INTERNET – Tencent Eyes Telcos With WeChat Voice
Bottom line: Tencent’s new WeChat-based free voice service could stand a good chance of success, but will face challenges due to technical issues and resistance from China’s traditional telcos.
Internet giant Tencent (HKEx: 700) has just announced new quarterly results that show slowing growth for its core social networking (SNS) and gaming units, but everyone is far more interested in the low-key launch of a new free voice calling feature on its wildly popular WeChat platform. The new function, called WeChat phone book, lets users make real-time phone calls for free by routing them over the Internet, and is similar to that offered by the much older Skype. But unlike Skype, which only allows free calls to other Skype users, the new Tencent service allows users to make free calls to anyone with a fixed- or mobile phone account.
Tencent’s low-profile launch for the service wasn’t too surprising, since the company is already quite low-key in line with its equally soft-spoken founder Pony Ma. (English article; Chinese article) But there are also several other reasons why Tencent wanted to keep the launch out of the headlines, which it largely did by launching the product on China’s Double Eleven mega-shopping day that has dominated the news the last 2 days.
For starters, the product’s newness meant that technical glitches were almost inevitable, and thus any overhype could easily have produced a flood of negative coverage due to problems experienced by WeChat’s more than 400 million users. But perhaps most importantly, Tencent doesn’t want to trumpet the fact that the new service poses its most direct challenge yet to traditional voice services that are the largest single revenue source for China’s 3 traditional telcos.
Many readers may recall that Tencent clashed with leading mobile carrier China Mobile (HKEx: 941; NYSE: CHL) 2 years ago when the latter accused the former of operating as a de facto telco. China Mobile made that claim because many of WeChat’s millions of users, myself included, were abandoning their use of traditional SMS text messaging services for WeChat’s similar services that were essentially free. As a result, China Mobile was seeing growth stall or even start to contract for SMS, one of its traditional cash cows.
That war of words eventually died down, but this new WeChat voice service will only further strengthen China Mobile’s argument that Tencent is operating as a de facto telco. China’s telecoms regulator is unlikely to be sympathetic to any such complaints, since it’s already trying to make the market more competitive and innovative through its own virtual network operator (VNO) initiative.
Tencent’s new voice product could do quite well, and perhaps it will help WeChat to go global and draw more users to its other revenue-generating services. But it’s worth noting that many other tech giants have offered similar products, all with dismal results. Skype is the closest to a successful Internet-based voice product, but its spotty quality, fees and origins as a desktop service have limited its success on cellphones. Microsoft (Nasdaq: MSFT) and Google (Nasdaq: GOOG) have also launched similar products, but even these giants have posted limited success for similar reasons.
Despite all that, I’m cautiously optimistic that Tencent might be able to succeed where the others have failed. Chinese consumers are quite net-savvy, especially when they can save money, and are far more tolerant of spotty technology than their western peers. Tencent is also launching its initiative from a mobile platform, meaning it won’t have to deal with migration issues from a desktop product. When all is said and done, I’d give this new product a better than 50 percent chance of success, and the biggest challenge might be resistance from the big telcos.
Oh, and for anyone who wants to read about Tencent’s latest quarterly results, which have also just been released, feel free to click on any of the follow links. (results announcement; English article; Chinese article)
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