(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
By John Foley
BEIJING, April 3 (Reuters Breakingviews) - WeChat could be
China’s killer app - if disgruntled rivals don’t kill it off.
The smartphone messaging service, which has amassed 300 million
users in just over two years, has attracted the ire of mobile
network operators worried about their margins. It sounds like
vested interests squashing innovation. More likely, it’s old
monopolists fighting to keep out a new one.
WeChat lets users message and chat online via their
smartphones, with some extra features like hooking up with users
based on location. Moreover, it is free - something telecoms
companies, and the Ministry of Industry and Information
Technology, may like to change. The head of the MIIT has floated
the idea of letting telcos charge WeChat’s owner, Tencent
(0700.HK), per user.
It’s easy to see why the telecoms are displeased. China
Mobile (0941.HK), China Unicom (0762.HK) and China Telecom
(0728.HK) have a stranglehold on the mobile market, and margins
on voice and text messaging vastly outstrip those on data. While
WeChat users pay for the data they use – and data revenue rose
46 percent in the second half of 2012, year on year – its
success erodes the telcos’ economic rents.
Yet Tencent and its older rivals aren’t so different. While
telecoms firms have long enjoyed a collective monopoly because
of their control of the physical network, online services seek
to edge out competition with control of the "social graph". For
that kind of network too, scale creates effective barriers to
new entrants - and the winner is likely to take all.
That explains why Tencent is prepared to keep investing in a
product that is not yet making money. It also explains the
importance of Weibo, the microblogging service owned by Chinese
dot-conglomerate Sina (SINA.O). Investors are supportive,
because the rewards from investing today are economic rents from
cornering the market tomorrow.
For now, the old monopolists are beating the new, because
their hold over the market translates into real profit. Users of
WeChat, by contrast, don’t pay. That leaves the likes of Tencent
and Sina reliant on the distant promise of fickle advertising
revenue. Down the line, the best hope for Tencent is that
WeChat’s monopoly delivers defensive value - maybe by scaring
one of China’s telecoms into buying it up.
SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS:
- Users of China’s popular online messaging service WeChat
may have to pay fees to appease the country’s top telecoms
companies, a government official was quoted as saying by a
Chinese magazine on March 31.
- Miao Wei, head of the Ministry of Industry and Information
Technology, said that the ministry was studying WeChat’s impact
on the telecoms market, and would consider allowing operators to
charge Tencent, the online gaming and networking group that owns
WeChat, though the amount would not be high.
- WeChat, known in Chinese as Weixin, allows users to send
texts and voicemails over the Internet from smartphones. Since
launching in 2011 it has amassed 300 million users. Tencent said
on March 20 it would invest heavily in the product and integrate
games and content apps, as well as stepping up marketing outside
- The number of point-to-point text messages sent in China
fell 11 percent in the first two months of 2012 from a year
earlier, Caixin reported the MIIT as saying.
- Reuters: China's Tencent messaging app may no longer be
free: government official [ID:nL3N0CN01T]
Downwardly mobile margins [ID:nL4N0B11RV]
- For previous columns by the author, Reuters customers can
click on [FOLEY/]
(Editing by David Evans and Sarah Bailey)
Keywords: BREAKINGVIEWS CHINA/TENCENT
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