WeChat’s little red envelopes are brilliant marketing for mobile payments

WeChat’s little red envelopes are brilliant marketing for mobile payments

By Gwynn Guilford @sinoceros

January 29, 2014

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It’s not even Chinese New Year yet and the hongbao are already humming. (During Chinese New Year and certain special occasions, Chinese people use hongbao,or ”red envelopes,” to give money to relatives, employees and friends.) But the hot item in the Year of the Horse isn’t a paper envelope; it’s the “New Year Red Envelope” app launched on Jan. 28 on WeChat, Tencent’s social media app.

The app’s viral success could prove to be a coup in Tencent’s ability to charge WeChat users. That’s also probably why Bill Bishop, an expert in Chinese tech companies, calls the app “Jack Ma’s nightmare,” referring to the founder of Alibaba, one of China’s biggest e-commerce sites.

It’s not just that Tencent’s app is more fun to use than Alibaba’s similar app. According to Tech in Asia, unlike Alibaba’s hongbao app, WeChat’s offering allows its users do more than simply exchange money. It also lets users send a lump sum to a group of friends, which the app disburses in five random amounts.

Say a user sends $50 to a group of eight friends. One might end up with $28, while four others get smaller sums, and three get nothing. Letting the app pick a windfall winner and a slew of losers creates a gambling-esque suspense, stoking the sort of emotions that encourage more spending.

But Tencent’s real coup is subtler still. In order to send or receive money in thehongbao app, users have to link up their bank accounts to WeChat. And not just people who want to send money; any of the sender’s friends who want to be in thehongbao running have to sign up their bank accounts too.

This is already bringing in droves of new users for WeChat’s in-app payment service, as the blog Tech in Asia points out. The next time they consider making a purchase in WeChat, they won’t be deterred by the tedium of entering in all that bank account info. And that’s a big deal. Amazon and iTunes have long demonstrated the zillions to be made from dissolving the barriers between customers and their online impulse buy.

So, for that matter, has Alibaba, whose e-commerce empire is anchored by Alipay, far and away the most popular third-party payment platform in China. The enduring worry for Alibaba is that it lacks social media channels to encourage even more spending. Against the backdrop of WeChat’s surging popularity, Alibaba took a $586-million stake in Sina last year—perhaps unwisely—in a bid to broaden its social media channels. Alibaba is now squaring against Tencent more directly, launching a trio of mobile games.

Granted, Tencent has a long way to go before it rivals Alibaba’s e-tail dominance. As shareholder Yahoo’s Jan. 28 earnings revealed, Alibaba’s Q3 2013 revenue leapt 51% from the previous year, hitting $1.8 billion (because it’s not public, there’s a quarter delay in its audited financial reports). In the very least, WeChat is giving Alibaba a run for some of that money.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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