China Telecom Takes the Offensive in Messaging App Wars

09.06.2013 18:14

China Telecom Takes the Offensive in Messaging App Wars

WeChat and Fetion are dominating the battlefield, but telecom giant and NetEase have partnered to develop an offering they hope gives them a fighting chance

By staff reporter Qin Min

(Beijing) – Within 24 hours of its launch, instant-messaging app Yixin had more than 1 million users, an employee of the company behind it, Zhejiang Yixin Technology Co. Ltd., bragged. Then things got even better. “We hit 5 million within three days, far exceeding our expectations,” the employee said. Yixin was developed by China Telecom and Internet company NetEase Inc. as a rival to Tencent Inc.’s hit messaging app WeChat.Yixin Technology, which operates Yixin, is 73-percent owned by China Telecom. NetEase owns the remainder. A China Telecom executive said Yixin Technology represented a new type of cooperation between traditional telecom service providers and Internet companies.

Over-the-top (OTT) business – mobile Internet services such as WeChat, the instant messenger QQ and microblogs that are offered through telecom networks – have had a huge impact on the telecoms business. This has prompted China Telecom to attempt a game-changer.

WeChat requires people at either end to have the app to communicate. But Yixin, which is based on China Telecom’s basic telecom service capabilities, can send text messages and voicemails to any cell phone number. This may erode some of WeChat’s dominance, but at the same time the free service will inevitably hurt China Telecom’s already declining business income.

After years of sifting out the losers, the instant messaging market has basically been set. The two clear winners are Tencent, which operates mobile QQ and WeChat, and China Mobile, with a self-developed messaging app called Fetion. Statistics from Analysys International show that in the first quarter of 2013, mobile QQ held 38.07 percent of instant messaging market accounts, WeChat had 27.97 percent and Fetion claimed 18.37 percent.

“With this cooperative model with Yixin, China Telecom is looking for a breakthrough,” said Tan Yanming, a senior China consultant for Detecon Consulting.

The Challenger

In terms of user interface and basic functions, Yixin is almost an exact replica of WeChat. It also has real-time chat, group chat and friend circle functions. But China Telecom and NetEase hope other offerings are attractive to users.

For example, Yixin users can use China Telecom to send free text messages to any mobile number and free voice messages to any mobile phone or fixed line, functions that are similar to WeChat’s voice function.

“WeChat opened the door to the whole industry,” Zhang Zheng, president of Yixin Technology, says. “But WeChat isn’t perfect, which still gives us a big opportunity.”

WeChat is facing three major problems, Zhang said. Growth of users is slowing, and the brand is aging, meaning its attractiveness to users is weakening. Also, according to Zhang, it lacks innovation. He says the original text and voice communication methods have not been sufficiently improved. The sound quality is poor, Zhang says, and pictures that are transferred are over-compressed.

Yixin’s short-term goal is 100 million users in six months, Zhang said, and there are hopes it will soon start generating profits. A source at Yixin Technology said the company wants the platform to be open, and is working with China Mobile, China Unicom and a number of Net companies on partnerships. There will soon be many new services coming out, he said.

In the face of the aggressive offensive, WeChat and Fetion are keeping quiet. A source at China Unicom said it would be difficult for Yixin to win market share because it is very difficult to snatch users away from forerunners without big breakthroughs. WeChat and Fetion have both been around at least two years longer than Yixin, and their users will be cautious about changing services.

A common view in the industry is that Yixin will take on a supplementary role. China has some 820 million mobile Internet users, and more than 250 million of those use 3G networks. WeChat, which launched in January 2011, had more than 400 million users in the first half of this year and Fetion reached 100 million users. There are reports that giants like Sina Corp. and Alibaba are mulling entering the instant messaging market.

Despite this, Zhang expressed confidence. “We like a challenge, and we’re ready,” he said.