Threats to KakaoTalk and Line
Tencent Holdings, China’s largest Internet company by revenue, is moving to cash in on over 400 million WeChat users worldwide.
Tencent has seen tremendous success in game and other content businesses, and their strategy of targeting world markets through initial mass acquisition poses a serious threat to their competitors such as KakaoTalk and Line.
On August 14, Reuters reported that Tencent established a business model based on an update to WeChat, which includes the addition of games, paid-for emoticons, or stickers, and a mobile payment system. Wechat plans to open international services soon.
WeChat has had no particular business model until now. But because of its vast user base, which adds up to 460 million people, Tencent’s initial movement to cash in is already gathering enormous attention.
“In looking to monetize its mobile platform, Tencent is following the likes of South Korean firm Kakao Inc's KakaoTalk and Japan's NHN Corp's Line,” Reuters reported. After Kakao released Kakao Game last August, its monthly revenue soared ninefold to US$35.3 million. Tencent, which has 13.8 percent stake in Kakao, must have studied this model closely. WeChat’s new stickers are similar to Line’s stickers, which account for one-third of Line’s revenues, only after games.
Tencent, which opened the WeChat game center in China, doesn’t charge users to download and play mobile games. Instead they will emphasize characteristics of social networking by encouraging friendly competition between players and their contacts by sharing scores. Tencent will get their money using the ‘freemium’ model where users pay for in-game upgrades such as buying extra lives. One example of this model is Tiantian Ai Xiaochu, which is similar to the game Candy Crush Saga in Korea.
"We're going to buy into high-end game developers and start developing free-to-play content for developing markets," Steve Gray, the executive in charge of game development at Tencent, told Reuters at a gaming industry panel in Shanghai last month. Investors in Tencent, which is more than 30 percent owned by South African media group Naspers Ltd., hope WeChat's hook into game players will boost revenue.
Reuters predicted that WeChat’s new function as a platform for games distribution could help solve China’s highly-fragmented Android app store market. “The Google smartphone operating system dominates China, with more than two-thirds market share in April-June, according to Kantar Worldpanel, but its Google Play app store has been muscled out by local third-party players, data from iResearch shows,” Reuters pointed out.
Furthermore, WeChat’s recent upgrade includes a scanning feature, which will help WeChat become a powerful e-commerce platform when combined with its mobile payment solution. This feature helps users scan a barcode and redirect the users to different merchants, which can ultimately make purchases on a mobile phone through their payment system.