WeChat passes the 1 billion-user mark – but it might not monetize them through advertising
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WeChat passes the 1 billion-user mark – but it might not monetize them through advertising

Popular Chinese messenger app WeChat has officially passed the 1 billion-user mark. It’s done it faster than Facebook, and has incredible engagement rates (the average WeChat user spends four hours a day on its app) – but parent company Tencent might choose to forgo the advertising business model that some of the world’s biggest internet companies use.

Tencent’s share price is up by 80% over the past 12 months

graph 1005 wechat

SOURCE: Yahoo Finance

WeChat already uses advertising to gain revenue, but it’s far more cautious than Facebook or Google. The service displays one ad per day in its “moments” feed, compared to Facebook’s one ad for every ten posts. That’s a massive difference, and explains the disparity in how much revenue the two services derive from ads (Facebook makes approximately $30.10 per daily active user, WeChat makes $2.10 per daily active user).

Tencent has traditionally preferred a slow path to monetization by tailoring services to users’ needs, making sure they’re as good as they can be, then offering a premium version through a subscription model. It’s not clear that that’s what the company will do with WeChat, but falling back on Facebook’s business model seems even less likely. In an early interview, Tencent’s chief exploration officer, David Wallerstein, shone some light on why that might be the case:

“The ad market from our perspective has always been pretty challenging in China compared to the US. And particularly for us we found our users did not like ads in their messaging experience. So they would go through great lengths to develop software and these kind of hacks so they wouldn't have to see the ads. And we felt like that was kind of endangering the user experience. So we did always have an ad team, and we're getting much better at it. And we have different kinds of inventory today. But the ads in the messaging window was never a viable option for us, unlike our friends at Google or other companies.”

So there you have it. It’s a company thing, and it’s a China thing. And if Tencent wasn’t sold on advertising before, current headlines over the Cambridge Analytica scandal are unlikely to sway it that way.

Disclosure

Dominion holds Tencent in its Global Trends Managed Fund.


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