• Tue
  • Jul 29, 2014
  • Updated: 5:33am
Corporate China
PUBLISHED : Thursday, 06 February, 2014, 1:57pm
UPDATED : Thursday, 06 February, 2014, 2:01pm

Alibaba, Sina cast envious eyes on Tencent's 'Hongbao'

BIO

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young’s China Business Blog (www.youngchinabiz.com), commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, “The Party Line: How the Media Dictates Public Opinion in Modern China.”
 

Things have certainly changed over the last 3 years in Lunar New Year messaging, as reflected by the flood of tech executives using their microblogs to weigh in on Tencent's (HKEx: 700) launch of a red envelope gift function for its popular WeChat platform over the holiday period.

Most of the comments were admiring and even in a slight state of awe at the big success of WeChat's hongbao product, which lets users send gift money to their friends and relatives over the popular instant messaging platform. But at least one post from Alibaba smelled of sour grapes, and a Sina (Nasdaq: SINA) executive also took a backhanded swipe at the rival to his company's own Weibo microblogging service.

I'll start with my own view that this new function by Tencent looks like a brilliant move, combining many of its strengths to create a product that was almost guaranteed to be popular among WeChat's hundreds of millions of users. What's more, the hongbao product was actually one with money-earning potential, since it involved the sending of money to friends and relatives in an electronic form of the cash-filled red envelopes typically given out this time of year.

The product is similar in many ways to the huge volume of greetings that many Chinese used to send via simple text messages to their friends during the Lunar New Year. In my reporting days, I remember how China Mobile (HKEx: 941; NYSE: CHL) and China Unicom (HKEx: 762; NYSE: CHU) used to issue releases each year about the hundreds of millions of text messages sent by their users each New Year's day. Those stories have largely disappeared now, probably because the big telcos don't want to publicise the dwindling popularity of these simple messages as users opt for more elaborate greetings that can be sent over WeChat and other multimedia services.

WeChat's red envelope function allows users to bind their bank cards to their WeChat accounts, and then designate sums of money to put in a virtual red envelopes that can be sent electronically to other users. It looks like Tencent didn't actually make any money from the envelopes themselves, but instead benefited by getting 5 million of its users to bind their bank cards to their accounts. That's an extremely important step as Tencent tries to build up lucrative e-commerce business on WeChat. By comparison, the mobile arm of Alibaba's Alipay mobile service, known as Alipay Wallet, currently has about 10 million registered users. According to Tencent, users sent some 20 million red envelopes over the first 2 days of the Lunar New Year.

Comments from Qihoo 360 (NYSE: QIHU) executive Tao Weihua were typical of the generally positive sentiment towards Tencent, praising WeChat for its latest success and also taking a backhand poke at Sina for failing to develop a similar product for its equally popular Weibo service. Baidu (Nasdaq: BIDU) wireless executive Yue Guofeng similarly noted that the huge success of the Tencent product marked a turning point for Sina Weibo, whose popularity has recently started to drop following its meteoric rise over the last 3 years.

Alibaba certainly understands the threats to its dominance in both e-commerce and electronic payments posed by WeChat. It launched Laiwang, a rival mobile social networking app, last fall and has aggressively promoted the product at every possible opportunity since then. Alibaba's public relations chief Gu Jianbing used his microblog to question some of the figures that Tencent was giving out about the New Year promotion's success. Sina vice president Chu Dachen was a bit more muted but still critical in his comments, implying that WeChat's product was popular among younger users but that Sina Weibo's own New Year greeting products were the choice of more sophisticated people.

All of that said, there's clearly no denying that WeChat's hongbao product was a major success over the Lunar New Year, and could easily maintain its popularity into the months ahead as people use it to send virtual red envelopes for other celebratory occasions like birthdays and weddings. I have no doubt the function will be a major topic of discussion in the Sina and Alibaba board rooms in the next few weeks, as China's Internet giants continue their nonstop race for dominance on the country's mobile Internet.

To read more commentaries from Doug Young, visit youngchinabiz.com

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