WeChat: Three Building Blocks of its Ecosystem

Context

My day job is working on products at LinkedIn, which has taught me a lot about how Silicon Valley companies build products. I have long wanted to write about China's internet companies and how they approach product development. Here it is!! I will start with the introduction of several Chinese apps, and then explore the organizational differences that enable these innovative products. If you have any advice or questions, please feel free to share them. Your support and kind comments will encourage me to keep writing.

Introduction

Of course, I will start with WeChat. WeChat is a multi-faceted super app developed by Tencent, which has over 1.2 billion monthly active users as of September 2019 and 902 million daily active users as of March 2018. Users spend an average of 82 minutes on the platform each day.

WeChat is a messaging app, offering instant messaging, voice and video calls, and social media features. However, it is much beyond a messaging app. It is the default email service, browser, search engine, and wallet for an average Chinese person. I will skip the analysis about messaging and social media features, despite it excelling at offering an easy to use product.?

I will write two blog posts that explain how WeChat is much more than just a messaging app. In Part 1, I will explain how WeChat has become the default gateway to the Internet. In Part 2, I will focus on video features to analyze how WeChat is playing catch-up with Douyin/TikTok.

WeChat Team

Before diving into the specific features, let's take a moment to know the WeChat team and its leaders. The most notable member of the team is Allen Zhang. WeChat is known for having a centralized decision-making process, and Allen Zhang is often compared to Steve Jobs in his role as a gatekeeper for new features. It's rumored that all new releases, no matter how small, must pass through Allen Zhang before being released to the public.

The WeChat team is based in Guangzhou, which is located around 80 miles away from the Tencent headquarters in Shenzhen. This independence likely explains why the design of WeChat is sleek and different from other Tencent products. The WeChat team operates like a Silicon Valley team, very product driven. Unlike many Chinese internet companies, WeChat doesn't have a big operation team. WeChat embraces a minimalism product philosophy, carefully curating features and avoiding unnecessary distraction and complexity. By following this approach, WeChat is able to ensure that its app remains intuitive and accessible to users of all backgrounds.

The super app and its building blocks

The default messaging/email tool

WeChat is the most popular messaging app in China. Due to the network effects of messaging apps, it quickly became the dominant tool for communication in China. Many Chinese people do not use email frequently outside of work, instead relying on messaging as their primary way of communication. This has led to WeChat being used for a wide range of purposes, from work-related communication (similar to Slack), to neighborhood management (similar to Nextdoor), to sales pitches (similar to email), to meeting scheduling (similar to Calendly+Zoom), and even for hobby groups (similar to mailing lists). Additionally, there is a WeChat version of EDM (email digital marketing), which allows merchants to send messages to their followers periodically.

However, WeChat is not just a messaging app. While apps like WhatsApp and Snapchat are also popular, they have not become the default browser, search engine, or wallet. WeChat has achieved this level of dominance through three key features: official accounts, payment, and mini-programs. These three components form the foundation of the WeChat ecosystem, allowing for an end-to-end experience that ranges from media consumption to purchases. These capabilities facilitated transactions worth $0.25 trillion in 2021. Next, I will explain official accounts, payment, and mini-programs one by one.

Official Accounts

Official account is the most important feature WeChat ever built. It is the first step that WeChat went beyond messaging to be the browser and search engine.

When WeChat set out to build a mobile internet, there were few existing resources. HTML-5 performed poorly in WeChat's browsers, which led to the company investing in building its content ecosystem from scratch. The launch of Official Accounts in 2012 was a significant step in this direction. This feature allowed publishers of all sizes to establish a mini-site with their own identity and publish contents. As WeChat highlighted, the goal was for "every individual, no matter how small, to have a voice."

At its peak, there were more than 20 million active creators on the official account. (In order to become a creator of the official account, one had to upload their government ID, which is more complex than simply taking a photo on Instagram.) The success of WeChat's official accounts solved the content shortage on WeChat. When users’ favorite contents are all on WeChat, it becomes their gateway to accessing the internet.

These contents are intentionally blocked from conventional search engines. To find these contents, one must use the search feature within WeChat. The usage of WeChat search had reached over 800 million monthly active users (MAU) in 2022.

What is it?

WeChat's Official Accounts were launched in 2012. It is a set of features to enable creators and businesses to create, distribute, promote contents, and engage with their audience.

WeChat's Official Accounts were an immediate success. WeChat had accumulated a huge user base of content-hungry individuals (many of whom have already viewed all available posts from friends so they kept refreshing the feed). WeChat has turned Official Accounts from a mere success into a long-lasting competitive advantage through following three product design choices: social distribution, private traffic, and API to build a website.

Social distribution

In addition to the follow relationship, WeChat limited content discovery opportunities almost exclusively on social distribution. It means that the only growth opportunity for creators was to write content so good that readers were willing to share it on their own feeds to demonstrate their tastes and opinions. To further control content quality, WeChat placed strict restrictions on how frequently creators could publish new articles, limiting them to just one set of articles per day. These two combined factors acted like an invisible hand to keep content quality high.?

Private traffic

Private traffic is the most important differentiator for the WeChat platform. WeChat has successfully built the concept of private traffic, which are fancy way of saying engagement with followers.

As Eugene Wei mentioned in his post “Status as a Service”, every media platform provides social capital (vanity metrics) such as the number of followers, total views, and number of likes, all of these metrics still rely on the centralized platform itself. What sets WeChat apart is that WeChat somehow convinced creators to believe that followers, contacts, and groups are private assets of creators. As such, creators need to invest—whether time or real money—into building these assets.

WeChat took time and effort to build the reputation of “private traffic”. It did little interference with official accounts. For a long time, besides social distribution, they only provided a chronological order to the contents you followed. Many influencers ran sponsored content or affiliate marketing on WeChat, and WeChat did not interfere with them or try to get commission out of it. They even allow third-party companies to build creators’ e-commerce platforms. One of the most famous 3rd value-added service providers is YouZan. Now Youzan is a publicly traded company on the Hong Kong stock exchange with a market capitalization of 600 million USD.

WeChat is often described as "Zen-like" due to its focus on the long-term. The platform is willing to trade off short-term gains so that it can build a sustainable and robust ecosystem. This has contributed to its success and popularity among creators and users.

Website builder and API

Not just for content creators, the official account also works well for organizations. WeChat Official Accounts offered a lightweight way of building mobile websites, allowing users to create a site in minutes and start engaging with WeChat's one billion users. Thus, many organizations, from hospitals, universities, museums, and? to libraries, have set up their WeChat official accounts in a short time.

To further entice partners, WeChat's official accounts also offer API capabilities. This feature was introduced as early as four years before mini-programs were launched, making WeChat an early pioneer of compact, easy-to-use web apps. Unlike Facebook, which emphasizes user data-sharing, the WeChat API provides access to a range of service such as location, payment, and shipment addresses that is usually only available on operating systems. With these enhancements, WeChat solidified its position as the go-to platform for building mobile websites. As Connie Chan written in her blog post about Wechat, “WeChat users in China can access services to hail a taxi, order food delivery, buy movie tickets, play casual games, check in for a flight, send money to friends, access fitness tracker data, book a doctor appointment, get banking statements, pay the water bill,… all in a single, integrated app”. Ironically, these services are usually not available on the general-purpose internet. In order to make an appointment at a public hospital, for example, users have to go to WeChat.

WeChat's competitors are jealous of the platform's success and frequently attempt to poach creators and service providers. Bytedance's Toutiao has achieved moderate success by offering users the ability to automatically copy their content from WeChat and pay creators for their work. However, transitioning services away from WeChat can prove difficult as the platform's early API design is not very portable. This design choice, though unintended, has built a barrier for WeChat and can make it difficult to switch to other platforms.

WeChat Pay

China has leapfrogged the credit card stage and went straight to mobile payment systems. One of the most widespread mobile payment wallets in China is WeChat, which is used by nearly every Internet user in the country. Alipay and WeChat Pay, which have market shares ($ amount) of 53.8% and 38.8%, respectively, dominate the digital payment market in China, creating a duopoly. The two platforms have successfully extended digital payment penetration beyond online merchants to neighborhood shops.

What is it?

WeChat Pay is similar to a combination of PayPal and Stripe. On the consumer side, users link their WeChat Pay accounts with their debit or credit cards, and can then store, spend, receive, and withdraw money. On the business side, WeChat Pay is more similar to Stripe. Businesses can use WeChat Pay to accept payments by using several lines of code.

Key features and GTM moves

Red envelope

In 2014, Tencent, the company behind WeChat, introduced the Red Pocket feature on its platform. The feature allowed users to send virtual red envelopes containing digital money to friends and family through WeChat. The Red Pocket feature quickly gained immense popularity during the Chinese Lunar New Year celebrations. WeChat cleverly combined the cultural significance of red envelopes with social elements and gamification, creating a viral sensation. Users could send red envelopes to individuals or distribute them among a group of friends, who would then have to "grab" the envelopes within the chat. The element of randomness in the amount received by each person added excitement and encouraged users to actively participate in the activity.

Example of receiving red pocket: https://www.youtube.com/shorts/8J5OLLmwA9c

The success of WeChat's Red Pocket feature attracted millions of new users to the platform and significantly boosted adoption of WeChat Pay. To double down in 2015, Tencent launched a Chinese New Year campaign where third-party advertisers (not Tencent) gave away $80 million in free cash in red envelopes to WeChat Payment users in the eve of Chinese New Year. The product innovation and marketing moves have grown the number of WeChat Pay users into the tens of millions.

The coupon war?

The coupon war between Didi and Kuaidi was a milestone in the acceptance of WeChat Pay and Alipay by third-party applications. Didi and Kuaidi are two ride-sharing platforms backed by Tencent and Alibaba respectively. In the "coupon wars", both companies provided massive subsidies in the form of coupons to attract riders to their platforms. Didi and Kuaidi, both hoping to outcompete the other, offered users deep discounts on rides, often making them cheaper than public transportation. This price war not only led to a rapid increase in the user base for both platforms but also prompted users to adopt WeChat Pay and Alipay as their preferred payment methods when hailing rides. The aggressive subsidization, however, resulted in considerable financial losses for both companies. It was not a sustainable strategy in the long term. Eventually In 2015, Didi and Kuaidi announced a merger to form Didi Kuaidi, which later went public on NASDAQ.

Offline penetration

The advance of e-commerce and online services, along with the popularity of red envelopes, has led to many consumers adopting online payment. However, upgrading mom-and-pop stores to accept WeChat Pay remains an uphill battle. Knowing that payment has strong network effects and is highly profitable, both Alipay and WeChat Pay are willing to invest.

Both WeChat and Alipay have partnered with third-party service providers to help small businesses adopt mobile payments. These providers offer subsidies so that merchants can upgrade their payment systems for free, with the option to pay commission later on. They also provide resources for education, implementation, and customer service. As a result, mobile payments have become so prevalent in China that many consumers feel comfortable going out without cash.

While Alipay has more experience in SMB, WeChat Pay has successfully penetrated this market thanks to its Red Pocket feature and strategic third-party partnerships. With Red Pocket, users can pocket digital cash to be used for future transactions. Meanwhile, third-party service providers have enabled WeChat Pay to keep up with Alipay's push to offline shops.

Mini Programs

WeChat's Mini Programs was launched in 2017. It is a framework to enable lightweight apps that can be accessed directly within the WeChat interface. These apps cover a wide range of services, such as e-commerce, gaming, and public transportation, offering users convenience and versatility without needing to install separate apps.

My experience

I made my first WeChat mini-program with Zhihu in 2017. We chose one feature and integrated it into the mini-program framework. After partnering with a trendy social game, we reached 1 million DAU within two weeks of launching. It was incredible. However, retention was quite low compared to the iOS ecosystem, as there were many restrictions limiting user engagement (such as the inability to send notifications) and access to user data. Eventually, Zhihu treated the mini-program as more of a guest experience and continued to focus on their iOS and Android apps.

I developed my second WeChat mini-program for LinkedIn. Email is an important channel to get users returning to LinkedIn. Chinese users don't typically use email outside of work, and they use messaging instead. That's why we wanted to tap into the WeChat ecosystem to push LinkedIn messages to users on WeChat. We asked users to bind their LinkedIn accounts to WeChat, and then it worked similar to email. It took time to get users to bind their accounts, but we have reached tens of thousands of daily active users in 2021.

Focus on retail?

There are more than 3 million developers? on Mini Program ecosystem and 600M daily active users. Top apps such as Didi ride sharing, China Mobile, Meituan food delivery, and Shunfeng shipment have achieved 350M, 310M, 150M, and 120M monthly active users respectively, surpassing their own apps' MAU.

The mini-program further emphasizes the value of “private traffic” by increasing the value of private traffic, usually through transactions. For example, creators could integrate mini-programs into their official account articles to optimize conversion of purchase. WeChat also encourages users to manage their groups and WeChat friends so that they can share mini-programs (including coupons) to groups and to their friends. While other platforms such as Alibaba and Pinduoduo are increasing their commissions, merchants put more emphasis on private free traffic in the WeChat ecosystem. Recently, I have seen many top brands send text messages to loyal customers and ask them to make orders on mini-programs.

Example of Uniqlo sending text messages to direct users to their mini-program: https://www.youtube.com/shorts/bzopq24_r-8

The mini-program also offers business features. For example, universal customer service is an API for developers to leverage WeChat messages to do customer service, instead of building it from scratch. WeChat is experimenting with more business offerings from cloud computing to delivery service. The total transactions in mini-programs have passed $0.25 trillion.

A sudden stop

WeChat seems to de-prioritize mini-programs since 2020, after WeChat started to invest in short videos. There are many unfinished features, such as how to share mini-programs on social feeds. I have also witnessed many successful mini-program developers switch to proprietary apps due to the platform's limitations.

As technology per se, it’s easy to migrate WeChat mini-program to other platforms. Alipay has even offered one-click migration to turn Wechat mini-program to ones compatible with other platforms. It’s unclear whether WeChat has stopped investing in mini-program due to its portability.?

As a developer, I have mixed feelings toward miniprogram. On one hand, the mini-program has done a lot of technological innovation. I can imagine it could be woven more deeply into the WeChat ecosystem to upgrade tools. On the other hand, it is too slow to iterate. If the mini program ends up competing with the platform's interests, no matter how innovative it is, it's not good for WeChat. WeChat prefers to promote mini-program in use cases on retail and local service. In these two businesses, Tencent’s market share is so low that it has little to lose. Therefore, their recent mini-programs features seem to be customized for retail and transaction.

Summary?

WeChat is a messaging (and email tool) app with strong network effects as barriers. Over the past 10 years, it has not faced any serious challenges in this use case. WeChat has expanded its ecosystem to become a default browser, search engine, and one of the default wallets and stores. However, now Douyin, with 600 million daily active users, is now another all-in-one app, trailing behind WeChat. Douyin has its own content ecosystem, attracting more and more people to browse contents. Bytedance is also building its payment and storefront system. WeChat is facing its biggest challenge since its launch. In the next article, I will discuss the rise of Douyin.

Sources

1. 55+ WeChat Statistics - 2023 Update | 99firms
2. WeChat Statistics, User Count and Facts (2023) (expandedramblings.com)
3. WeChat Management Culture: a Sneak Peek - WalktheChat
4. Although email addresses do exist and are still used – especially in the corporate environment, China has never been fond of emails as a mean of communication. The statistics below from CNNIC indicates that on desktops the email penetration rate is only 37.6% for the Chinese online population. Source： WeChat Instead of Email Newsletter in China - The Definitive Guide - Twinova
5. https://www.guancha.cn/ChanJing/2021_01_20_578658.shtml
6. https://mp.weixin.qq.com/s/q4kix7jiioqel3NHSIFaGw
7. https://www.geekpark.net/news/265601
8. https://www.questmobile.com.cn/research/report/1638022399369777153