Tech companies believe their highest priority is to get China’s dynamic Internet players – Alibaba and Tencent — on their side, talking them into pairing new services with their new technologies

Yoshida in China: Why ‘WeChat’

Junko Yoshida, Chief International Correspondent
3/13/2014 01:00 AM EDT
Dramatic shift from Weibo to WeChat

SHENZHEN, China — Sometimes, the significance of an event happening outside your own personal universe doesn’t really hit you ’til you travel, hear what locals are saying, and encounter it firsthand.

WeChat in China is a good example.

I bring up WeChat here, not because I think China’s WeChat is so much more wonderful than WhatsApp, which was recently acquired by Facebook for $19 billion. WeChat tickled my fancy because, due to its astonishingly quick rise, it is a microcosm of China. People here, and Internet companies, jump on a social phenomenon en masse, as soon as they sense it’s starting to catch fire.

A year ago, Sina Weibo, China’s micro-blogging site, was all the rage in China. This year, every friend I have in China and the people I’m meeting for interviews are on WeChat. It’s palpable (and almost scary) how quickly Weibo seems to be cooling off.

During our meeting a year ago, Ni Fei, CEO of Nubia, ZTE’s sub-brand for high-end smartphones, was all about the million followers he has in Weibo.

The Nubia CEO, committed to selling its smartphones through the Internet, needed to be highly visible on Weibo. In our interview this week, when Ni was asked about his micro-blogging on Weibo, he laughed dismissively: “Nobody goes to Weibo these days.”

Ni explained that WeChat is all about communications and relationships among friends and family. People like it. Asked if there is room to promote Nubia on WeChat, he said, “We haven’t really figured it out. People seem to like having no advertising or commercial things on WeChat.”

Owned by China’s Internet company Tencent, WeChat, whose services only began on Oct. 17, 2012, offers free texting, voice messaging, and video calls. Essentially, it’s SMS on steroids — combined with services similar to Skype calls. It functions as Twitter, LinkedIn, Facebook, Foursquare, and Instagram all melded into one. Plus, it’s tied to users’ credit cards. WeChat lets you shop, game, and even bank.

I’ve been in China for only four days. But in every interview so far, the executives at startups and established chips/system companies in China inevitably mention Alibaba or Tencent.

The technology companies here seem to believe their highest priority is to get China’s dynamic Internet players — chiefly, Alibaba and Tencent — on their side, talking them into pairing new services with their new technologies. As the services get popular, so will their chips and boxes, they think.

Red envelopes
What pushed WeChat into near-ubiquity — close to 600 million users — is the creation of a “red envelope” app on WeChat for this year’s spring festival in China.

Taking advantage of the tradition in China of handing out red envelopes, containing cash gifts, for the Lunar New year, WeChat invited users to upload virtual red envelopes full of digital cash. This tactic neatly inveigled friends and family members to join WeChat, where they could then hit a button and receive a randomly selected amount of digital cash.

Within nine days of the spring festival, more than 8 million people joined WeChat and some 4 million red envelops were distributed — digitally.

The lottery-style gimmick in WeChat’s red envelope promotion meant that some family members got less than a dollar, while others got $20 or much more. The amount, however, didn’t really matter, according to my Chinese friends. “It was fun, and everyone had to act quickly” in order to get his or her share of the cash from a red envelope.

Hail a cab
WeChat also eases the chore of hailing cabs. Hit the cab button on WeChat, and you see on your mobile screen how many taxis are driving around nearby, and how many are receiving your request. When one responds, you seal the deal on WeChat. The driver needs no directions, because you’re both on GPS. While waiting, you follow the taxi’s approach on your handset.

Compare this to hailing a taxi at midnight in Manhattan, and you can really appreciate WeChat.

Besides its convenience, some of my Chinese friends like WeChat because it’s “intimate.”

Intimate and relevant
Unlike most social networks designed for one-to-many broadcast, WeChat is ideal for more intimate and relevant messages to a specific circle of friends. Beyond one-on-one contacts, WeChat offers group messaging. You make your own groups. Those who are simply friends of your friend, but not your own friends, cannot see comments you post to your group.

WeChat’s features also include “always on, no logouts.” That means you never have to miss a message. No need to occasionally open up this or that app on your PC or smartphone to check on favorite social networks. No need to spend hours scrolling through the inevitable drivel posted on your Facebook wall by strangers and weirdos.

Today, 200 million bank-card users are tied to WeChat.

story on Quartz.com reported:

In terms of making money from its users, WeChat comes out on top, according to Chao Wang, an analyst with Nomura International in Hong Kong. In contrast to WhatsApp — whose main revenue source is an annual subscription fee of $1 after one free year of use — WeChat makes money by selling games and integrating online payment functions that encourage shopping through the app.

It’s easy to criticize China’s Internet companies for piggybacking on innovations by Western companies like Google, Facebook, and Twitter, while limiting their Western rivals’ services and activities in China. There’s some truth to this complaint, but many local executives point out that the speed of innovation by Chinese Internet service companies is lightning fast and exceptionally creative because they know the territory best and they tailor their offerings to the local market. The red envelope app is a great example.

Meanwhile, China’s technology companies — suppliers of chips and boxes — are also determined to position themselves further up the food chain, much closer to China’s Internet companies.

For example, Allwinner, China’s leading apps processor supplier for the global tablet market, caught the explosive growth of China’s over-the-top (OTT) market in the third quarter of 2013.

China’s OTT market flourished when Alibaba developed video apps, promoted OTT boxes, and rolled out free video-on-demand services to consumers via the Internet. Allwinner’s dual-core apps processor drives both Alibaba’s boxes and Xiaomi’s boxes.

In its strategy to promote Hotknot, the company’s proprietary proximity technology, MediaTek sees its priority as spreading Hotknot-enabled handsets as far and wide as possible in the Chinese market. The grand plan? MediaTek wants to enable Alibaba and/or Tencent to conduct their e-commerce through Hotknot-enabled handsets.

 

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.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: