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Tencent’s WeChat reported having over 1.2 billion users worldwide as of the end of March. Photo: Shutterstock

Go mini or go home: China’s Tencent pushes for e-commerce breakthrough on WeChat via in-app programs

  • Tencent’s latest push into e-commerce hangs largely on its Mini Shop feature, which supports the creation of online stores via WeChat’s mini programs
  • From January to August this year, sales on WeChat’s mini programs surged 115 per cent compared with the same period last year
Tencent
On ubiquitous Chinese app WeChat, it takes just a few minutes to set up a free online store by uploading your Chinese identity card information or business licence using the native store system, Mini Shop. But while this convenience and speed are impressive, the app’s enormous reach is what makes it a potential game changer in the e-commerce scene, according to analysts.
Tencent Holdings’ do-everything app WeChat – which allows users to find a hotel, pay bills, message friends, order food and much more – reported having over 1.2 billion users worldwide as of the end of June.

“WeChat is a tool used by almost everyone in China,” said Tian Hou, analyst at T. H. Capital Research. “[Mini Shop] enables every user to have the access to open an online shop, making e-commerce accessible for all.”

The Mini Shop function represents Tencent’s latest push into e-commerce after it mostly retreated from the scene about half a decade ago, pushed out by intense competition with rivals including Alibaba Group Holding, the Post’s parent company, and JD.com.

In recent months, Tencent has added a live-stream function, which has emerged as a hot new marketing channel, and revealed plans to upgrade its tools for merchants, such as inventory and order management services.

WeChat mini programs are becoming a lot more important for Tencent

This coincides with a recent boom in the e-commerce industry, bolstered by the stay-home economy created by the Covid-19 pandemic. The sector is estimated to reach US$2.1 trillion in 2020, including US$242.4 billion in social e-commerce sales, according to eMarketer.

There were 710 million online shoppers in China in March, a 23-fold increase compared to 2006, the year Tencent launched online marketplace Paipai to challenge Alibaba’s Taobao and JD.com, according to reports by the China Internet Network Information Center. After years of competition, Tencent eventually sold Paipai to JD.com in 2014, at the same time forging a strategic alliance by buying a 15 per cent stake in the Chinese e-commerce giant.

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Compared to Alibaba and JD.com’s heavy investments in building logistics chains and warehouses, Tencent is going for a more “asset-light” approach this time around, analysts say.

“I don’t think Tencent will engage directly in the e-commerce business like they did in the past,” said Vey-Sern Ling, analyst at Bloomberg Intelligence. “The idea is for Tencent to keep engaging its users on communications, and monetise them on a variety of services that are provided by other companies, so that Tencent can maintain a high level of profitability and not expose itself to too much risk and diversification.”

Rather than developing a stand-alone e-commerce platform, Tencent now mostly plays an “enabler” role by providing tools to make e-commerce accessible to individuals and enterprises, Tian said.

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The Mini Shop feature supports the creation of online stores via mini programs, lightweight apps that run inside WeChat without the need to download them separately. Collectively, there were over one million mini programs with 400 million daily active users as of this month, according to Tencent.

The strategy appears to be paying off. From January to August this year, the gross merchandise value (GMV) – a measure of sales – of mini programs surged 115 per cent compared with the same period last year, according to data from the Tencent Global Digital Ecosystem Summit last week. Mini Shop currently supports over 1,500 product categories, and the fastest-growing are daily necessities, luxury goods, shopping malls and supermarkets, Tencent said.

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Earlier this year, Tencent announced that its users spent 800 billion yuan (US$118.1 billion) through various mini programs in 2019, a 160 per cent increase from the previous year.

To be sure, this is still only a fraction of transactions on established e-commerce platforms such as Alibaba, which reported a GMV of US$1 trillion in the financial year that ended March. However, it is catching up with other smaller players such as fast growing group buying site Pinduoduo, which reached a GMV of 1 trillion yuan in 2019.

The market has grown big enough for Tencent to re-enter the fray without necessarily clashing with heavyweights like Alibaba and JD.com, according to Zhang Dingding, an internet industry commentator and former head of Beijing-based research firm Sootoo Institute.

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“The penetration of online commerce is still way lower than the traditional retail business, so Tencent will be taking shares from the offline businesses rather than the online rivals,” said Zhang. “The rise of newcomers like Pinduoduo in the past few years has not slowed the growth of the incumbents”.

“Through e-commerce, Tencent can engage enterprises along the supply chain in other services such as advertising, financing and logistics,” said Zhang. “This is how e-commerce companies like Amazon and Alibaba achieved success, and Tencent has the resources to make the attempt, so why not?”

And while Tencent gave up on its own e-commerce platform, it has remained a quiet power in the sector for years as the backer of some of the biggest e-commerce companies: the internet giant is currently the biggest shareholder of JD.com, and the second-biggest stakeholder of both VIPshop and Pinduoduo.

“Tencent is an empire builder with an excellent long game,” said Mark Natkin, managing director of Marbridge Consulting in Beijing. “In areas where its own, self-developed platforms fail to get traction, it will invest in one of the other industry front-runners, but usually with an eye to gaining a controlling stake sometime in the future.”

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