Date
12 December 2017
Tencent is showing good progress in its bid to build WeChat into a major new profit center. Photo: Bloomberg
Tencent is showing good progress in its bid to build WeChat into a major new profit center. Photo: Bloomberg

Tencent’s new WeChat-based ad service shows promise

A couple of media reports are shining a spotlight on Tencent’s (00700.HK) WeChat, and some of the new steps it is taking to monetize the hugely popular service that is rapidly expanding beyond its roots as a mobile messaging service.

At the same time, another report from Tencent itself is providing some insight into who exactly uses WeChat. It should come as no surprise that the report shows WeChat’s biggest fans are young and mostly male users, which are some of the most attractive targets for the online merchants and advertisers that Tencent wants to do more business on the platform.

Some observers have pointed out that WeChat is well positioned to become a big money spinner for Tencent, as it contains many features and functions that allow companies to use the platform to do business beyond simple advertising. That contrasts sharply with social networking rival Sina Weibo (WB.US), whose service doesn’t have nearly as much functionality and so far has generated most of its revenue from advertising and marketing services.

One place where Tencent sees big potential for WeChat is advertising, and e-commerce is another.
In pursuit of the former, Tencent last week formally launched an advertising service on Moments, or Pengyouquan, one of WeChat’s most popular functions. Tencent took a two-pronged approach, offering cheap services costing as little as 40 yuan (US$6.4) per 1,000 views, and ranging up to major campaigns reportedly starting at 5 million yuan each.

The latest reports are revealing some of the initial buyers for big WeChat ad campaigns. The list is led by luxury automaker BMW, global beverage giant Coca Cola and local smartphone start-up Vivo. BMW revealed that Tencent posted the BMW logo 46 million times on users’ Moments lists, which are similar to the newsfeeds on Facebook, in the first 17 hours of its campaign, and that 7 million users actually clicked on, “liked” or commented on the logo in that time.

That kind of response rate looks quite good, translating to around 15 percent. Vivo and Coke didn’t provide any click rates, though I believe that the former’s were much lower. Still, it does seems quite probable that Tencent is encouraging these companies to come forward with upbeat stories about their advertising experience on Wechat, in a bid to publicize the new service and show how effective advertising on WeChat can be compared with rival services from the likes of Weibo and online search leader Baidu (BIDU.US).

On the e-commerce front, Tencent was also in the headlines with word that it’s become a major investor in Ele.me, a Shanghai-based mobile take-out dining service. Tencent was among a group of companies that gave US$350 million to Ele.me in its latest funding round. Others in the funding group included restaurant ratings site Dianping and JD.com (JD.US), China’s second largest e-commerce firm.

Tencent has previously invested big money in both Dianping and JD, and is now a major stakeholder in both companies. Last year it also launched a major JD shopping portal on WeChat. I expect we could see a similar move to open a WeChat portal for Dianping’s popular restaurant ratings service, sometimes called the Yelp of China, and that portal could quite possibly include a special area for Ele.me’s takeout dining services.

Finally let’s look at the new consumer behavior report from Tencent itself, which showed that 64.3 percent of WeChat’s 400-plus million users are males. More importantly, the report also showed that the vast majority of the service’s users, about 86 percent, were between the ages of 18 and 35.

That’s a very attractive demographic for advertisers and providers of other services, since people of that age typically are working and are open to trying new products and services. By comparison, people older than 35 are often more set in their consuming patterns, and people younger than 18 are usually still in school and thus are quite cash-poor.

All of this certainly seems to paint a very attractive picture of WeChat, which is exactly what Tencent wants the world to see as it tries to position the platform to replace its older QQ messaging service.

The company’s shares have jumped nearly 30 percent since mid-December on the steady WeChat advances, contrasting sharply with steady declines for Internet leaders like Weibo and Alibaba (BABA.US) over the same period.

I’ve always been impressed with Tencent’s ability to develop popular Internet products and also make money from them, and it looks like WeChat will sustain that trend.

Bottom line: Tencent’s strong early showing on a new WeChat-based advertising service and its investment in a take-out dining service reflect rising momentum in the firm’s drive to build WeChat into a major new profit center.

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RC

A commentator on China company news and associate professor in the journalism department of Fudan University in Shanghai. Follow him on his blog at www.youngchinabiz.com.

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