deep Dive: Wechat— From Messaging App To Profitable · communication platforms in the world,...
Transcript of deep Dive: Wechat— From Messaging App To Profitable · communication platforms in the world,...
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May16,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
1) Withnoapparentcompetitorsinsight,WeChat,the flagshipmobileinstant-messagingplatformandsocial networkofinternetservicesgiantTencent,holdscourt inChina.Coupledwithdifferentiablefeatures,WeChatis ontracktocontinueincreasinguserengagementand retention.
2) Withintheretailworld,WeChathasbeen,andcontinues tobe,amajorsourceofdisruption—bridgingsocial mediaande-commerce.
3) Inthisreport,wehighlightthreekeyproduct differentiatorsthathaveledtoWeChat’sdominancein China:i)insocialmedia—MomentsandOfficial Accounts;ii)inmobilepayments—WeChatPay;andiii) inminiapps—itsMiniPrograms.
4) Despiteitsdominance,WeChatcouldfacechallengesin expandingfurther:deceleratinggrowthofitsuserbase inChinaandthecapacitythresholdofitsapp.
Deep Dive: WeChat—
From Messaging App to Profitable
Ecosystem
Deborah Weinswig
Managing Director,
Fung Global Retail & Technology
US: 917.655.6790
HK: 852.6119.1779
CN: 86.186.1420.3016
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May16,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
TableofContentsExecutiveSummary...............................................................................................................3
UnderstandingWeChat.........................................................................................................4DifferentiableFeaturesHaveLedtoDominanceinChina................................................................4WeChatanditsGlobalPeers...........................................................................................................6WeChatisaOne-StopApp..............................................................................................................7EngagementandRetentionareKey.................................................................................................7
DifferentiableFeaturesofWeChat’sAll-In-One-Platform.......................................................8
1.SocialMedia:MomentsandOfficialAccounts....................................................................8SharingStatus,NewsandInformationSubscriptions.......................................................................8MonetizationThroughArtificialIntelligence(AI)...........................................................................10OfficialAccountsthatUseAITechnology......................................................................................11
2.MobilePayment:WeChatPay..........................................................................................12WeChatPayisCatchingUpwithAlipay.........................................................................................12GrowingAdoptionofMobileTransactions....................................................................................14
3.ReplacingNativeApps:MiniPrograms.............................................................................15RestrictionsofMiniPrograms.......................................................................................................17NotAlone,butNottheFirstEither................................................................................................17
Challenges...........................................................................................................................18
ApplicationsinRetail...........................................................................................................19DepartmentStoresCanLeverageWeChatBothOnlineandOffline...............................................19WeChatisaChannelforMobileAdvertisements...........................................................................20WeChatEnablesaC2CE-CommerceEcosystem.............................................................................21LoyaltyProgramManagement......................................................................................................21
Conclusion...........................................................................................................................22
Appendix.............................................................................................................................23ARPUAnalysisofMessagingApps.................................................................................................23UserInterface...............................................................................................................................24
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DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
ExecutiveSummaryLaunchedin2011,WeChatistheflagshipmobileinstant-messagingplatformandsocialnetworkofChina’sinternetservicesgiantTencent.Withinjustsixyears,WeChathasgrowntobecomeoneofthelargestcommunicationplatformsintheworld,rivalingotherpopularappssuchasWhatsAppandFacebookMessenger.
DuringTencent’s2016annualresultannouncement,managementreiterated“Connection”asthestrategyfor2017,withsixinitiativestoexpandtheecosystemarounditscoresocialandcommunicationplatforms:1) addingmoreserviceswithinitssocialplatforms;2)increasingthe popularityofitsgames;3)expandingitsmarketshareofadvertisements;4) growingdigitalcontent;5)boostingtheusagefrequencyofitspayment system;and6)developingcloudandmachine-learningtechnology.As such,WeChatwillremainatthecoreofTencent’sbusinessdevelopment strategy.
ThreeKeyDifferentiatorsInthisreport,wehighlightthreekeydifferentiatorsthathaveledtoWeChat’sdominanceasaconnectivityplatform:
1. Socialmedia:MomentsandOfficialAccountsallowuserstoshare theirstoriesortofollowinfluencersandcompaniesthattheylike.
2. Mobilepayments:WeChatPayallowse-wallet,P2Ptransactionsas wellase-payment.
3. Miniapps:Dubbed“MiniPrograms,”miniappsallowusersto directlyaccessmobileservicesin-apponWeChat,withouttheneed todownloadanativeapp.
ChallengesAsitexpandsfurther,bothinChinaandoverseas,webelieveWeChatcouldfacethefollowingchallenges:
• Capacitythresholdofitsapp:Likea“Swissarmyknife”app,WeChat’snumerousfeaturescouldeventuallydragdowntheuserexperiencebecauseofthehugecomputingmemorydemand.
• Deceleratinggrowthoftheuserbaseofitscoreinstant-messagingproduct:AsWeChatnearsthesaturationpointinChina,itseekstogrowitsuserbasebytargetinglower-tiercitiesandoverseasmarkets.
WeChatforRetailWeChatactsnotonlyasasourceofnewsandpromotionalinformationforitsusers,butalsoallowscustomerstocheckoutitemsviamobilepaymentratherthanwaitinalongcheck-outqueue.ThankstoWeChat’sall-aroundfunctionality,itactsasachannelformobileadvertisements,aswellasloyaltyprogrammanagement.Inaddition,WeChatenablesaC2Ce-commerceecosystemthroughthesupportofthirdpartiessuchasWeidianandYouzan.SimilartoShopify,userscanopenanonlinestorethroughtheYouzanorWeidianplatforms,andthewebsitescanthenbeaccessedthroughWeChatbrowserandWeChatOfficialAccounts.
Inthisreport,wediscusshowWeChathasbeen,andcontinuestobe,asourceofdisruptioninretail,andidentifythreekeyproductdifferentiatorsthathaveledtoitsdominanceinChina.
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• Games• MiniPrograms• QRCodeScanner
• WeChatPay• Cards&Offers
• Moments• OfficialAccounts
• Chats• Contacts• WeChatOut
Communica_on
SocialNetworkServices(SNS)
DigitalContent
Finance
UnderstandingWeChatAsaninstant-messagingplatform,WeChathasadominantpositioninChinawithnoapparentcompetitorsinsight.CoupledwithdifferentiablefeaturessuchasMomentsandWeChatPay,itspaymentplatform,WeChatshouldeasilybeabletoincreaseuserengagementandretention.
DifferentiableFeaturesHaveLedtoDominanceinChinaAlthoughWeChatstartedoffasacommunicationtoolinChina,ithassinceevolvedintoaplatformwithmultiplefeatures,includinggaming,socialnetworkingandbillpayment.ThosefeatureshelpdifferentiateWeChatfromitspeersintheglobalarenaandenrichtheusers’experiences.Forexample,WeChatallowsuserstoplayTencent’smobilegameswithouthavingtoinstallordownloadthegames.WeChatPay,WeChat’smobilepaymentfeature,offersP2Ptransactionsande-wallet.
Figure1.ListofWeChatFeatures
Source:Companydata/FungGlobalRetail&Technology
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DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
Figure2.ListofWeChatFeatures
Function Category Description
Chats Communication Includingtextmessages,voicemessages,voicecalls,videocalls,emojis,stickersandfilesharing
Contacts Communication Syncwiththephone’scontactlist
WeChatOut Communication AVoiceoverInternetProtocol(VOIP)featurethathelpsusersoutsideofmainlandChinatocallmobileandlandlinesaroundtheglobeatlowrates
Moments SNS Anewsfeed-stylesocialplatformsimilartoFacebook’sNewsFeed
OfficialAccounts
SNS Allowsuserstosetupapagefordistributionofnews,articles,customerservices,etc.
Shake SNS DiscoverandconnectwithotherWeChatuserswhoarealsoshakingtheirphonesatthesametimearoundtheworld
PeopleNearby SNS AllowsuserstoviewothernearbyWeChatusers’profilesonalimitedbasisandinitiatecommunication
Games DigitalContent In-appgamesareavailableforuserstoplaysolo,withWeChatfriendsorothernearbyusers
MiniPrograms DigitalContent MobilesappswithinWeChatthatprimarilyaimtoprovidesimplebutvalue-addedservicestousers,withouttheneedtodownloadanativeapp
QRCodeScanner
DigitalContent Informationsuchascontacts,promotionsandhyperlinks,etc.,canbeembeddedinaQRcode
WeChatPay Finance Allowsuserstoenjoyawiderangeofpaymentservices,includingtaxihailing,hotelbooking,shopping(JD.com),publicservices,utilitiespayment,ticketing(i.e.,movie,railandflights),moneytransfers,etc.
Cards&Offers Finance Storesandconnectusers’membershipcardsanddigitalcoupons
Source:Companydata/FungGlobalRetail&Technology
Intermsofmonthlyactiveusers(MAU),WeChatreached889millioninthefourthquarteroffiscal2016,anincreaseof28%yearoveryear.AccordingtodatafromTencentPenguinIntelligenceandtheChinaAcademyofInformationandCommunicationsTechnology(CAICT),over55%ofusersuseWeChatforatleast60minutesaday.
Figure3.WeChatMAU
Source:Companydata/FungGlobalRetail&Technology
0%
20%
40%
60%
80%
100%
120%
0100200300400500600700800900
1,000
MAU(million) YOY(%)YoY%
WeChatreachedMAUof889millionin4Q16,anincreaseof28%yearoveryear.Over55%ofusersuseWeChatforatleast60minutesaday.
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WeChathasabsolutedominanceinthedomesticChinesemarket,withnonotablecompetitorsinsight—over90%ofitsMAUcomesfromChina,accordingtoQuestMobile.Itisalsothemost-usedappinChina,withthehighestnumberofactiveusers,at93%,aspointedoutbyasurveybytheChinaInternetNetworkInformationCenter(CNNIC).
Figure4.Top10Most-UsedAppsAmongChineseInternetUsers
Source:CNNIC/FungGlobalRetail&Technology
WeChatanditsGlobalPeersWeChat’speersintheinternationalarenaincludeWhatsApp,FacebookMessenger,LineandKakao.AlthoughtheseforeignplayersposenosubstantialthreattoWeChat’sChinamarketshare,theycouldposeasignificantobstacletoTencent’sglobalexpansionplan.
Figure5.ComparisonofMessagingApps,byFeature
*AsofJanuary2017**AsofJuly2016Dataasof4Q16Source:Companydata/FungGlobalRetail&Technology
93.0%71.3%
42.5%34.8%33.8%32.2%30.4%30.4%
27.5%27.2%
0% 20% 40% 60% 80% 100%
WeChatQQ
AlipayTencentVideo
YoukuiQiyi
UCBrowserSogouMobileDidiChuxing
Meituan
%ofAc_veUsers
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DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
WeChatisaOne-StopAppComparedtootherpopularmessagingapps,WeChatoffersamoreintegratedsocialmediaplatformthananyotherapplicationglobally.Forexample,WeChatusershaveaccesstotransactionfunctionalitiessuchasbookingataxi,orderingfoodandevenmanagingapersonalwealthfund.NotablefeaturesincludeMomentsforSNS,OfficialAccountsfornewsandWeChatPayforpayment.Inthissense,thecompanyisaheadofitspeerswhenitcomestoitsabilitytomonetizeaboveandbeyonditsmessagingservice—astrategyhighlightedbyTencent’spushintopayments,advertisingandgaming.BecauseofWeChat’sall-in-oneDNA,itsusersaremorelikelytoadoptnewtransactionfeaturesthanusersofanyoftheothermessagingserviceglobally.
EngagementandRetentionareKeyUserengagementandretentionarecriticalsuccessfactorsofanyonlineplatform.TheybecomeincreasinglyimportantasthegrowthinMAUcontinuestoslowdown.Dailyaverageusers(DAU)onaveragespend82minutesperdayonWeChat,whilethetotalnumberofmessagessentperdayhasgrownby67%yearoveryear.WeChatisbyfarthemostattention-grabbingappinChina,andthatcreatesanenviableenvironmentforfuturemonetizationthroughmoresophisticatedadvertising.
Figure6.MinutesSpentperDAUperDay,asofOctober2016
Source:QuestMobile/FungGlobalRetail&Technology
WeChatalsohasarelativelystrongretentionratewhencomparedtoothermajoronlineapplications/platformsinChina.
Figure7.30-DayNewInstallationRetentionRate,asofSeptember2016
Source:QuestMobile/FungGlobalRetail&Technology
Functionslikemobilepayment,SNS,newsandtaxihailingareintegratedinWeChat.
82
44 4333 29 22
WeChat YouKu Momo Weibo YY
66%
23% 19% 16%9% 7%
Inke WeChat Momo Weibo YY
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DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
WebelieveWeChathasthecapabilityandinfrastructuretodominatetheChineseinstant-messaging(IM)marketinthefuture.Itshighplatformstickinesscreatedbymanyadd-insanddifferentiablefunctionalitieshaveallhelpedtoretainusersandincreasetheirtimespentonWeChat’srelatedecosystem.
DifferentiableFeaturesofWeChat’sAll-In-One-PlatformInthesecondpartofourreport,weanalyzethreekeyfeaturesthatWeChatincorporatestobuilditsall-in-oneplatform.
1. Socialmedia:MomentsandOfficialAccounts
2. Mobilepayment:WeChatPay
3. Replacingnativeapps:MiniPrograms
1. SocialMedia:MomentsandOfficialAccountsMomentsandOfficialAccountstoWeChatarelikenewsfeedsandpagesaretoFacebook.ThemajordifferenceisthatWeChathasno“follow”function.Userscancommentorreacttootherusers’storiesonlyiftheyareconnectedasfriends.Webelievethisclosedecosystemleadstoasmallersocialcircle,buthigherstickiness,giventhecontentismorerelatabletotheuser.
SharingStatus,NewsandInformationSubscriptionsAccordingtodatafromTencentPenguinIntelligenceandtheChinaAcademyofInformationandCommunicationsTechnology(CAICT),morethan60%ofuserssaidtheychecktheirMomentsfeedeverytimetheyopenWeChat,whiletheother23%saidtheyoftenbrowseit.
MomentsMomentsallowsuserstosharetheirphotos,videos,articlesandevenwebsitesonareal-timebasis.Theirfriendscan“like”orcommentontheposttointeractwithotherusers.
AccordingtoWeChatdata,76.4%ofaccountsuseMomentstoshareexperiencesandcatchupwiththeirfriends’storiesonadailybasis.Thisfiguredoesnotincludetexting,whichWeChatwasoriginallydesignedfor.
Figure8.WeChatUsagebyFunction,March2016
Source:WeChat/FungGlobalRetail&Technology
MomentsandOfficialAccountsarelikenewsfeedandpagesinFacebook.Bothfeaturesallownewsandinformationsharing.
Momentsallowsuserstosharephotos,videosandarticlesonareal-timebasis.
76.4%
67.0%
45.3%
44.3%
12.7%
4.3%
0% 20% 40% 60% 80% 100%
Moments
Texnng
VoiceCalls
PublicAccounts
Video
%ofUsagebyFunc_on
OfficialAccount
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DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
OfficialAccountsOfficialAccountsallowuserstosetupapagefordistributionofnews,articles,customerservices,etc.Alluserscanfollowanypublicaccounttheywanttostayontopofissues.TherearethreetypesofOfficialAccounts:
1. Subscription:Usedtodistributeinformation,newsorarticlestogeneratepublicity,forexample,newspapersandmagazines.Theaccountisonlyallowedtosendonemessageperdaytoallusers.
2. Service:Usedforcustomerservicesandserviceinquiries,forexample,banks.Theaccountisonlyallowedtosendfourmessagespermonthtoallusers.
3. Enterprise:Usedforinternalcommunicationsandmanagement.
ShanghaicitygovernmenthasapublicaccountonWeChat.Itspurposeistoprovidereal-timeinfoontraffic,publictransportation,weather,airquality,etc.
Figure9.PublicAccountofShanghaiCityGovernment,asofMarch2016
Source:Companydata/FungGlobalRetail&Technology
AccordingtodatafromtheCAICT,newsandpromotionsarethetwomainreasonspeoplefollowWeChataccounts.
Figure10.OfficialAccountsUsagebyFunction,asofMarch2016
Source:Companydata/FungGlobalRetail&Technology
OfficialAccountsallowuserstosetupapagefordistributionofnews,articles,customerservices,etc.
74.2%41.9%
30.9%24.6%
19.3%11.9%
5.5%
0% 20% 40% 60% 80%
NewsBusinessandPromonon
AccessServicesPolincalArncles
BusinessConsulnngGovernmentandPublicServices
Others
%ofRespondents
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DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
MonetizationThroughArtificialIntelligence(AI)AlloftheaforementionedfunctionsembeddedinWeChatmakeitessentiallyaone-stopsolutionthatenablesaseamlessexperienceforday-to-dayupdates,andhencestrengthenstheuserretentionratecomparedtoothersocialmediaandmessagingtools.
AsthenumberofWeChatfriends,contentonMomentsandinformationpostedbyOfficialAccountscontinuestogrow,WeChatfacesthebigger-than-everchallengetofilterandpersonalizetheinformationtosuitusers’needs.
Tencenthasbegunresearchonartificialintelligence(AI)—includingsentimentanalysis,trackingthespreadingofrumorsorscamsandsoftwaretoconvertvoicemessagestotext—soadvertisementscanbepersonalized,andhencecreatemorevaluetobothendusersandenterprises.WeChatIndex,isoneoftheapplicationsthattrackssentimentanalysis.SimilartoGoogleTrends,itcanshowthepopularityofdifferentkeywordsthataresearchedonWeChat.
ThecorevalueofWeChatisintheconversationdatageneratedbytheenormoususerbase,whichTencentcanmonetizethroughadvertisements.Byleveragingtechnologysuchasnaturallanguageprocessing(NLP)andmachinelearning,advertisementscanbepersonalized,andhencecreatemorevaluetobothendusersandenterprises.
Figure11.WeChatIndex
Source:Chuansong
Advertisementisthemajormethodofmonetization.ByleveragingAI,WeChatcanpersonalizemobileadstofitendusers’needs.
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DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
CASESTU
DY
OfficialAccountsthatUseAITechnologyNotonlydoesTencentleverageAItechnologyinWeChat,butsomecompaniesalsointegrateAIintotheirWeChatOfficialAccounts.Below,weincludetwoexamplesofhowAIcanaddvaluetothemessagingtool:ChumenWenwenandXiaoBing.
出门问问 (ChumenWenwen):FoundedbyformerGoogleengineers,ChumenWenwenhasraised$20millioninfundingsofarthroughinvestorssuchasSequoiaCapital.Theconceptissimple:itcombines“Siri-style”voicerecognition,AIsoftwareandWeChat.TheusertellsChumenWenwenwhattheywant,forexample,anearbyItalianrestaurant,amovieticketoramassage,anditwillsendtheuseralistofallthematchesaroundthemviaathird-partyapplikeDianping.
Figure12.ChumenWenwenUserInterface
Source:Walkthechat
XiaoBing:PoweredanddevelopedbyMicrosoft,XiaoBingcananalyzeusermessagingthroughNLP.
Figure13.XiaoBingUserInterface
Source:Walkthechat
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DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
2. MobilePayment:WeChatPayWeChatPaywaslaunchedin2013.BasedondatafromtheCAICT,morethan300millionusershavetiedtheirbankcardstotheirWeChataccount.ThecombinationofWeChatPayandQQWalletisthe#2paymentplatforminChina.
WeChatPayprovidesaneasyandconvenientsolutiontoB2C(business-to-consumer)andC2C(consumer-to-consumer)payment.Consumerscanpaywiththeirphone,socangocashless,withnoneedtocarrychange.WeChatoccasionallyhaspromotionaldiscountcampaigns,whichalsocreateincentivesforuserstoadoptWeChatPay.
AccordingtoGlobalWebIndex,33%ofChineseusershaveusedWeChattopayforanitem,whichiscomparabletoAlipay—the#1paymentplatforminChina—whichisownedbyAntFinancialServicesGroup.ThatWeChatPayhasmanagedtocatchupwithAlipayinonlythreeyearsisremarkable.Tencentdoesnothaveane-commerceecosystematitsdisposallikeAlibabadoes.ForamoredetailedanalysisonmobilepaymentsinChina,pleaserefertoourpreviouspublicationpublishedinNovember2016:MobilePaymentsinChina.
Figure14.MobilePaymentServicesinChina,asofFebruary2017
Note:PercentageofinternetuserswhohaveusedmobilepaymentSource:GlobalWebIndex/FungGlobalRetail&Technology
WeChatPayisCatchingUpwithAlipayAlipayisthelargestcompetitivethreattoWeChatPayintheChinamobilepaymentspace.Asoneofthelargeste-commerceplatformsintheworld,TaobaodrivestherapidadoptionofAlipayamongconsumers.
AlthoughWeChatPaywaslatetoenterthemobilepaymentmarket,itofferssimilarfunctionstoAlipayandenteredintoastrategiccooperationwithJD.cominordercomplementthecompany’se-commercepaymentfunctionalities.
Thekeyfunctionsofthetwocompanies—AlipayandWeChatPay—aresimilar:theybothoffermoneytransfer,billpayments,e-commercepayments,etc.
Alipay WeChatPay ApplePay XiaomiPay HuaweiPay
WeChatPayprovidesaneasyandconvenientsolutiontoB2CandC2Cpayment.
Inonlysixquarters,WeChatPay’ssharebytransactionvolumeincreasedto38%inthethirdquarterof2016,comparedtoAlipaywhichhada50%marketshare.
1%2%5%33%39%
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DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
Figure15.AComparisonofWeChatPayandAlipay
WeChatPay Alipay
NumberofUsers(asofFeb2017)
~300millionusersconnectedbybankaccount ~400millionregisteredusers
KeyFunctions Moneytransfer,billpayments,e-commercepayments,mobilebalancetop-up,hotelbooking,ticketpurchasing
DifferentiableFeatures
Investmentinwealthmanagementfunds,taxiordering Billsharing,bankaccountbalancechecking
CurrenciesSupported >9 18
TransactionCharges 0.1%pertransactionoverRMB1,000 0.1%pertransactiononceRMB20,000limitpassed
FocusMarketsOver20countries,includingChina,Japan,Australia,India,Indonesia,Malaysia,Singapore,theUK,Italyandothers
Over110countries,includingChina,theUS,Brazil,Russia,Germany,Spain,Italy,Israelandothers
Source:AllChinaTech/ASEANToday/Alipay/FungGlobalRetail&Technology
WeChatPayaccountedforonly11.4%oftotalmobilepaymenttransactionvolumecomparedtoAlipay,whichhada74.9%marketshareinthefirstquarterof2015.Inonlysixquarters,WeChatPay’sshareincreasedto38%inthethirdquarterof2016,accordingtoAnalysys.TheincreaseinadoptionwasmainlyduetoitsintegrationwithJD.cominMay2016andtheintroductionofP2P(person-to-person)moneytransfers.
Figure16.MarketSharebyTransactionVolume
Source:Analysys/FungGlobalRetail&Technology
74.9%
50.4%
11.4%
38.1%
0%
10%
20%
30%
40%
50%
60%
70%
80%
1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16
MarketS
harebyTran
sac_on
Vo
lume
Alipay WeChatPay
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DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
AccordingtoWeChatdata,thesendingandreceivingofdigitalhongbao(theredpacketenvelopesstuffedwithmoneythatfamilymembersgivetoyoungerrelativesandfriendsduringChineseNewYear)isthemost-usedfeatureofWeChat.Thesecond-andthird-mostusedfeaturesarepaymentsandmoneytransfers,respectively.Theredenvelopepackets,coupledwiththediscountcouponsmerchantsgiveoutaroundtheholidayperiod,providesalesopportunities,asconsumerscanusethemoneyandcouponsthataregiventospendwithintheWeChatsystem.
Source:Shutterstock
Figure17.WeChatPayFunctionsUsedbyWeChatUsersinChina,asofMarch2016
Source:TencentPenguinIntelligenceandChinaAcademyofInformationandCommunicationsTechnology(CAICT)
GrowingAdoptionofMobileTransactionsWeChat’sonline-to-offline(O2O)opportunitiesarebeingrecognizedbymerchants.AccordingtoaTencentpressreleaseinFebruary2016,morethan300,000offlinestoresworldwideacceptedWeChatPay.WeChathasalsobeguntochargeusersafeewhentheytransfermoneyfromtheirWeChatPayaccounttotheirbankaccount,andasaresult,userswillbemorelikelytokeeptheirmoneywithintheWeChatecosystem.
Sendingredpackets,makingpaymentsandmoneytransferringarethemost-usedfunctionsbyWeChatusers.
84.7%
58.1%
56.9%
33.1%
20.0%
13.6%
12.8%
9.0%
0% 20% 40% 60% 80% 100%
DigitalRedPacketEnvelopes
MakingPayments
MoneyTransfertoContacts
Receivables
WeChatCreditCard
PayingOffCreditCard
SplivngPaymentswithFriends
Others
%ofRespondents
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DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
E-commerce:E-commerceislikelytoplayabiggerroleindrivingWeChatPay’smonetizationefforts.InMay2016,TencentandJD.comsaidtheywouldofferaWeChatmarketingandbrandingdataanalyticstooltomarketersworldwide.Withthetool,TencentwillprovidedatatomarketersaboutwhichpublicWeChataccountsusersfollowandwhichbrandsandcelebritiestheylike.JD.comwilloffersalesdataaboutusers’productpurchases.Thedatacouldhelpmarketerstargetspecificdemographicsmostlikelytobuycertainproducts.
Cross-borderpayments:WeChatPayallowsusertopayinrenminbiwithoutworryingabouttheexchangeratewhentheybuyproductsoverseasviatheapp.WeChatautomaticallysettlesthepaymentwithretailersinthelocalcurrency.
AccordingtodatafromtheCAICT,67%ofusersspentover¥100permonthinMarch2016,morethandoublelastyear’sfigure;and34%spentover¥500permonth,sixtimesmorethanlastyear’s5%.WebelievethisisanearlysignthatusersarestartingtouseWeChatpaymentforlargertransactions,beyondsmall-paymenttransferssuchasdigitalredpackets.
Figure18.WeChatPayFunctionsUsedbyWeChatUsersinChina,asofMarch2016
Source:TencentPenguinIntelligenceandChinaAcademyofInformationandCommunicationsTechnology(CAICT)
3. ReplacingNativeApps:MiniPrograms“Noinstallationrequired,”“atyourfingertips”and“easycome,easygo”arethreecharacteristicsofWeChatminiprograms.Byofferingnativeapp-likeexperienceswithinWeChat,miniprogramsshouldempowersmall-andmedium-sizedenterprises(SME)tohavemoreflexibilityinprovidingengagingcontent.Usersshouldalsobenefit,astheywillnothavetoleaveWeChattoenjoyaseamlessexperience.ForamoredetailedanalysisonWeChatminiprograms,pleaserefertoourpreviouspublicationinJanuary2017:APreviewofWeChatMiniPrograms.
Thegrowingpopularityofe-commerceandcross-borderpaymentshelpstoincreasetheadoptionofWeChatPay
MiniProgramsoffernativeapp-likeexperienceswithinWeChat.ExamplesofexistingminiprogramsincludeO2O,e-commerce,taxiordering,OTAandutilitytools.
31%
19%
14%
13%
8%
7%
6%
0% 5% 10% 15% 20% 25% 30% 35%
<RMB100
RMB100–300
RMB300–500
RMB500–1,000
RMB1,000–2,000
RMB2,000–5,000
>RMB5,000
%ofRespondents
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DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
Examplesofexistingminiprogramsinclude:
1. Online-to-offline(O2O):MeituanWaimai,afoodorderingplatformwithdeliveryservice.
2. E-commerce:JD.com,ane-commerceplatformforconsumerelectronics,apparel,jewelryandmore.
3. Taxiordering:DidiChuxing,ataxi-hailingandride-sharingonlineplatform,providingtransportationservicesforover400citiesinChina.
4. OTA:Ctrip,atravelagentprovidingaccommodation,transportationticketing,packagedtoursandtravelmanagement.
5. Utilitytools:XCurrency,whichprovidesreal-timeforeignexchangerateinformation.
Figure19.ExampleofMiniApps
Source:WeChat
WeChatmanagementhasstressedthatthefunctionofitsminiprogramsistohelpofflinemerchantsestablishapresenceonline,andthatminiprogramsasawholewillgrowatameasuredpacetoensuretheuserexperienceisnotcompromised.Ratherthanfocusingonmonetization,miniprogramsaremoresimilartoanecosystemwithinfrastructuresupporttoenhanceoveralluserstickinessandserviceusageonWeChat.Miniprogramsarepositionedasasustainablego-toappforbusinesspartnersandusers.
MiniProgramscannotentirelyreplacenativeapps,as:1)itisaclosedsystemthatisoverseenstrictlybyTencent;2)thefunctionsarestrippeddown;and3)itisdifficultforcompaniestopromote.
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DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
RestrictionsofMiniProgramsEventhoughminiprogramscanprovideaseeminglyone-stopsolution,theycannotentirelyreplacenativeapps.Thedownsideincludes:
• Closedsystem:AsafeaturewithinWeChat,thedevelopmentofminiprogramsisoverseenstrictlybyTencent.AppssuchasTaobao,UberandXiamiMusicwillnotbeallowedonminiprograms.
• Stripped-downfunctions:MostbigcompaniessuchasJD.comusetheirnativeapps,whichhavehighdatatariffs,togeneratevaluableoperationaldataforfuturedevelopment.Thus,miniprogramsarelikelytoserveonlyasasupplementtotheoriginalapplications,giventhatonlylimitedfunctionsareavailable.
• Decentralized:Miniprogramsadvocate“noinstallationrequired,atyourfingertipsandeasycome,easygo,”whichcanbeadouble-edgedsword.Currently,miniprogramsdonothaveanappstore,donotsupportsharingonMomentsanddonothaveafuzzysearchfunctioneither.Asaresult,itmaybedifficultforcompaniestopromoteandmarkettheirproprietaryminiprograms.
NotAlone,butNottheFirstEitherAlthoughminiprogramscanhelptoconnectSMEswithinternetusers,theyarenottheonlyappthatofferthis.
• Baidu’s“LightApp”wasunveiledin2013.Itenablessearchresultstoshowapp-powereddisplayswithrichinformation.AlthoughBaiduhasn’tofficiallydiscarded“LightApp,”thetechnicalsupportincludingsoftwareandcustomerservicesfromBaiduwasstoppedlastyear,duetolackofasufficientnumberofdevelopers.
• Alibaba’sUCwebbrowserandQihoo’s360webbrowserallowuserstoaddHTM5-basedwebapplicationswithouthavingtoinstallanyprogram.Althoughbothappsarestillupandrunning,theyactasanalternativebrowsertoChrome,SafariandFirefox,ratherthanasadirectcompetitortominiprograms.
• Google’sInstantAppsallowsAndroidappstoruninstantlywithoutinstallationviasocialmedia,search,messagingandotherlinks.GooglelaunchedInstantAppsinJanuary2017,andthefirstcoupleofInstantAppsarereadyforlimitedtesting.GiventhatGoogle’sappstoreisnotyetavailableinChina,InstantAppsisunlikelytoposeanyimmediatethreattominiprograms.
Withover889millionMAU,WeChathasanunprecedentedlargeplatformforminiprogramstogrowcomparedtoitsChinesepeers.ThelowdevelopmentcostofminiprogramsrelativetothatofnativeappscouldeventuallybeanincentiveforSMEs.
CompetitorslikeBaidu,AlibabaandGooglehavelaunchedapplicationssimilartoMiniPrograms.
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DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
ChallengesAsitseeksfurthergrowth,bothinChinaandoverseas,WeChatcouldfacethefollowingchallenges:1)thecapacitythresholdoftheapps;and2)deceleratinggrowthofitsuserbase.
1.Capacitythresholdoftheapps:AsTencentcontinuestoaddmorefeaturestoWeChat,suchasmobilepaymentandvideoads,thecapacityoftheappcouldpotentiallyreachathreshold.Competitors,likeKakaoTalkandLINE,havealreadydevelopedsomeout-linkedappstosupporttheirecosystem.Forexample,KakaoTaxifortaxihailing,KakaoTopicfornews,LINEMapsfornavigation,LINESHOPfore-commerce,etc.Byspinningoffcomputing-powerdemandingfunctions,themessagingappscouldfocusonincreasingtheuserexperienceonsocialnetworks.Miniprogramscouldmitigatethisdownsidetosomedegree,butitwillbedifficultforMomentstoperformexactlylikeFacebookdoes.AccordingtoAppQuest,WeChatmemoryusageisalreadythehighestamongthedifferentmessagingapps,soperformance,especiallyonlow-endsmartphones,couldbeaconcernifTencentfailstostrikeabalancebetweenfunctionalityandvalue-addedcontent.
Figure20.DailyMemoryUsage(inMB)
Source:AppQuest
2.Deceleratinggrowthoftheuserbase:Duetothestrongpresenceofcompetitorsinothermarkets,suchasLINE,Kakaotalk,WhatsAppandFacebookMessenger,Tencentisstrugglingwithitsglobalexpansionplans.Backin2015,TencentPresident,MartinLau,saidthatoverseasuseracquisitionwouldsooncometoanend.Yet,WeChatisalreadyseeingdeceleratinggrowthofitsuserbase(28%year-over-yeargrowthinthefourthquarterof2016comparedto30%yearoveryearinthethirdquarterof2016),with93%usageintier-1cities,accordingtoTencentdata.Furthergrowthwilllikelycomefromtier-3orlowercitieswheretheinternetandsmartphonepenetrationhasroomtogrow.
ThecapacitythresholdofanappanddeceleratinggrowthofitsuserbasecouldpotentiallylimitthegrowthofWeChat
68.9
48.6 48.3 46.8 45.2
29.9
WeChat Facebook WhatsApp Line Kaokao Messenger
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DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
Figure21.WeChatUsagebyCityTier,asofOctober2015
Source:Tencent/FungGlobalRetail&Technology
ApplicationsinRetailWeChathasbecomeacorepartofthedisruptiveforceinretail.Whileithelpsbridgethegapbetweensocialmediaande-commerce,throughactualengagementwithcustomers,italsocreatesanewwayofshoppinginphysicalstores.
WeChatprovidesseveralfunctionsthatincreasetheefficiencyofbusinessoperationsandenhanceconsumers’shoppingexperiences,suchas:
• Barcodescanner:ListstheChinesee-commercesitesthatstocktheproductinsearch.
• Mobilepayment:Allowsconsumerstopayeitheronlineoratthephysicalstore.
• OfficialAccounts:Allowcorporatestoengagewithcustomersthroughcustomerservice,newsandpromotions.
• Membershipcards:Enablemanagementofloyaltyprograms.
DepartmentStoresCanLeverageWeChatBothOnlineandOfflineThepublicaccountsofChinesedepartmentstoresnotonlyprovidenewsandpromotionalinformation,theyalsoallowcustomerstocheckoutitemstheywanttopurchasebysimplyusingWeChattoscanthebarcodeprovidedatthecashier.
IntimeRetail,oneoftheleadingdepartmentstoreandmalloperatorsinChina,doesexactlythat.ItallowsusertopayforpurchasesthroughWeChatPay—aprocessthattakeslessthantwominutes.LeveragingonthefunctionsofWeChat,Intimecaneffectivelyshortenthelongqueuesforthecashierinthestoreand,inturn,improvethecustomershoppingexperienceandconversionrate.CustomerscanalsoorderspecificproductsontheIntimeRetailPublicAccount,withtheguaranteethattheonlineandin-storepricearethesame,andchooseanynearbystoreforpickup.
93%
69%
43%
27%
28%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Tier1
Tier2
Tier3
Tier4
Tier5
UsageRate
WeChatcreatesnewshoppingexperiences,astheappsprovidefunctionsthatincreasetheefficiencyofbusinessoperationsandenhancetheshoppingexperience.
DepartmentstorescanuseWeChattocheckoutitemsaswellasformobilepayment.
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DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
Figure22.IntimeRetailPublicAccount
Source:WeChat/FungGlobalRetail&Technology
WeChatisaChannelforMobileAdvertisementsDuringChineseNewYearthisyear,WeChatlaunchedanativevideoadvertisementcampaign,selectingagroupofadvertisersforthetrial.AccordingtodatafromWeChatAdAssistant,theresultswereverypositive.
Forexample,ChineseelectronicscompanyXiaomisawa27%increaseinpurchaseintention;luxuryFrenchperfumesandcosmeticsgiantLancômesawa352%jumpinthenumberofsearchesforthebrandanda114%increaseinthebrowserateforthewebpage;andYili,aleadingChinesemilkproducer,sawa305%leapinordersone-commercesites.
ForeignluxurybrandshavebeguntoadvertiseonWeChattodrivesalesinChina.AccordingtoJingDaily,thedigitalpublicationonluxuryconsumertrendsinChina,outof25luxurybrands—includingChanel,Coach,Dolce&GabbanaandLouisVuitton,amongothers—92%haveaWeChatofficialaccountand64%haveaWeChatserviceaccount.Aserviceaccountisanupgradeofanofficialaccountthatcanbettercomplementacompany’sbasiccontentbroadcastingactivities.Below,aresomeexamplesforbrandsthatuseWeChattoengagewithcustomers.
• Coach:InSeptember2016,CoachdecidedtoexitTmall,althoughitstillusesWeChattoreachconsumersinChina.Incontrasttothemass-marketimageofTmall,WeChatallowsbrandstoreachconsumersonamorepersonallevel.
• KateSpadecreatedaflyinglanterngamefortheMid-AutumnFestivalwherebycustomerscouldcustomizealanternandsendit
RetailbrandsareusingWeChatasachannelformobileadvertisements.
WiththehelpofWeChat’sadvertisements,Xiaomisawa27%increaseinpurchaseintentionandLancômesawa352%jumpinthenumberofsearches.
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DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
intotheskywiththeirwishes.TheycouldevenscanQRcodestosharewithfriendsandwinprizes.
• Zara’ssiteusesthecustomer’scurrentlocationtoshownearbystores.Location-sharingallowsbrandstopushpromotionstocustomersatnearbystores.
• LouisVuitton’sadminaccountsallowforchat-based,pre-programmedcustomerservice.
• H&M’s“LittleShop”serviceaccountallowsforshoppingandone-clickpayment.
WeChatEnablesaC2CE-CommerceEcosystemYouzanandWeidianaretwooftheleadingSoftwareasaService(SaaS)providersforonlinestoresinChina.SimilartoShopify,userscanopenanonlinestorethroughtheYouzanorWeidianplatforms.ThewebsitescanthenbeaccessedthroughWeChatbrowserandWeChatOfficialAccounts.
ByconnectingtoWeChat,storeownerscanuseWeChatPayfortransactionsandOfficialAccountsforadvertisements.Consumerscanbrowsegoodsonlinebeforebuyingthem,forwardthemtofriendsorgroupsusingWeChat,orpublishtheminMoments.
Figure23.WeidianUserInterface
Source:TMO/FungGlobalRetail&Technology
LoyaltyProgramManagementByintegratingitsmobilepaymentsolution,WeChatcansynchronizewithmembers’shoppingcardstogive,forexample,extradiscountsforfuturecashlesspayments.Thereareseveralbenefitstotakingaphysicalmembershipcardandmakingita“virtualcard”onWeChat:
• Virtualcardscannotgetlost.
• Consumerscaneasilychecktheirpointsbalanceorpurchasehistoryatanytimeontheirmobilephone.
Third-partyapplicationsleverageWeChatasaplatformtopromoteC2Ce-commerce.
WeChatcansynchronizemembers’shoppingcardswiththeirWeChataccountformoreefficientloyaltyprogrammanagement.
Step1 Step2 Step3
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DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
• ConsumerscaneasilygetandsharediscountsandspecialofferswithfriendsthroughWeChat.
TheadvantageofWeChat’sloyaltyprogramoverstandalonemobileloyaltyprogramsisthehighstickinessofWeChatusers.Inotherwords,usersaremorewillingtoreceivenotificationsinWeChatcomparedtostandalonemobileloyaltyprograms.
Figure24.MembershipCardInterfaceinWeChat
Source:ChinaChannel6666
ConclusionThankstoitsdifferentiablefeatures,suchasMomentsanditspaymentplatformWeChatPay,WeChathasadominantpositioninChina,withnoapparentcompetitorsinsight.Althoughtherearechallengestoexpandingoverseas,TencentwilllikelyfocusonmonetizationofWeChatinChinathroughadvertisementsandonlinetransactionsinthenextfewyears.
Ontheretailside,WeChatisanenablerofdisruptivee-commerce,asitbridgesthegapbetweensocialmarketingandactualengagementwithcustomers.ThereisanincreasingtrendfortraditionalbrandstoadoptWeChataspartoftheirmarketingplatform.WeChatcanbethekeytoaccessChina,andpotentiallythefirststeptoestablishinganO2Ochannel.
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DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
AppendixARPUAnalysisofMessagingAppsBybreakingdownaveragerevenueperuser(ARPU),wecangetabetterunderstandingofthemonetizationofmessagingapps.
Wecategorizefourmajormonetizationmodels:1)advertising(promotedcontent,accountsorproducts);2)digitalcontent(games,stickers,emoji,musicandvideo);3)finance(P2Ppayment,e-walletandloans);and4)O2Oservices(fooddelivery,restaurantreservationsandtaxiservices).
Figure25.APRUbyMessagingApps(MAUbased,USD)
Source:Companyreports/FungGlobalRetail&Technology
Figure26.RevenuebyChannels
Source:Companyreports/FungGlobalRetail&Technology
$4.60$0.10 $0.00
$5.90
$25.60
WeChat WhatsApp Line Talk Messenger
Advernsing2%
DigitalContent86%
Finance6%
O2O0%
Others6%
Advernsing100%
Advernsing15%
DigitalContent80%
Finance0%
O2O0%
Others5%
Line
Advernsing DigitalContent Finance O2O Others
Advernsing9%
DigitalContent77%
Finance0%
O2O0%
Others14%
Kakao
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DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
Astheabovedatashows,digitalcontentisthemostcommonwaytogeneraterevenue.Usercanbuystickerstochatwithfriends,orvirtualcoinstoboosttheirperformancewhenplayinggames.Yet,inthelongerterm,webelievefinanceandO2Oserviceswilltakeoverasbeingthecorecontributortorevenue.
Figure27.MonetizationWorkflowforWeChat
Source:Companyreports/FungGlobalRetail&Technology
UserInterface
Figure28.FeaturesDemonstrationonWeChat
Source:WeChat
MobilePayment PublicAccountMobileGaming
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DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
Figure29.OfficialAccountsUserInterface
Source:WeChat
Figure30.WeChatPayUserInterface
Source:WeChat
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DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
Figure31.MiniPrograms
Source:WeChat
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DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
DeborahWeinswig,CPAManagingDirectorFungGlobalRetail&TechnologyNewYork:917.655.6790HongKong:852.6119.1779China:86.186.1420.3016 [email protected]
MatthewLeeResearchAssistant
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