Last week, WhatsApp CEO Jan Koum enthused about his company’s record user figures. With 700 million monthly active users and approximately 30 billion messages sent every day, WhatsApp is the undisputed king of the global mobile messaging landscape.
And yet, Koum will be well-aware that a complacent company is one that is doomed to fail, particularly given the size of some of the firm’s competitors.
Facebook Messenger, backed by the most popular social network in the world, has 500 million users and surely poses a significant threat, but it is WhatsApp’s Asian rivals, benefitting from their domestic dominance, that Koum will be keeping a wary eye on.
Despite WhatsApp’s success, the app is struggling to gain traction with consumers in a number of major emerging markets. In China, for example, the app manages just a four per cent penetration rate across mobile Internet users. In fact, user figures reveal that as of the end of 2014, WhatsApp relies heavily on its popularity in Europe and smaller Asian markets such as Malaysia and Singapore.
Its failure to penetrate the Chinese market is not only disappointing in terms of future growth opportunities, but it also points towards the success of some of its competitors.
WeChat, or Weixin in Chinese, was launched in 2011 by investment holding company Tencent and in just over a year had amassed more than 100 million members. While the firm initially benefited from being able to integrate users’ address books from Tencent’s older instant-messaging service GQ, the app has since launched a number of innovative money-making features that set it apart from its Western competitors.
In 2013, WeChat began integrating online-payments into its messaging service and now users can carry out their online banking through the app. The platform has also embraced e-commerce, hosting exclusive sales of smartphones and other products over WeChat.
To emphasise the diversity of the service, WeChat actually makes most of its revenue through selling customers virtual goods, rather than the usual route of online advertising. Approximately 85 per cent of WeChat’s income in 2014 came from gaming, including selling avatars and other digital products.
Given its membership figures and its financial success, it is understandable that WeChat is targeting growth overseas.
As well as providing social media and financial services that enable it to stand out against more traditional messaging apps, WeChat has also been actively targeting Western expansion, particularly amongst younger age groups. Late last year, the Chinese firm enlisted a Los Angeles marketing agency called the Regan Group to carry out campus-based events to entice students to download the app. While there is still plenty of work to be done, WeChat has seen its membership figures grow by a factor of 11 in the US since early 2013.
Worryingly for WhatsApp, WeChat is not the only powerful Asian competitor targeting its market share. Another instant messaging client, Line, is now Japan’s largest social network and has attracted more than 500 million users worldwide.
Perhaps one of the key reasons for WeChat’s massive growth will also be one of its major hurdles to further international expansion: the Chinese government.
Through the years, Beijing has implemented a number of policies encouraging the growth of domestic businesses, but foreign competitors have often struggled to make in-roads in China. A huge and complex market, vast amounts of time and financial resources are required for foreign firms to compete and they are often faced with lower-cost domestic rivals.
While this allows local firms like WeChat to grow rapidly, further expansion internationally is often more troublesome. For messaging apps, this process is complicated further by China’s well-known censorship programme. WeChat has already faced several accusations of enforced censorship, including claims that images from last year’s Hong Kong protests were being blocked.
Given that WeChat will remain governed by China’s strict, by Western standards at least, censorship programme, will international users be keen to adopt it? Tencent recently claimed that it had 100 million registered WeChat users outside of China, but it is unclear how many of these use the service regularly. Industry analysts argue that many overseas users are Chinese expatriates and the service has yet to become popular in foreign markets.
If WeChat is to become popular in the West, it must convince a market that has grown increasingly aware of surveillance programmes following Edward Snowden’s NSA and PRISM revelations.
Despite these obstacles, WhatsApp will still be wary of WeChat and the threat it poses to its position at the top of the instant messaging industry. A recent Strategy Analytics report found that four out of the world’s top 10 fastest growing companies are located in China. The sheer size of the domestic market means that even companies with little international recognition boast the perfect platform to mount a challenge to established global businesses. It’s time that WhatsApp and a host of other Western firms took note of that challenge.