Chinese networking App blazes its own path

Every half-hour or so, Jenny Zhao, young and wired, unlocks her iPhone 5 to connect with friends using Weixin, China’s wildly popular social messaging app. “I’m probably on Weixin six hours a day,” says  Zhao, 24, a cosmetics marketer in Shanghai. “A lot of what I do revolves around it.”

Weixin (pronounced way-shin) is this country’s killer app, a highly addictive social networking tool that allows smartphone users to send messages and share news, photos, videos and web links, much like America’s WhatsApp, or Line, a Japanese communications and messaging app. In the United States, a similar version is known as WeChat.

Just three years after being introduced in China, Weixin has nearly 300 million users — a faster adoption rate than either Facebook or Twitter — giving the app a dominant position in what is now the world’s biggest smartphone market. It has already stopped the growth of the messaging service of the country’s biggest mobile phone company and provoked China’s largest Internet companies to create competing services. But in the free-for-all in China, one leading social media company is not a factor.

Analysts say the phenomenal rise of Weixin all but dooms any chance that Facebook will become the market leader there. In 2009, the Chinese government blocked access to Facebook, without explanation. Twitter and YouTube are also blocked in China.

Since then, Facebook has hinted that it may try to re-enter the market, perhaps by teaming up with a local company. Weixin’s success has made that all the more difficult. “Even if Facebook had permission, it’s probably too late,” says Wang Xiaofeng, a technology analyst at Forrester Research. “Weixin has all the functionality of Facebook and Twitter, and Chinese have already gotten used to it.”

Weixin is the creation of Tencent, the Chinese Internet powerhouse known for its QQ instant messenger service and its popular online games. Tencent, which is publicly traded and is worth more than $100 billion on the Hong Kong exchange, is now seeking to strengthen that grip in social networking and expand into new areas, such as online payment and e-commerce.

Alibaba, China’s e-commerce goliath, has already announced plans to fight back in China, with its own newly developed messaging app, called Laiwang. Tencent, meanwhile, is so confident of its messaging app that it is promoting Weixin overseas, particularly in Southeast Asia, where there are already tens of millions of users. The company also plans a marketing blitz in Europe and Latin America, using the name WeChat. The company declined to say whether or when it would promote the service in the United States.

Weixin could help change global perceptions of Chinese companies. Although Chinese Internet companies are still considered knockoffs of Google, Facebook, Twitter and eBay, analysts say they are quickly transforming themselves into dynamic, innovative technology companies with unique business models. Weixin, for instance, is no mere copy of an existing service but an amalgam of various social networking tools: part Facebook, part Instagram and even part walkie-talkie. Rather than send a short mobile phone message by typing Chinese characters, which can be time-consuming, users simply hold down a button that records a voice message.

Disruptive powers

“Chinese Internet companies are no longer behind,” says William Bao Bean, a former technology analyst who is now a managing director at the venture capital firm SingTe Innov8. “Now, in some areas, they’re leading the way.”

The disruptive powers of the service are indisputable. Weixin has already stunted the growth of China’s popular microblogging service Sina Weibo, and eroded the profitability of a service offered by China’s big, state-run telecommunications operators: the mobile phone short message service known as SMS.

At China Mobile, the country’s biggest mobile phone service provider, revenue from short message services peaked in 2009 at nearly $9 billion. Three years later, it was down nearly 20 percent from that high, and it very likely dropped again last year, according to recent estimates. Analysts say that technology shifts often kill companies that are slow to react. But the threat of extinction can also inspire companies to reinvent themselves, or to search for the next great thing.

That is what happened at Tencent, which has been growing at a torrid pace for much of the past decade. Fearing the development of a disruptive technology that could upend this success, Tencent executives say they encouraged the company’s software developers and product managers to search for new ideas.

In late 2010, Allen Zhang, the head of Tencent’s research and development center in Guangzhou, organized a team of 10 developers to work on a smartphone messaging app. He was inspired by Kik messenger, which he worried might eventually threaten Tencent’s dominant, PC-based QQ instant messenger.

Three months later, Tencent released Weixin. With an elegant and easy-to-use interface, the messaging app attracted 50 million users within a year, and over the next two years reached nearly 300 million users worldwide. Weixin, technology experts say, has what every Internet company executive dreams about: stickiness. Although Tencent does not track the time that users spend on the service, analysts say it is most likely multiples of other major blogging or social media services.

Analysts say Tencent also has a huge opportunity to make money from the free service. By introducing free mobile games — with virtual items available for purchase — and a payment feature that can be used online or offline, Weixin could soon develop into a profitable business with little or no advertising.

The company is now experimenting with use of Weixin to book taxis, hotels and airline flights, and even to control televisions and home appliances. Last August, a technology analyst at Barclays forecast that Weixin could have 400 million users and nearly $500 million in revenue this year. With investors anticipating such growth, shares of Tencent have soared 94 percent in the past year.

Some Tencent executives even view Weixin as a company savior. Last year, Tencent’s chief executive and co-founder, Ma Huateng — known in English as Pony Ma — said during a speech that the power of Weixin was that it was mobile, like a “portable organ” that unlike a PC was always with the user. If Weixin had been created by another company, Ma went on, Tencent might have gone into decline. “Looking back,” he said, “those two months were a matter of life and death” for the company.

There are challenges, of course. One, analysts say, is that China’s tech-savvy young people are fickle, and could just as quickly switch to other messaging services. Another challenge could come from Tencent’s rival Alibaba, the Chinese e-commerce company that has all but declared war on Weixin. Last August, Alibaba barred vendors on its Taobao.com shopping site from using Weixin to market their products. Alibaba then introduced its competing service, Laiwang, and announced plans to introduce a mobile games platform.