China Mobile, Tencent Spar Over WeChat 中国移动与腾讯就微信展开口水战
It seems that Sina (Nasdaq: SINA) Weibo isn’t the only company worried about the rapid rise of WeChat, the wildly popular mobile social networking service (SNS) operated by leading Internet company Tencent (HKEx: 700). That’s my interpretation of the situation, following a recent war of words that has broken out between Tencent and China Mobile (HKEx: 941; NYSE: CHL), China’s dominant mobile carrier. But in this new tussle, Tencent needs to move very carefully since China Mobile is not only a competitor but is also in the powerful position of being able to limit or even completely cut off its more than 700 million mobile subscribers from access to WeChat, more commonly known by its Chinese name of Weixin.
I wrote earlier this week about how the rapid rise of WeChat has caught the attention of leading microblogging service Sina Weibo, which is now looking for a strategic partner to help it fight back against Tencent. (previous post) While Sina looks for a partner, China Mobile has come out with its own verbal attack against Tencent, which it says is behaving like a rival telco. (Chinese article) The comments by China Mobile President Li Yue appear to be a direct attack on WeChat, which has rapidly risen since its launch just 2 years ago to recently pass the 300 million mark in registered users.
China Mobile’s biggest concern is that it is rapidly losing SMS business — one of its biggest revenue sources — to WeChat, which lets users send messages for free by routing all of its traffic over the Internet. I’ll openly admit that I’m one such fan of WeChat, having opened an account in the last 6 months and now using it for much of my mobile messaging.
China Mobile previously had a partnership with a service called Fetion, also known by its Chinese name of Feixing, which offered similar though more basic mobile-based instant messaging services over the Internet. But Fetion is rapidly losing business to WeChat and other more advanced services, leading media to report in November that China Mobile was thinking of either scrapping the tie-up completely or buying out Fetion’s owner. (previous post)
Meantime, media are also reporting that China Mobile has signed a new tie-up with yet another mobile SNS service called Line, a Japanese product which has similar functionality to WeChat. (Chinese article) All of this sudden movement in the mobile SNS space reflects the very real fact that everyone sees this kind of service as a very important area for future development, perhaps even someday surpassing traditional voice services.
So the question becomes: how is this looming showdown between China Mobile and Tencent likely to end? In my view, Tencent may have no choice but to form a partnership with China Mobile by signing a revenue-sharing agreement. The reason is simple. If China Mobile gets too worried about WeChat, it can find ways to either limit access or even block the service completely for its huge subscriber base, which accounts for two-thirds of China’s mobile market.
Longtime market watchers may recall that China Mobile took similar action against SMS services provided by Sina, Sohu (Nasdaq: SOHU) and other Internet companies nearly a decade ago in a bid to clean up spam and other undesirable content, in what ended up starting a long-term decline for such services. In this case I doubt we’ll see China Mobile take such extreme action, since it would risk alienating millions of its subscribers who use WeChat. But I do expect that Tencent will have to make some kind of concessions in this case, and we’re likely to see a deal between the 2 sides sometime in the new year.
Bottom line: China Mobile is pressuring Tencent to form a revenue-sharing tie-up involving Tencent’s WeChat SNS service, with a deal likely in 2013.
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