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WeChat facing challenges and opportunities

During a May tour of the headquarters of Caixin, a famous media group in China, a delegation of German entrepreneurs were shocked after being told that WeChat, a popular instant messaging app owned by the country's technology giant Tencent, had attracted 800 million users. And after learning that the app can even help users book a bath online for their pets, they exclaimed in great surprise.

Just two weeks later, Tencent published its first-quarter fiscal report, announcing that the number of the global users of WeChat reached a new height at 938 million.

As an app originally designed as a social media tool, WeChat has developed into a widely used platform that includes payment, taxi-hailing, news services and food delivery.

In the 22nd issue of 2017, the Caixin Weekly ran a cover story to talk about the future development of WeChat and its competition with Apple's iOS.

How will WeChat reshape the future?

Tencent, the parent company of WeChat, is China's largest digital virtual content provider offering services ranging from news feed and net literature to game and animation. And WeChat has become Tencent's key product responsible for content distribution and traffic source.

As Tencent is increasing investment in the Internet sector, many Internet companies such as JD.com and Daojia.com have connected their services with WeChat to gain more traffic.

In 2012, WeChat launched Public Account, a free subscription service that allows individuals and organizations to post text and video messages to all their subscribers. As of the end of 2016, more than 12 million public accounts have been set up by individuals and organizations, a huge figure that contributed to the creation of a profitable advertising system under the framework.

In August 2013, WeChat launched a mobile payment tool called WeChat Pay, which is the biggest competitor of Alibaba's Alipay. At present, WeChat Pay has grasped a large share of the mobile payment market. In 2015, WeChat Pay introduced third-party service providers and made inroads into the segmented areas of electronic commerce and online to offline (O2O) commerce, dealing a heavy blow to Alipay that has existed for more than a decade.

At the beginning of 2017, WeChat unveiled Mini Apps on its platform to allow users to directly access mobile services in-app on WeChat without the need to download a native app. The leading bike-sharing service Mobike became the first app that was built into Mini Apps. Based on its functionality and effectiveness, Mini Apps has the potential to distribute traffic for app developers, who hope that their apps' information could be shared in WeChat Moments some day to attract more traffic.

In May 2017, WeChat added a new search function in an update, which was widely seen as a push to rival Baidu, the biggest search engine in China. A former senior executive of the WeChat team said that any new move made by WeChat would be easily interpreted as a challenge to other industry competitors.

"In mid-2016, Apple said that the number of iOS users reached over 1 billion, and WeChat had a similar user base," a foreign hardware producer said, adding that WeChat had the ability to build an operating system.

According to the profit model of system producers, WeChat has had the ability to monetize the large user base.

Public Account profits drop

Since its official launch in 2012, Public Account has seen an explosive growth despite strict content censorship rules. The popularity of Public Account gave rise to a transformation of the traditional media organizations, with many media persons establishing their own public accounts.

"Currently, advertisers deliver some ads in new media platforms including public accounts, verified Weibo accounts and WeChat Moments. Web portals are now classified as traditional media while social media are new media," an executive of a public relations company said.

However, the executive revealed that Procter & Gamble reduced its ad delivery on the Internet-based platforms including Facebook due to the fact that the precise ad delivery failed to bring economic benefits.

In China, WeChat public accounts are facing a similar situation. According to statistics from Host, a third-party marketing services provider for WeChat public account operators, only 4.63 percent of articles published on the public accounts were read on average. In 2016, only 10 percent of the 12 million public accounts had die-hard subscribers, data from iiMedia Research showed.

"The era of Public Account brining benefits has gone. Now it is harder for an operator to make his/her public account a big one in a short term," a person who runs an art-themed public account told Caixin. In 2014, he and his team launched the art-themed public account and attracted 150,000 subscribers in a year and a half with each article published on the public account being read by around 10,000 readers. But in 2016 when he and his team launched another similar public account, he found it hard to lure subscribers. Less subscribers means less interest from advertisers, he said.

What's more, WeChat's public accounts are facing challenges from Baidu and Today's Headlines, which have subsidized their content providers to produce more original articles on their platforms.

In order to overcome the challenges, WeChat added the new search function in May to allow users to find information, articles and music published and shared by individual users and public accounts within the walls of the app by typing keywords.

Search and content distribution have become a business model of moneymaking, which Baidu and Today's Headlines are depending on to earn advertising revenue.

According to Tencent's first-quarter fiscal report, revenues from online advertising increased 47 percent year-on-year to 6.8 billion yuan, most of which were contributed by WeChat Moments, public accounts, app store and mobile browser.

Zhang Yi, CEO of iiMedia Research, said that search business would be an important tool that Tencent could use if it wants to increase its advertising revenues.

Competition and cooperation with iOS

On May 31, Kleiner Perkins Caufield & Byers partner Mary Meeker delivered her annual Internet trends report, which said that the 938 million users made WeChat the world's third-largest app following Facebook, Messenger and WhatApp, with Chinese users' loyalty to WeChat higher than that to other apps. In April, statistics showed that users spent nine hours on WeChat on average every day.

With the large user base and the launch of Mini App, there has been speculation that WeChat would pose a challenge to the operating systems especially Apple's iOS.

On April 27, WeChat closed the function to reward its public account articles on iOS after Apple asked WeChat's reward function to adopt its own payment system, meaning 30 percent of each payment goes to Apple.

iOS has its own business model in which it earns money through advertising and marketing as well as taking 30 percent commission on all purchases within an app using the In-App Purchase (IAP).

"Apple acts in accordance with its rules, but most of the time, the rules are not very clear," a developer of a content website said.

If WeChat's reward function is linked with IAP, it means that public account operators must register an iOS account, which will harm WeChat's self-developing content ecosystem.

At an investors' conference in May, Tencent Chairman Pony Ma commented on the closure of WeChat's reward function, describing it as a "misunderstanding" between WeChat and Apple. "Our (WeChat and Apple) goals are the same, but with the development of technology, the boundaries of some businesses are becoming more and more obscure. The ties between Internet companies and hardware makers are closer and closer and their cooperation is being strengthened," Ma said.

Media reports said that Tencent and Apple are still in talks on the issue.

In fact, WeChat has become less dependent on iOS as it has the ability to distribute virtual content on its own platform. With the internationalization of WeChat and the expansion of its user base, WeChat will have more say in the dividend sharing mechanism.

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