INTERNET: Tencent, Alibaba Spin Dizzying Hongbao Numbers

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Bottom line: Results from Chinese New Year promotions show that WeChat will continue to dominate over Alipay in gift-giving and other friend-to-friend transactions over the mobile Internet due to its original design as a SNS service.

WeChat trounces Alipay in online hongbao promotions

Most of China has been on holiday these last few days, but leading Internet companies Tencent (HKEx: 700) and Alibaba (NYSE: BABA) have been working overtime trying to put the best possible face on dizzying numbers from their red envelope gift-giving promotions over the holiday.

Tencent is focusing on the headline figure of 8 billion money-filled virtual red envelopes, known in Chinese as hongbao, that changed hands on its wildly popular WeChat messaging service through the second day of the Lunar New Year. Alibaba, meanwhile, is focusing on its own headline figure that shows its Alipay electronic payments service received a whopping 21 billion hits per minute at the height of a New Year’s promotion it held with leading TV broadcaster CCTV.

The Alipay promotion mostly saw the company and CCTV hand out money to users who participated via their smartphones during the broadcaster’s hugely popular annual New Year’s Eve gala TV show. WeChat, meanwhile, generated most of its traffic through promotions that allow users to send individual hongbao gift envelopes to their friends and relatives, or to “toss” hongbao into a group of friends and then let people scramble to “grab” one.

The bottom line seems to be that Tencent is still the king when it comes to this kind of promotion, mostly because WeChat is highly suited to such gift-giving activities due to its design as a social networking (SNS) platform. By comparison, Alipay was designed as an e-payments service comparable to US giant PayPal, and it’s only more recently that Alibaba has tried to use the platform for social networking.

All that said, let’s take a closer look at some of the numbers from Tencent and Alibaba, as each tries to show off its prowess as a platform for financial transactions. We’ll begin with Tencent, which said WeChat users exchanged staggering 8.08 billion yuan ($1.2 billion) worth of hongbao on Lunar New Year’s Eve, representing an 8-fold increase from last year when it staged its first such promotion. (English article; Chinese article)

The promotion attracted 420 million WeChat users, representing a big majority of the service’s subscriber base. At the height of gift giving, just after midnight on New Year’s Eve, users were exchanging 409,000 hongbao every second. WeChat engaged in a number of other sub-promotions, including working with more business partners like airlines and newspapers in its bid to commercialize the platform.

Money Loser

At the end of the day, I expect the company probably lost big money due to the huge volume of transactions that it had to process for free on WeChat, many often valued at less than 1 yuan. But Tencent is a cash-rich company and can afford to spend that kind of money as it tries to transform WeChat from a socialization center to one where people conduct more fee-earning commercial transactions.

Next there’s Alibaba, which says it registered a massive 324.5 billion “tries” by people looking to grab some prize money using their smartphones during its CCTV promotion. (Chinese article) Nearly 800,000 people ultimately won prizes worth a collective 215 million yuan, for an average of about 270 yuan per prize. Alibaba notes the number of tries this year rose 30-fold from similar promotions in 2015, though it’s important to point out that last year it wasn’t working with CCTV.

Alipay says its users also exchanged about 800 million in hongbao on New Year’s Eve, which is obviously far less than Tencent’s 8 billion yuan worth. But that really highlights one of the big differences between these 2 services, since Alipay wasn’t designed as an SNS service and few people use it to regularly communicate with their friends and exchange gifts and other items. I do expect that Alipay will face an uphill climb to develop this part of its business, though it certainly will continue to dominate the more traditional business of people buying products and services for their own use.

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