If Facebook’s US$19 billion acquisition of WhatsApp shows one thing, it’s the high value traditional internet firms are putting on a successful mobile strategy. With 145 million users, Facebook would already appear to be a winner but that is just a third of the 450 million that the smartphone app can claim.
The purchase instantly makes Facebook the global leader in online communications — ahead of Gmail, Twitter and Skype. It also puts it ahead of WhatApp’s Chinese counterpart, Tencent Holdings’ (00700.HK) WeChat, a service with 500 million users.
WeChat is hugely popular in China but whether it can go one step further and make the move offshore depends on one thing: the desire of Tencent’s management to hold on to WeChat as a simple communication platform, or to use it as a springboard for a wide range of mobile services. More maybe more in China but users overseas seem to prefer to do with much less.
WhatsApp’s success rests on a simple formula. It’s a simple one-to-one communications tool that lets friends on different mobile operating platforms chat to each other. Users have to know each other’s phone number to make it on their WhatsApp contact list. WhatsApp also guarantees that all messages are scrubbed from its servers after they are delivered. Simplicity plus privacy equals success.
But WeChat has ambitions of more diversified offerings through the mobile platform. It wants to offer games, coupons, stickers and lottery services to users. It also has a feature that lets users search for other WeChat users in their area. The idea is to help people make new friends but, unsurprisingly, it’s open to abuse.
The other big privacy issue is that the service originates on the mainland and must follow the authorities’ rules on content. Some overseas WeChat users say some of their messages were censored and not delivered because of sensitive content. Tencent says it has solved these problems but it still has some way to go to reassure foreign users for whom privacy is a top priority.
Still, WeChat does have one competitive edge — a mobile commerce platform that enables Tencent to achieve its goal of establishing an online-to-offline mobile ecosystem linking internet users and brick-and-mortar retailers. This kind of business model has thrived in China and can be exported, especially to Chinese communities elsewhere. But Tencent could face regulatory hurdles overseas about it can offer mobile payment services through the WeChat app. In that case, it could be easier for WeChat to stick to entertainment.
Brokerage firm China International Capital Corp. estimates that WeChat mobile games could earn Tencent 10 billion yuan (US$1.64 billion) in revenue this year and that the app’s overall revenue could hit 15 billion yuan, well above the amount WhatsApp brings in.
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