BAT 2.0: Tencent
Brand & Content Management Guide – Part IV
This guide is part of the 2020 BAT Series. BAT – formerly consisting of Baidu, Alibaba and Tencent – continues to evolve and shape global technology trends. For the new decade, Baidu is out, ByteDance is in. BAT 2.0. ByteDance. Alibaba. Tencent. This changing of the guard reflects the culture of Chinese internet consumption. Mobile-first app ecosystems have fully replaced platforms previously described as ‘western-clones’. BAT 2.0 are leaders of innovation.
The Chinese digital landscape is hyper-fast and hyper-social, with familiar big names such as Google, Facebook, Amazon and Netflix excluded from the market. As such, China’s online world has diverged from the internet as we know it in the west – a ‘splinternet’. US tech giants now imitate features from their Chinese counterparts, with the two world’s rarely colliding. Western brands regularly clash with imitators in and disseminating from China. For success in China, brand owners must learn to navigate the online environment of the world’s largest manufacturer and exporter of pirated goods.
In 2020, BAT 2.0 command domestic digital dominance, and are increasingly reaching out from national constraints to exert influence over international digital culture. This guide provides an understanding of each BAT member, recognising the vibrant land of opportunity for commercialising brand assets whilst appreciating the flip side – the brand protection risks. Continue reading below to learn more about Tencent – the tech company which developed the world’s only true super app and is now shifting beyond a ‘post-app’ world through a unique brand of social-entertainment.
Tencent is the least well-known to a western audience out of the global list of tech giants. Most are more familiar with Asian consumer electronics companies such as Samsung and Huawei. But when it comes to size and reach, Tencent was the first company in Asia to pass the $500 valuation, dominates the domestic social network market and has investment tentacles in companies across the world including Snapchat and Tesla.
The humbly named Tencent has followed a similar path to great rival Alibaba, by providing free tools and platforms for customers to enjoy and then using data from the growing user base to develop other services which integrate seamlessly into a connected ecosystem. Recently, Tencent has fallen behind Alibaba in market valuation, caused by an issue with Chinese government regulation of the gaming industry – an ever-present business risk for Chinese companies. A strong working relationship with the government is a precursor for success, but being a protected national champion is not an exemption from the frequent regulatory crackdowns.
At the core of Tencent is ‘social-entertainment’. Build around the world’s only fully-fledged super app WeChat / Weixin (微信). Tencent has built an all-encompassing, all-consuming, everything you need in a single ecosystem app. There is no direct competitor. Known as WeChat in the west, Weixin was originally developed to pivot Tencent away from desktop computing into the mobile environment, which at the time was ripe for an explosion of activity. Whereas Baidu failed to move quickly enough, the move paid off for Tencent. WeChat became the de facto social network of choice, expected to come at the cost of cannibalising Tencent-owned leading desktop messaging service QQ. However, QQ has managed to carefully navigate the changing landscape, maintaining an enviable user base which is more than double that of Twitter. In many ways, QQ’s success highlights the failure of non-Tencent tech companies in China to compete in the social network space.
The media often highlights Chinese companies copying the innovations of US tech giants, but when it comes to social network ecosystems, China leads the west. Facebook has copied numerous features of WeChat, including Facebook’s very recent move towards putting e-payments at the heart of a social network. WeChat looks at domestic rivals for features and services to copy, ensuring local rivals cannot gain a significant advantage for long. The rapid growth in the short form video content market – with ByteDance’s Douyin leading the pack – Tencent released dozens of competing services to fit every possible niche. The other approach to competition is simply to buy-out or invest in growing start-ups before they eat away at WeChat’s dominance. In regards to dealing with competition, Tencent’s management of WeChat very much mirrors Facebook’s approach to their core product.
Tencent’s key revenue drivers are value-add services build around a social-entertainment ecosystem. The social element comes from messaging and social network services. The entertainment half is far more than merely creating fun networks. Tencent invests heavily into media and entertainment services; the company is the world’s largest gaming company, has a strategic partnership with Spotify and a market leader in video streaming. Social-entertainment is about connecting people to people and people to services.
Social-entertainment is not just fun and games. This guide will divide Tencent’s considerable product and services offerings into four key areas: social, entertainment, payments and investments.
Tencent started out in China’s nascent digital economy by producing an instant messaging app. The early formula was to copy western internet companies, including the original name of the app which was later changed to QQ to avoid a trade mark infringement claim. As the QQ brand grew in popularity it was diversified into other online services, including the web portal “QQ.com”, the social media platform Qzone and QQ Mail. The genesis of WeChat can be seen in the development of the QQ brand and family of integrated services. Never content to merely develop popular services, Tencent showed that integrating products and services into a single ecosystem generated a network effect giving the company a competitive advantage over rivals. Within the QQ ecosystem Tencent developed QQ Music and Games and sways of other services. The concept was one web portal to rule them all.
Eventually, Tencent pivoted to a mobile-first strategy, away from the desktop environment of QQ. WeChat fast became China’s killer app and built an unparalleled ecosystem. The decision to not use the QQ branding can now obviously be justified by the success of WeChat. However, a major success of Tencent has been the management of QQ and subsequent migration of QQ to mobile, vital in China as almost all internet access is through mobile devices. QQ has over 800 million monthly active users, which puts it behind only Facebook’s group of platforms, YouTube and big brother WeChat; Qzone has over 500 million users, beating out domestic rival Sina Weibo and rivalling the user base of hot property and new nemesis Douyin.
The QQ brand remains strong in China, with key Tencent services still using the moniker, including QQ Music as part of the Tencent Music Entertainment Group. QQ’s core social functions have remained relevant, as QQ is not tied to a phone number in the way WeChat is and the ubiquity of WeChat has led to younger generations migrating to QQ for greater privacy.
Both QQ and WeChat follow the strict government content governance rules, with messaging being proactively filtered if containing sensitive topics. However, QQ is viewed as more private for younger generations away from parents or other more tangible prying eyes than the state. Similar to younger generations in the west preferring Instagram or Snapchat to communicate on a more personal level than Facebook. Whilst many will still keep their Facebook profile, they are very aware of having family in their network and the risk of a potential employer scrolling through public posts has in part been behind the move towards ephemeral and relatively more private platforms.
QQ’s success with younger generations is remarkable given the product was first released 20 years ago in 1999. Myspace for example was founded in 2003 but was quickly overtaken in just over five years in the hyper fast internet age once Facebook opened access. When Facebook suffered from growing pains, they were forced to purchase young and trendy Instagram. And then Whatsapp. When it came to ephemeral content Facebook chose to just copy Snapchat to catch up with the hyper social environment being built outside of Facebook. Tencent expertly created their own replacement to capture the new internet users accessing content via mobile devices and then managed to reposition QQ to capture younger users who would be the most likely to seek a competitor to the WeChat monolith.
Most QQ users will also be WeChat users, with the two ecosystems happily co-existing. Given the younger demographic of QQ, content and ads must be targeted accordingly. Brands and content creators will often target both ecosystems, but with tailored offerings to reflect the differences in how users engage with each platform. Generally, the younger the demographic, the harder rightsholders must work to engage users organically. Tencent is very aware of this fact and significantly restricts advertising opportunities compared to Facebook. The Tencent business model was predicated on selling value-add services rather than ad services.
WeChat / Weixin (微信)
The standard approach to describing WeChat is to list a bunch of well-known western apps and services, all of which the functionality can be performed within WeChat, to show the all-encompassing nature of the ecosystem. WeChat is essentially a messaging app built specifically for the mobile environment i.e. for smartphones rather than desktop.
International users would be forgiven for thinking WeChat is only a messaging app. Brand owners wanting to assess the WeChat hype would also find a barebones app without any evidence of the bubbling, vibrant ecosystem that had been promised. A brand protection risk assessment would come back very favourably if the WeChat account is connected to the international servers.
Tencent, as with most Chinese tech companies, has split off content from the domestic and international releases, to comply with online content governance regulations. Data of international users is kept on separate servers and any promotional content will not reach Chinese consumers. Therefore, attempting to use an international account to reach Chinese consumers is a waste of resource. As WeChat accounts are linked to a telephone number, having a Chinese telephone (starting with +86) enables the account to access the main servers serving China which then provides access to other vital services which make WeChat the super app. Features and functionality is always discussed for accounts connected to the servers for mainland China.
Weixin means micro message, follows the same approach of QQ – using a free instant messaging app to attract users, then integrating Tencent’s special brand of social-entertainment to create a digital lifestyle app. QQ was a first attempt, and proved to be an invaluable (and highly profitable) experiment. WeChat was Tencent’s master plan from the start of the super app development process; in many ways the product of experience plus foresight and timing. The timing of the app was just as Chinese internet users were drifting towards accessing the web on mobile devices over traditional methods. WeChat is likely to have sped up the adoption of the smartphone as the killer app, with the growth in smartphone sales and the network effect of the WeChat ecosystem leading to the mobile digital lifestyle app Tencent envisioned.
What makes WhatsApp an instant messaging app but WeChat a digital lifestyle app? Without leaving WeChat a user can search for local restaurants, launch an app from the preferred restaurant and book a table, or even order before arriving, order and pay for a taxi and pay for the meal at the restaurant. Games, music and video content can all be access on WeChat too, keeping users on the app outside of the more functional use cases. Through integrated apps, official accounts, scanning QR codes, mini programs and e-payments users can access almost any service they want using WeChat. Given the sprawling nature of WeChat, it is hard to split the components into individual features as the value comes from the seamless integration. However, the rest of this section will focus on specific areas of the super app, namely; moments, official accounts, stores, mini programs and marketing.
The core function of WeChat is instant messaging, with all the modern features expected from a modern messaging app such as group chats, sharing videos etc. Moments is the social side of the app, providing a constant feed of content from friends, family, influencers and brands. Moments is a hugely popular feature for users to share information, a familiar concept across social networks. As with any other social network, brands and merchants recognise the market potential and contribute content to the platform. Moments should be use carefully and not overloaded with sales heavy messages. Users prefer authentic content appearing in their feed, leading to the growth in marketing power of influencers, known as Key Opinion Leaders (KOL). KOL often build strong following overtime by generating authentic, engaging lifestyle content, which lends itself to more tailored marketing content in relevant product categories. Tencent also sells ad space within the Moments feed; brands can have promotional content blended into the most user engaging area of the ecosystem.
Brands and content creators benefit from creating an official account, which can be thought of as a company page on Facebook. There are three types of official accounts, enterprise, subscription and service accounts.
Enterprise – for internal enterprise communications, only those within the network can see messages and content. Not intended to be used for external marketing, brand building or content marketing.
Subscription – suitable for individuals, bloggers, celebrities or media publications. Subscription accounts can publish once daily, which is significantly more frequent than service accounts. However, the message goes into a separate ‘Subscriptions’ folder, rather than appearing more naturally in the ‘chats’ list. The extra click into the folder significantly diminishes any benefit gained from increased publishing frequency. Subscription accounts therefore have a frequency-visibility trade-off, but are useful for content-oriented users.
Service – this is where the brand magic happens. Service accounts offer better visibility and functionality. Whilst publishing is restricted to only four times per month, rather than the daily publishing of a subscription account, the content appears more naturally in followers ‘chat’ list, mixed in with users’ friends and family. This feature is what separates WeChat from other social networks or messaging apps – the seamless integration of brand experiences into everyday life. Whether this approach can work in western countries remains to be seen. The equivalent would be receiving a notification from a brand on WhatsApp, with the brand appearing at the top of the most recent chats list and then within a couple of clicks the WhatsApp user enters the ecommerce store of the brand. All nested inside of WhatsApp. Such deeply entwined branded experiences drive Chinese retail, users expect brands to engage and connect on a personal level.
For very large brands or brands with WeChat marketing at the core of their marketing strategy, managing both a subscription and service account is viable. The different account features lead to an omni-channel approach within the ecosystem. However, for mid-sized brands, it is advised to focus on either a subscription or service account, depending on which better suits the brand or content strategy. As mentioned previously, service accounts are generally the go-to approach, except for smaller bloggers and media outlets.
To obtain an official account, brand owners have three options. If the brand already has registered a business entity in China, then the process is straightforward. Setting up a Chinese company can be expensive and complicated, so may not be the best approach for a smaller brand wanting to test the Chinese market before fully entering. However, if the company is already registered, creating an official account on WeChat is very simple.
The second option is to use a third-party agent. Companies can create up to five official accounts per WeChat account, therefore there is an official account resale market. Agents often bundle other services and tools to help foreign brands getting started on WeChat. This process is quick, but leaves the ownership of the account in the hands of a third party – not ideal for long term brand building. To further support this market Tencent added a feature to allow the migration of followers from an account to a new account, certain conditions apply. Using an agent for market entry is more viable than ever, as success via an agent can then be capitalised on through migration to a company owned account without suffering the penalty of rebuilding a successful account. This can also be used as a stopgap approach whilst a local entity is being registered, or a stopgap whilst option three is being pursued.
WeChat has opened up official accounts to non-Chinese business entities from all countries. The acceptance process is discretional and therefore hard to assess a brands chances when using this pathway to create an official account. It appears Tencent mainly assesses a company’s marketing intent and budget. The more willing to invest in buying ad space within the WeChat ecosystem the higher the chances of acceptance as a foreign business entity. The process is long and more expensive compared to local entities registering, however, still provides a lower barrier to entry than fully registering a business entity in China. As mentioned above, using an agent whilst the foreign company acceptance process is ongoing can mitigate the time-to-market issue.
As the WeChat ecosystem supports HTML, almost nay webstore can be ported to work within the app. Large ecommerce stores create their own custom WeChat store, optimised for the platform and how users engage differently to a store on WeChat than they might accessing via other means. Just as third-party organisations such as Shopify helped to proliferate the creation of webstores in the west, hundreds of third-party store builders have emerged within WeChat. Third-party WeChat store builders provide drag-and-drop features which facilitate the ease of setting up a free-standing, optimised store.
Tencent’s partner-in-chief in competing with Alibaba – JD.com – enables JD merchants to create their own WeChat store, fully integrated and benefitting from the credibility of the JD brand.
Smaller brands or individuals wanting to get into ecommerce generally pick Weidian or Youzan. Weidian is often incorrectly described as the official store platform of WeChat, given the prominence of the platform and maybe the similarity of the name to the Chinese name for WeChat – Weixin, which translates to micro message. Weidian translates to micro store, and unlike WeChat, sticks closely to the name with the services provided. Weidian’s popularity grew due to the ease-of-use, optimisation for WeChat and being free to use. Another key to Weidian’s early success was the ability for merchants to guarantee product delivery through a deposit system. With increasing content governance from Alibaba and brand enforcement from rightsholders across Alibaba platforms the economics of selling knock-offs became difficult for many Taobao sellers. Many have migrated to WeChat given the widely publicised lower levels of regulation of counterfeits and IPR infringements. The challenge of monitoring and removing IPR infringements within the WeChat ecosystem has led to a severe lack of brand protection activity and Weidian and other WeChat store platforms are too often entirely excluded from brand protection strategies.
Social commerce has gained wide acceptance amongst Chinese consumers after a process of building trust. Smaller merchants and entire brands exist on WeChat, with their own store built using Weidian without needed the traditional ecommerce platforms of Alibaba or JD. The rise of social commerce on WeChat is one of the biggest threats to Alibaba’s dominance of ecommerce in China; with WeChat commerce being driven by intimate profiling data ecommerce-first companies dream about having for analysis.
As with many WeChat features when first released, critics wrote off the Mini Program as irrelevant after an initially slow adoption rate. Mini programs are core to the future ambitions of Tencent and the positioning of WeChat. To be a digital lifestyle app, WeChat needs to integrate with offline services just as much as digital services. Tencent views mini programs as a shift towards a post-app ecosystem – the anti-competitive sentiment of this vision is obvious. Users will only need WeChat, with Tencent controlling what and who can operate across the ecosystem.
What are Mini Programs?
A mini program is an app within an app. In WeChat’s case, the user either clicks a link or scans a QR code from within WeChat and a new app will be launched without leaving WeChat. Through mini programs, WeChat effectively becomes the operating system.
How to make a mini program?
WeChat decided to use proprietary backend for mini programs to prevent cross-platform portability. As mini programs exist within WeChat developers do not need to create separate apps for Android and iOS as would be the case with mobile apps. Mini programs are light and load directly from Tencent servers to optimise speed for a seamless user experience. Given the lightweight nature of mini programs (being only a few megabytes in size), companies are splitting functionality across multiple mini programs. Each providing one experience or service in a streamline manner. Mini programs are not installed by the user, therefore updates are applied (once approved by Tencent) as the user opens the mini program.
Why make a mini program over a traditional app?
The mobile app market is extremely crowded and creates significant barriers from a user experience perspective. Services infrequently used often force consumers to download an app, which involves many steps and phone memory. Mini programs provide an integrated user experience, either connected to other content within WeChat, shared by a friend or by scanning a QR code. A cinema might prefer to use a mini program to display screening times for the specific cinema the customer is in. Customers are provided instant access to the features of the app they want and immediate location-based solution. WeChat wants to keep users within the ecosystem, but artificially creating barriers designed to extend usage time only serves to frustrate users who then seek better experiences elsewhere.
This concept is also being applied by search engines – whereas previously a user spending a very short amount of time on a website was a negative for search ranking (bounce rate), Google and others have realised that providing a quick answer to a question can be extremely valuable. Metrics such as ‘pogo-sticking’ are now penalised in an attempt to deprioritise content which does not satisfy the user, rather than penalising a website for efficiently providing the user with the content they sought.
Logins are frictionless too as the user will already be signed into WeChat by default, which can then be connected and applied to other services. Along with login information, access to other data can be shared, with user permission, from the account to the mini program, with certain restrictions.
The disposable nature of mini programs also makes them ideal for testing. For brands, the quicker development time and relatively simple nature of a mini program means new apps can be launched as a mini program without being cost prohibitive. For users, the question of whether to install an app is worth it does not exist, as the mini program is removed once the specific usage is complete. Mini programs are cached for speed but can be completely removed very easily within the mini program menu by swiping.
For marketers and brands, the speed and ability to share and deep link mini programs provides a platform that rewards virality. Messages which promote sharing perform particularly strong using mini programs as the specific content within the app can easily be shared with WeChat friends. Clicking the link will be safe for users receiving given the walled-garden approach of Tencent with mini programs. The receiver of the link only needs to click for the mini program to launch, which loads in a few seconds, rather than having to install an app. The user is then viewing the same content within the mini program as the original sender i.e. a coupon code or promotional content.
Key to Tencent’s development and push towards mini programs is the connecting of online services to the offline world. Again, this is part of the vision of WeChat as a digital lifestyle app. The WeChat development team behind mini programs have stated the scanning of QR codes is the entry point to mobile internet, with the goal of connecting everything to create new waves of innovation. Whilst it is incredibly difficult to convince most people to wear goofy glasses for an augmented reality experience, the same people generally carry a smartphone which carries vast capabilities to supplement offline services. Rather than loading a specific app for product details or discount codes, users can simply scan a QR code from WeChat to access value-add services. As Tencent founder Pony Ma stated, good digital products let the user jump in and jump out quickly.
Brand owners and content creators in China must navigate the extraordinarily competitive space of marketing on WeChat. The size of the user base and closed-loop nature of the platform creates the obvious incentive to succeed on WeChat. Tencent has carefully managed the WeChat environment, striving to keep the user experience authentic and organic. However, over time, WeChat is moving further towards selling ads as a key revenue source. WeChat is not very mature in terms of selling digital advertising solutions relative to Facebook or most US social networks, a variety of options do however exist for companies.
Ads – companies can pay for ad space, either through banner ads on articles or by having ads served in Moments. Whilst both options provide significant visibility, ads are relatively expensive and WeChat applies strict algorithms to ensure users are not bombarded with ads. For example, a user who scrolled past an ad in their Moments without any engagement with the ad will not see the same ad appearing again during the campaign period.
KOL – most WeChat marketing agencies will suggest using KOL for marketing and brand building. Using KOL is still expensive, dependent on the following and experience of the KOL, however, the brand gets to benefit directly from the credibility and authenticity of the KOL. User engagement is high and there are many case studies highlighting the astronomic conversion rates when brands get the choice of KOL correct. However, this space is highly competitive, and it is a challenge for brands to find the right KOL to act as an authentic brand ambassador. Also, as with all social networks, metrics to measure the popularity of accounts is difficult, with fake accounts and Bot activity causing issues with transparency. There are numerous platforms to assist the KOL finding process, free and paid.
WeChat is moving further towards being brand friendly in terms of supporting ad campaigns. The challenge for WeChat is to maintain the high levels of engagement the current advertising model has generated whilst potentially diluting the platform by facilitating more advertising. Furthermore, as Tencent attempts to monetise ad solutions brand owners are likely to take greater interest in the brand protection policies of the platform. The lack of content governance concerning intellectual property infringement may keep some brand owners away until the platform develops robust IPR policies.
Many misconceptions about WeChat marketing are often distributed, recommending approaches supposedly geared towards Chinese culture. Globally recognisable brands have caused significant harm to their brand through poorly conceived marketing campaigns. It is advised to not play into cultural stereotypes and cookie cutter brand strategies. WeChat is a hyper fast and social environment. Users want engaging, creative content. Brand owners should approach marketing on WeChat from first principles, understanding the essence of the brand first and then looking to find authentic ways to deliver the message in a way that engages users.
Tencent’s social entertainment combines the messaging and social network services discussed in the section above, with market leading entertainment products and services. Tencent is a market leader in gaming, music and video content in China and beyond.
Tencent is the world’s largest gaming company. Gamers across the world enjoy titles from Tencent-owned or backed companies, including Fornite, PUBG, League of Legends and Clash of Clans. Games can be directly accessed through WeChat using the WeGame portal. Games released in China are subject to heavy content governance regulation for violent, sexual or sensitive nature (broadly interpreted). Regulations have recently become stricter, causing long delays in approval times from the government. Given the profitability of Tencent’s gaming division, the slowdown in regulatory approval caused Tencent’s share price to plummet.
E-Sports is another area of heavy investment from Tencent, being integrated with WeChat and QQ given the younger demographic of e-sports. China is the second largest market for e-sports, after the US, but the Asia-Pacific is the largest region and growing rapidly.
Popular music platform QQ Music is now part of the Tencent Music Entertainment division. TME operates in partnership with Spotify, with an equity stake swap being agreed. This opened the Chinese market to Spotify and creates an easier pathway into the Chinese market for foreign artists. Another popular service of the TME division is WeSing – a karaoke app integrated into WeChat. Karaoke apps are popular in China, with WeSing benefiting from the ability to share within WeChat with friends. Outside of WeSing there is a plethora of unlicensed karaoke apps in China and across WeChat.
Tencent Video is a leading streaming platform in China, competing with Baidu’s offering iQiyi. Tencent Video boasts over 900 million monthly active users and almost 10% are paying subscribers. As with competitors, Tencent wants to shift users to paying subscribers, rather than solely relying on ad revenue from non-subscribers. Tencent Video’s advantage is again from integration with WeChat and the cross-promotional abilities. Leveraging data analytics from WeChat users, content creators can potentially carefully target content delivery.
Tencent is also competing against new nemesis ByteDance in the short form video content segment. Tencent is not new to this area, but the runaway success of ByteDance’s Douyin and international version TikTok has reinvigorated Tencent’s push into short form video apps. Tencent has released dozens of apps aiming at different niches, hoping to rival Douyin. The other tactic being used is simply to restrict or outright ban ByteDance products from integrating with WeChat. This is not a new move for Tencent either, which has regularly employed similar tactics against Alibaba and Sina Weibo.
China leads the world in innovation when it comes to third-party payment apps. Tencent, and old nemesis Alibaba have a stranglehold over the sector in the same way Visa and Mastercard dominate in the west. It is impossible to discuss Tenpay or Alipay in isolation, without making comparisons to the other offering. Most users of either app will have both apps installed on their smartphone.
True to Tencent strategy, e-payments integrates seamlessly with QQ and WeChat. Tenpay is comprised of WeChat Pay and QQ Wallet, being connected to the ecosystem of their social network namesakes. Tenpay has more overall users than Alipay, even though WeChat Pay launched after Alipay. However, Alipay has higher overall transaction volume, given the higher average transaction value of purchases made through Alipay. Partly this is due to WeChat being more prevalent with micro-transactions and offline transactions, whereas Alipay is used for ecommerce across Alibaba’s platforms.
Alipay is being pushed as a lifestyle super app, in an attempt to compete with WeChat’s position as a digital lifestyle app. However, WeChat is already established in this regard, with WeChat Pay a core service function of the ecosystem. WeChat store builders including Weidian connect with WeChat Pay, along with other options, but Alipay is excluded. Most of the third-party store builders follow the same approach. Tencent’s push into ecommerce through the growth in social commerce could soon rival the transaction value of Alipay.
Tencent’s push for further growth in e-payments market is to expand in areas outside the tier one cities. Given the vast install base of WeChat the reason is largely driven by convenience, with Alipay not yet being able to offer enough to convince smartphone owners to leave the WeChat ecosystem to install Alipay. With Tencent-backed ecommerce platforms targeting rural consumers, such as Pinduoduo, the sways of newly internet-enabled consumers may see WeChat Pay as the de facto payment method. However, with the track record of both Tencent and Alibaba, it is likely that future innovation will determine the winner of the battle, as both companies continue to expand their financial service offerings.
Tencent has invested heavily into a bewildering number of companies. Tencent’s investment portfolio includes the likes of Snapchat and Tesla. The list of companies Tencent has invested in is vast, both in China and elsewhere, two Tencent-backed companies are of particular interest, JD.com and Pinduoduo – both ecommerce rivals to Alibaba.
The largest ecommerce company in China after Alibaba. JD operates similar to Tmall, in providing a more curated service with a B2C model. JD is not merely a company Tencent invested in; JD and Tencent work in partnership in many ventures. The two giant tech companies often invest in the same start-ups, usually strategic investments which could help undermine the business model of Alibaba’s ecommerce offerings. The rivalry is bitter, even to the extent of JD’s new dog mascot being seen as a shot against Tmall’s cat mascot. The Tencent-JD alliance invested into ecommerce platform Vipshop and numerous other joint investment ventures. JD excludes Alipay as a payment option and enjoys enhanced benefits within WeChat. JD even competes with Alibaba during the Double 11 Festival, selling $23 billion GMV in 2018. Whilst this is around three quarters of Alibaba’s GMV, it is significant to the big brands in having a viable choice other than Tmall to reach customers in China.
Given the nature of JD the platform has very strong IPR protection policies and collaborates with brand owners on brand protection issues. Similar to Tmall, the higher level of vetting for merchants does create an assumption that merchants will not offer counterfeits and knock-offs. Therefore, reporting counterfeits to JD comes with a heavy evidential burden to prove the IPR infringement for JD to take action.
Pinduoduo is the most exciting Chinese ecommerce player to challenge the Alibaba-JD status quo. Targeting lower tier cities with a brand of social commerce which is now leading the new generation of ecommerce. Pinduoduo became a unicorn in 2018, going public in the US with a $1.6 billion IPO. As the new challenger emerged, the platform then suffered the scrutiny that established players, most notably Alibaba, had been exposed to for years. Talks of weak platform content governance and a lack of brand protection policies caused a dip in market value. However, PDD takes applies considerable resources to proactive brand enforcement, not only removing infringing listing using automated tools, but also providing transparency into such actions. Proactive brand enforcement is not sufficient for comprehensively removing knock-offs and pirated content, given the agility of merchants. As such, brand protection strategies must adapt to incorporate this new Chinese ecommerce giant.
PDD benefits from close integration into the WeChat ecosystem, being a successful example of how to implement Mini Programs. Creating reasons for customers to share links and spread ecommerce experiences with the same virality as social media posts led to an explosion of activity on PDD. The success of PDD in lower tier cities, an area Alibaba has sought to gain a stronger foothold in could be a strong platform for further growth of the Tencent hegemony. With tighter regulations on the gaming industry and a mature ecommerce market in the top tier cities, future revenue drivers are the key to long term growth for Tencent. As more of the Chinese population goes online, it is likely their first touchpoint to the digital world will be through WeChat or another tentacle of the Tencent ecosystem which connects online and offline experiences. PDD is a warning sign that only catering to the urban youth is no longer a viable strategy.
All signals suggest the upstart mobile app is delivering more for consumers, merchants and shareholders. Pinduoduo has matured from being viewed as an ecommerce gimmick into leading the charge against the big two – Alibaba and JD.com. But the direction of growth was not expected by many, especially at such an early stage in maturity. Most forecasts were concerned with Alibaba encroaching into PDD territory which would eat away at the app’s market share. Few forecasts anticipated that it would be JD and Alibaba under threat in top tier cities. Pinduoduo’s 2019 figures sent a shockwave to investors which thought the battle for affluent top tier consumers was only between the big two. Alibaba’s purchase of Kaola was described as a ‘defensive move’ by analysts to prevent PDD from entering this segment of the ecommerce market.