Tencent recently announced soaring profits with an increase of 60% in a year. This increase was mostly led by the growth of WeChat. How did Tencent get profitable so much faster than other Western Internet companies? Here is how WeChat is making money for Tencent and will make even more of it in the future.
In-app purchases were the first feature introduced by WeChat in order to generate revenue. More than a year ago, Tencent introduced stickers you had to pay for. Later on, games were introduced on the Chinese version of the platform in order to generate even steadier sales. When we consider the high profitability of games like Candy Crush and the ease of promoting games through WeChat (a lot of companies are already doing so – we posted an article about Asia Innovations yesterday), this will obviously be a profitable business for Tencent.
The core of the future revenue stream of WeChat is its payment system: TenPay (微信支付). TenPay is meant to compete against the leading Paypal-equivalent today in China: AliPay (支付宝) from e-commerce company Alibaba. Tenpay will turn your WeChat into a portable e-wallet.
During the previous Chinese new year, WeChat started creating a buzz with “red envelopes” (红包) that people could share in friends groups and which would randomly split gift-money between-group members. WeChat later started promoting very aggressively its cab-booking function, “Didi dance” (滴滴打车), by offering huge discounts both to the cab drivers and to the passengers. Tencent then introduced “WeChat stores” (微信小店) to enable service public accounts to sell products directly to customers through WeChat.
Through this payment system and stores, WeChat is becoming a serious competitor to Alibaba as mobile e-commerce is booming in China (growth of mobile e-commerce in China is expected to be 68% this year, against 28% for non-mobile e-commerce).
Alipay paved the way for WeChat advertising: as customers start storing more and more money into their electronic wallets, the next step is to provide them with financial services. Alipay is already offering outstanding interest rates for its users, and WeChat is a close follower. Blurring the boundaries between e-commerce, social networks, and banking institutions, such services are showing the extent to which China can be a place for worldwide innovation.
It was an unexpected but fascinating move from WeChat: two weeks ago, WeChat unveiled its new ads systems. The new scheme enables public accounts with very high traffic (above 100,000 followers) to volunteer for hosting ads and receive part of the revenue generated when users click. To learn more about it, read the article written by WalktheChat on our blog by following our public account.
Three weeks ago, announced the launch of company accounts. Company accounts are different from official accounts: they are accounts that are specifically designed to support the internal operations of a company.
Company accounts are therefore closer to Salesforce.com than to Facebook. And it is no secret that Salesforce has been struggling to adapt to the Chinese market: many MNC’s realize that its interface is not adapted to the local requirements and that the average salesperson doesn’t necessarily speak good enough English to enable efficient data consolidation.
Fortune 500’s companies that have been working with the WeChat-focused marketing agency WalktheChat are already exchanging with Tencent teams in order to develop these company accounts in a collaborative way. They will include some very special features to adapt to the need of large firms: for instance, sensitive data can be stored on secure proprietary servers to avoid any data theft issues.
And of course, these accounts will be extremely pricey for the companies using them. It is a new evolution in the WeChat revenue stream. With so many assets in hand, WeChat seems to be well on its way toward tremendous profitability.
Thomas Graziani, WalktheChat