• Fri
  • Dec 19, 2014
  • Updated: 1:28am
Facebook
BusinessCompanies
INTERNET

WeChat in the way of Facebook's ambitions in China

Facebook's newly acquired messaging service WhatsApp will find the mainland tough to crack given the huge popularity of local rival WeChat

PUBLISHED : Friday, 21 February, 2014, 1:11am
UPDATED : Friday, 21 February, 2014, 4:31am

Facebook may well see its US$19 billion acquisition of WhatsApp as a way to break into the mainland's growing mobile-messaging market, but it faces a big challenge taking on Chinese internet giant Tencent's home-grown WeChat platform, analysts say.

"WeChat is already very strong on the mainland, where its expanded features successfully combine mobile messaging, social networking, e-commerce, gaming and financial services," said Kitty Fok, the managing director for China at technology research firm IDC.

In a report released yesterday, Barclays Research said WeChat, known as Weixin on the mainland, was also worth more than WhatsApp as it has an estimated valuation of US$30 billion.

Facebook announced yesterday morning that it agreed to acquire WhatsApp, which has about 450 million monthly active users worldwide, for a total of US$19 billion - comprising US$4 billion in cash, US$12 billion worth of shares and upon closing, another US$3 billion worth of restricted stock. It is Facebook's biggest-ever acquisition.

While that merger is expected to strengthen Facebook's competitiveness in mobile messaging and attract younger consumers, Forrester Research analyst Wang Xiaofeng said the deal "won't affect the China market that much" because Facebook cannot be accessed on the mainland and WhatsApp has an insignificant share in the world's largest smartphone market.

Both Facebook and WhatsApp management indicated yesterday the mobile-messaging platform will continue to be run autonomously, ensuring that WhatsApp will remain accessible to users on the mainland.

Sandy Shen, the research director for consumer services at Gartner, said: "If Facebook tries to use WhatsApp as a vehicle to port its existing services in China, then the service will likely be blocked because Facebook's social content remains sensitive for the authorities."

Alicia Yap, head of China internet research at Barclays, said the US$30 billion valuation for WeChat was reasonable based on the estimated 9.62 billion yuan (HK$12.22 billion) in revenue that the service will generate for Tencent by 2015 on the back of strong demand for its mobile games, and "by assuming a similar margin structure as Tencent's other business lines".

"If we assume monthly active users for WeChat reached about 300 million by the fourth quarter last year, this would translate to about US$100 per monthly active users, based on our estimates, which is much higher than what Facebook is paying for WhatsApp," Yap said.

Tencent started to generate revenue from WeChat, which has 272 million monthly active users, with the introduction of mobile games, and more recently, the integration of a payment system for taxis, e-commerce transactions, wealth management products, and bookings for cinemas and restaurants. WhatsApp, by comparison, only generates revenue by charging 99 US cents for every download of the app.

Claus Mortensen, a director at IDC Asia-Pacific, expected WhatsApp and Facebook's existing Messenger service to continue operating separately and be integrated later on.

Share

Related topics

For unlimited access to:

SCMP.com SCMP Tablet Edition SCMP Mobile Edition 10-year news archive
 
 

 

 
 
 
 
 

Login

SCMP.com Account

or