China's Tencent Finds Exporting Popular WeChat App Not as Easy as Hoped

300 million users since its launch in China two years ago. Defacto support from a government determined to expand its influence. Interest from other economies hoping to increase links with that mammoth economy. How hard can it be to expand globally?

Harder than anticipated, as it turns out.

Tencent is China's largest internet portal. It also offers social networks, ecommerce and multiplayer games. But the issues it is facing as it attempts to expand are similar to those experienced by other tech companies - think Apple or other US-based tech firms in China - as they attempt to use their national base to export their services.

The company started its expansion strategy in Asia which makes strategic sense. But even there, the economic self-interest of the telecoms combined with the relatively low barriers to entry in this highly competitive sector are causing unanticipated obstacles. The basic issue is that every business in communications wants to preserve its base and its options. No one will simply hand over its market, however enticing the strategic opportunity. The plethora of competitive services makes any sort of domination difficult. And on top of that, legal and cultural differences regarding privacy and national security often limit the scope the target nation may permit, admittedly sometimes as a means of protecting home-grown businesses.

In short, Tencent is learning that it has globally competitive services to offer. But the next lesson is that being competitive does not necessarily mean beating the competition. JL

Wang Shanshan and Wang Duan report in Caixin:

The internet giant is trying to export WeChat to other parts of Asia, but it has run into fierce competition and troubles with telecoms operators.

A Chinese WeChat user in Thailand may find to his surprise that he is not alone. Tencent's popular app can easily help him get in touch with others in the Southeast Asian country.
The voice and text messaging service, which has built up a user base of 300 million since its launch in January 2011, has now started its journey overseas.
This has been aided by an English version, which Tencent began offering in the fall of 2011, and in April 2012, Tencent started intensive marketing campaigns in Hong Kong, Taiwan and Southeast Asian countries like Vietnam and Thailand. 
WeChat has adopted various strategies to seek expansion abroad, but Tencent has found that competition in messaging has become increasingly strong. In addition, maintaining a sound relationship with telecoms partners has presented a challenge.
Cheap Plans
As Asia's financial hub, Hong Kong is also a vital battlefield for instant messaging service providers.
In June 2011, NHN Japan launched the messaging app Line, and both it and WeChat entered the Hong Kong market in early 2013. But most Hongkongers prefer the messaging app WhatsApp, which was developed by two veterans of Yahoo in 2009.
In an aim to expand in the former British colony quickly, WeChat partnered with Hong Kong's largest telecoms operator, PCCW Ltd., which agreed to offer a HK$ 8 monthly limited data package for its customers to use WeChat. That service started on February 1. Other offers were designed to attract more PCCW users to download and use WeChat.
Lin Guocheng, marketing president of PCCW's mobile business, said negotiations started in mid-2012 and PCCW was counting on the partnership to tighten its relationship with the mainland. The partnership with WeChat will help PCCW attract mainland customers to its data and roaming businesses, especially high-end users, Lin said.
In the next few years, WeChat will have more and more users in Hong Kong, he said. "Telecoms operators should seize the opportunity and study how to use the opportunity brought by messaging and social networking services."
Downloading the WeChat application is free in Hong Kong, but telecoms operators charge for data usage. Last year, WhatsApp also partnered with telecoms operators to launch cheap data packages for users to enjoy at home or abroad.
An industry analyst said the cheap service plans will not boost users' spending for the services, but will attract more users and help future growth.
Hot Competition
WeChat and Line have been engaged in fierce competition in Hong Kong. Line has partnered with hundreds of convenience stores in the city to offer promotions. The company has invested more than HK$ 10 million on marketing activities in the city since April.
Kang Hyunbin, head of the business office at Line Plus Corp., said that compared with WeChat, Line is more focused on entertainment. The company has generated revenue mainly by selling games and cartoon images used in text messages or to decorate personal spaces through the service. The company set a target of reaching 80 percent of Hong Kong's mobile users.
For its part, WeChat partnered with various businesses, including the Harbor City shopping mall and the Asia Song Festival, an annual music festival. Tan Lewen, general manager of Tencent's Taiwan and Hong Kong office, said WeChat launched a campaign linked to the music festival, giving away 600 tickets in 30 seconds, which indicated the user base in Hong Kong was highly active.
WeChat and Line are also doing battle in Taiwan. Since its official launch in October 2012, WeChat has been among the most popular Apple and Android apps. But Line's mobile game platform has helped it win more customers on the island. Since November, Line has launched four new games and outperformed WeChat in download ranking.
In response, WeChat is also eyeing gaming, company chairman Ma Huateng said.
The other major competitor to WeChat in the region is South Korea's KaKao Talk. In addition to free messaging and a mobile game service, KaKao Talk has also tested the waters regarding setting up a partnership with e-commerce and local services providers, enabling users to buy products and services through its platform.
KaKao's business covers Southeast Asia, Japan and the United States. In April 2012, Tencent partnered with South Korean online game developer WeMade Entertainment to invest 500 million yuan in KaKao, gaining a 13.8 percent stake.
Trouble in Vietnam
As traditional telecom services, like calls and SMS, have been increasingly squeezed by apps like WeChat, maintaining a relationship with telecoms operators has become tricky. The company has had to negotiate with telecoms operators at home, and similar disputes have arisen in other markets.
"Telecom operators hope Internet companies' apps attract more users, but they also hope the apps pay not only for the data they use but the user traffic," said Kim Do-yeon, a former IT regulatory advisor for the South Korean government. Kim said the South Korean government is inclined to support Internet companies as an emerging market power.
A souring relationship with a telecoms operator has been an obstacle to WeChat's expansion in Vietnam. Vietnam has about 15 million smartphone users, but its domestic development of mobile services has been yikesweak.
In 2012, Tencent acquired a controlling, 31 percent stake in Vietnam's largest online game provider, VinaGame (VNG), and started to promote WeChat on the platform. By the end of 2012, Tencent said it had 1 million WeChat users in the country.
But pressure soon came from a local telecoms operator. In late 2012, Nguyen Manh Hung, deputy general manager of the Vietnamese telecoms firm Viettel, warned that if the country did not maintain strict control over apps like WeChat, Vietnam would face security risks.
Since February, more such warnings have been issued. A source close to Tencent said that WeChat faces increasing resistance in Vietnam because a function that allows for the automatic searching of other users is seen as a violation of privacy by locals.