambition as an e-commerce platform. Furthermore, a few controversies have already erupted

in the past concerning censorship of international users. To continue expanding, WeChat and Tencent are going

to have to win the trust of western users. A key issue for users and customers in the mobile industry today is to

keep their privacy and data are protected. WeChat will have to work in this direction through communication.

Conclusion

WeChat is the most advanced messaging application in the world. While most competitors only offer messaging

and voice services, WeChat is backed by a whole infrastructure and offers a variety of improved services, from

mobile payment to online gaming.

All mobile messaging apps today seem to have their own defined markets. Will WeChat be able to disrupt the

western Internet giants, especially Facebook and WhatsApp, as well as other Asian rivals such as Line and

KakaoTalk?

Now that WeChat app has become a multi-sided platform, new questions arise: which platform will drive the

highest revenue? How to improve user retention on all platforms? Can offline-to-online commerce help WeChat

become a global mobile leader?

WeChat expects new monetization opportunities will emerge in the future. Their ultimate aim is to be present

on all kinds of smart devices and platforms and connect people from offline to online. In a near future, we could

see WeChat appear on Samsung’s smart-watches or Google glasses?

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[Online]

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Available at:

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6c0ce6981acd2789&scene=4

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Appendix 1

Appendix 2

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Appendix 3

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Appendix 4