Who Has 1 Billion Users And Is About To Overtake Facebook?

It’s not Twitter, Google+ or LinkedIn. It’s a company that most people in the West don’t know. That, however, is set to change, with the explosive growth of China’s Tencent and its mobile messaging app WeChat…

Last week, Facebook, the current king of social networks, admitted that it’s losing teen users, and that the overall growth in its monthly active users has slowed to 18% year-on-year. This isn’t helped by the fact that it and other Western social networks are banned in China. By contrast, Tencent recently announced that WeChat’s users have almost tripled from the 85 million of the year before.

Source: WorldOfCEOs, JPMorgan, Credit Suisse, Bloomberg & company announcements

And Tencent’s reach – unlike local Twitter-equivalent Sina Weibo and Facebook-equivalent RenRen – is not just restricted to China. WeChat was rebranded from the more Chinese-sounding Weixin to appeal to an international audience, and it’s now virally coming across here. In just four months between May and September 2013, its overseas users have doubled from 50m to 100m.

So, in an increasingly crowded mobile messaging, what is Tencent and WeChat doing right?

First, it has managed to differentiate its product with some killer features that keep users coming back for more. On the messaging side, users can “hold-to-talk” and send free walkie-talkie style messages that bypass the need for voicemail. Yet what keeps its network growing are fun discovery features that can connect users locally and across continents.

WeChat has neatly fused together the open approach of social networks such as Twitter, where anyone can follow anybody, and more closed networks such as Facebook, which rely on mutual friend connections. It’s growing virally through social connection and not just social media.

For instance, the ability to identify “People Nearby” can make the daily commute or a night out with friends much more interesting. Here is a quick summary of my results when looking for other WeChat users in London…

Alternatively, you can “shake” your smartphone, and be connected with other users anywhere in the world who are shaking their phones at the same moment.

In growing its international user base, Tencent has brought on board brand ambassadors, such NBA star LeBron James, soccer star Lionel Messi and Bollywood actors Varun Dhawan and Parineeti Chopra, who users can follow and interact with.

Massive Value Creation

Shaking and tapping on smartphones are not just gimmicks: floated on the Hong Kong stock-exchange in 2004 (the same year as Google), Tencent has far outstripped Google in the rate of appreciation of its share price, up 104 times on it IPO price compared to Google’s 8.5 times price appreciation.

With a $101bn US market cap (still some way off Google’s $343bn valuation), Tencent joins Yahoo!, eBay and Amazon among the world’s most valuable internet companies.


From Copycat To WeChat

Like many of China’s tech companies, Tencent’s roots lie in the “copycat innovation” and localization of what was happening in Silicon Valley. The company was founded in 1998 by Shenzhen University computer sciences graduate Huateng “Pony” Ma, and five classmates. Its first product, OICQ or Open ICQ, was a Chinese copy of the popular ICQ desktop instant messenger that had been acquired by AOL in the same year. When AOL filed a lawsuit in March 2000 for violation of its intellectual property, Tencent eventually lost the battle and changed the name of the product from OICQ to QQ, as it is still known today.

With an increase in user numbers but unable to cash in on its huge user base, Pony and his co-founders nearly had to sell the company. A big early success was in attracting venture capital – in 2000, Pacific Century CyberWorks and IDG invested $4 million for a 40% stake, proving to be the kick-start that Tencent needed.

A big part of the success of WeChat has been down to the fact that, when other companies continued to develop for the desktop, founderPony Ma made a big bet on mobile. A CEO known for his understanding of and investment in long-term growth, a few years ago Pony made the smart move to shift more than half of its 20,000 employees to focus on mobile. Although Tencent’s mobile business has not been the source of its revenue (70% of its revenue is from user payments and the rest from commerce), Tencent expects that eventually “the real value is the connection of the phone with business offline.”

Pony is currently ranked third in Hurun Rich List and fifth in Forbes Chinese Rich List. Reflecting on the “copycat years”, he attributed his early success to a combination of copying and luck:

“When we were a small company, we needed to stand on the shoulders of giants to grow up.” Paraphrasing a quote attributed to Isaac Newton, he added, “If I have seen further it is by standing on the shoulders of giants.”

Pony is known to pay attention to details that most big companies ignore, drawing comparisons with the late Steve Jobs. Indeed, even Jobs owned up to a degree of copycat innovation in launching new products – when he unveiled the iBooks app at the launch of the iPad in 2010, he acknowledged that it bore similarities to Amazon’s Kindle: “Amazon’s done a great job of pioneering this functionality with the Kindle. We’re going to stand on their shoulders and go a little further.”

However, Pony didn’t want to stop with copying, adding:

But copying others can’t make you great. So the key is how to localize a great idea and create domestic innovation.

A company veteran added: “it was entrepreneurship, concentration and passion that helped Pony succeed.”

WeGlobal?

Despite WeChat’s frightening domestic and overseas exponential growth rate, it doesn’t have it all its own way in the global market. Martin Lau, President of Tencent, acknowledges that the US remains something of a sticking point, commenting at a conference at Stanford University last month, “US is a very tough market. You have your free SMS which takes away the cost appeal of microchat. You have [Apple’s] iMessage… We will try to find ways to provide differentiated services.”

WeChat is also up against WhatsApp, a hypergrowth American startup that also almost doubled its monthly active users to 350m from 200m in April. Other competitors, such as Viber and Japan’s Line exist, but tellingly, they won’t reveal their monthly user figures.

So there’s an interesting global battleground setting up: both between Facebook, Tencent and WhatsApp in global social media and messaging, and Amazon, eBay and Alibaba in global e-commerce. LinkedIn is currently the leading professional social network and doesn’t have a recognised global direct competitor: it will be interesting to see if one emerges from China or elsewhere.

I’m confident that Tencent will overtake Facebook, although partly because China’s population is bigger and partly because it has an unfair advantage over Western competitors blocked out of the Chinese market. This needs to change.

My overall prediction for the next few years is that Tencent will build a significant global business of great value: with products and brands we’ll increasingly come to know, interact with – and maybe even love.

By Steve Tappin

Chief Executive, Xinfu, Host BBC CEO Guru & Founder, World Of CEOs

http://www.linkedin.com/today/post/article/20131104184701-13518874-who-has-1bn-users-is-about-to-overtake-facebook?trk=tod-home-art-list-large_0

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