To understand why I am positive on WeChat, I need to first quickly go through the history for text messaging in the United States.
Over the last two-ish decades, the US’s strong telecommunication infrastructure has actually led to an underdeveloped mobile messaging ecosystem. Given our strong cell service across the country, Americans have relied on SMS messaging (standard text messaging) far longer than other countries. While we were busy running up our monthly phone bills with text messages, most countries switched to mobile messaging platforms (WhatsApp, FB messenger, GroupMe, Viber, Line, etc.), which use data or Wi-Fi internet connection to send messages.
The exception is iMessage, and what Apple has fostered through the iPhone ecosystem. When an iPhone user sends a message to another iPhone user, messages come up as blue: signifying a mobile message. When an iPhone users send a message to a non-iPhone users, messages comes up as green: signifying a normal SMS text. Tethering to a Wi-Fi connection allows iPhone users to message other iPhone users when abroad or in remote areas, despite not having cell service.
At face value, it doesn’t matter if a simple “hello” message is sent as an SMS text or as a mobile message (through one of the mobile platforms). However, like everything else with social networks and the “Web 2.0” craze 2 things that are crucial to any social network application’s success.
Users: Who is on it/How many people use it?
Functionality: What more are you able to do/What value does it add to your life?
Enter WeChat. A Chinese mobile messaging app predominately used in China and other Asian countries. Unlike WhatsApp or iMessage, WeChat’s ubiquity in Chinese people’s phones, regardless the make or model (iPhone 5, 6, Samsung Galaxy S7, etc), solves the first issue because everyone you know is on this platform. They say for every 100 people with cellphones, 99 people have WeChat.
Functionality: All these messaging platforms offer some form of phone call or video call function along with robust messaging and picture sending capabilities. WhatsApp/FB Messenger offer a few games and are in the process of integrating payments. Snapchat offers a news feed and mobile payments (Snapcash). WeChat offers all of the above and the kitchen sink in one mobile app.
Although WeChat may not possess superior technology or coding, the following is a short list of companies’ technologies/functionalities that are encompassed within their app:
Messaging: WhatsApp/Viber/Line/FB Messenger/iMessage
News Feed (friends and world news): Facebook/twitter
Market place: Amazon/Jet.com/Letgo
Content Streaming: Netflix/Live NBA games/Exclusive Disney rights
Video Conference: Skype/Slack
Mobile Gaming: King/Electronic Arts
P2P Payments: Venmo
C2B Mobile payments: ApplePay/Samsung Pay/Square
Restaurant order/delivery: Seamless
Micro financing: LendingClub or any Microbank
In China, using WeChat to pay is as synonymous as using cash, given its wide acceptance everywhere and by everyone, but far less of a hassle than exchanging physical paper. Users link their bank accounts so they can exchange payments with friends and/or businesses. During my stay I observed people using WeChat to pay at a popup fish market, taxis, restaurants small and big, Starbucks, and the biggest aquarium in the world. When walking to the register, you don’t ask yourself if you should open the Starbucks App, if they accept Visa or AMEX, if their systems accept ApplePay/Samsung Pay, or if they have enough change for your $100 bill.
*Here is a quick CNN video discussing the Chinese mobile payment culture (I couldn't upload my own video is youtube will have to suffice, sorry!)
**Alipay is Alibaba's mobile payment service
You can receive a small business loan from WeChat, market your business, receive orders, and transact all with in this little app. It’s an app that connects you to all your friends through its messaging and newsfeed platform. It’s an app where you can play mobile games while you wait for the delivery you just ordered through the app. It’s an app you can use to shop small and large stores. It’s an app that allows you to pay friends, department stores, and your favorite stand at the local farmer’s market.
Show me a single app where social acceptance is so far reaching it is integrated into societal culture, show me an app that aggregates all these functionalities, and I will show you a market leader. WeChat is owned by a larger company called Tencent, but WeChat’s platform dominates Tencent’s financial statement. I have very limited access to financial numbers (as I am traveling), but revenue growth (+30% YoY) and earnings growth (+20% YoY) are comparable to many of the other high flying tech companies across the world. The app also touts 846 million monthly active users and over 1.1 billion accounts total. However, Tencent does possess other revenue sources that help bolster or hinder the pure play on the financial success of WeChat. Tencent's stock has grown to the largest position in the MSCI Emerging Markets index (exceeding Samsung). All that being said, their technology and user experience is not superior to their international competitors. Also, the strong performance in stock price warrants patience, when initiating a position in this highly volatile stock.
The path that WeChat has paved helps explain the logic behind Facebook’s $19 billion WhatsApp acquisition in 2014, despite already owning FB messenger. I don’t believe WeChat will ever meaningfully crack the US market because it both doesn’t fill a void, and our culture isn’t very mobile dependent, just yet. However, the name of the race is aggregating utility, so don’t be surprised if you start seeing mobile messaging platforms roll out other functionalities. I’m interested to see how Apple continues to build out iMessage, how Snap Inc. continues to refresh their platform, or if any company will be able to replicate WeChat’s dominance in the mobile messaging space…
Finally, 2 more things:
First: Exponent is a podcast, run by 2 fellas by the name of Ben and James. They do an incredible job discussing everything from corporate strategies to societal shifts to the roll of government. Ironically, they did a deep dive on WeChat right before I started writing this piece, and they do a better job articulating the history and explaining WeChat’s dominance. Definitely worth the 1 hour listen! (see link below)
Second: I will leave you with the running joke in China:
People have witnessed a homeless man ask a stranger for money. The person responds by saying “I don’t have cash or change to give you.”
To which the homeless man pulls out his cellphone and says, “You can send me some change with WeChat though (as he shows his QR code).”
Full Disclosure:
Of the companies mentioned above:
I currently have a long equity position in Tencent, Facebook, Amazon, and Lending Club.
I currently have a short position in Snap Inc.
I had a long position in Square, over the last 12 months.