WeChat Ties With Unicom, Splits With Alibaba

By newsdoug on August 2, 2013

WeChat allies with Unicom

I don’t usually have many positive things to say about Unicom (HKEx: 762; NYSE: CHU), China’s second largest mobile carrier that has been in a state of management gridlock for most of the last 4 years after its formation through the merger of 2 smaller telcos. But I commended the company earlier this year for its stance on WeChat, the popular mobile messaging service operated by Internet giant Tencent (HKEx: 700), and am praising it once again for its new market-oriented tie-up with WeChat. At the same time, we’re seeing other interesting news on the WeChat front with word that Alibaba has recently stopped offering its e-commerce services over the popular social networking (SNS) platform.

Both of these developments reflect the growing importance of SNS services offered by names like Facebook (Nasdaq: FB) and Twitter, to the future of the Internet. Some companies like Unicom are forming partnerships that rely on third-party products like WeChat to tap the SNS market, while others like Alibaba probably want to develop their own products rather than rely on others.

WeChat has become the source of nonstop headlines over the last year, following its rapid rise after its launch in early 2011. The service now boasts more than 300 million users, and it’s hard to ride a bus or subway here in Shanghai without seeing multiple other commuters using the software during their rides to and from work. WeChat’s rapid rise has put a burden on the networks of China’s 3 major telcos, since the service uses the mobile Internet to transmit messages and other data.

Dominant mobile carrier China Mobile (HKEx: 941; NYSE: CHL) fought a high-profile battle with Tencent earlier this year in a bid to get some money from users of WeChat, even though the service is free and Tencent said it had no intention to start charging fees. China Mobile finally backed down, and is now working to develop its own rival products. China Telecom (HKEx: 728; NYSE: CHA), the nation’s smallest mobile carrier, is also working on its own rival product in a new partnership with online game specialist NetEase (Nasdaq: NTES) (previous post)

Unicom took the unusual step of defending Tencent during the dispute with China Mobile earlier this year, and now we’re getting word that Unicom’s Guangdong subsidiary is formally tying up with Tencent to promote WeChat, known in Chinese as Weixin. (English article) The reports say the 2 sides have formally launched a Weixin Wo SMS card, which offers special services and data plans for WeChat users over Unicom’s network.

This kind of tie-up looks smart to me, as China’s many WeChat fans could easily be tempted to switch to these SMS cards to get better value from their WeChat service. I also like the plan because it represents a more cooperative, market-oriented partnership that contrasts sharply with China Mobile’s previous combative, bullying approach.

Meantime, other headlines are saying that Alibaba has formally halted its own tie-up that had it offering its e-commerce services to WeChat users. (Chinese article) Alibaba has confirmed the severance, citing its desire to protect users of its e-commerce services.

The spat looks like it may have been the last straw in another dispute between the 2 companies. But this breaking of ties also comes as Alibaba is reportedly close to launching its own new SNS platform called Yun Mao, which will integrate its e-commerce services. That initiative would be part of Alibaba’s recent equity tie-up with Sina (Nasdaq: SINA), which operates the popular Weibo microblogging service that is a major competitor to WeChat. (previous post) Look for more similar tie-ups and break-ups in the next few years, as all the major Internet players try to craft their own SNS strategies through new alliances and product roll-outs.

Bottom line: A new Unicom-WeChat tie-up and an Alibaba-WeChat break-up reflect the ongoing formation and dissolution of new alliances to tap the boom in SNS.