This week Tencent went public with a number of wealthy stats about its world popular mobile app WeChat.
One of the most intriguing revelations was the fact that the Chinese-based application now has more than 570 million active users. There is no doubt that Tencent has been quite successful with the idea of monetizing this chat app. However, the progress at which this process is going is on is raising eyebrows in the tech industry, especially when you consider the huge number of people that use this application.
While many people love talking about the success the app is seeing in Asia, very few focus their talk on the amount of money that Tencent puts in on delivering these services to the millions that use it. It is OK to think that this Chinese company has lots of cash that it can keep funding WeChat for the next decade or so. However, who does that, especially entrepreneurs? Even you will not do it without expecting some returns. Alternatively, maybe the funding will stop when the service starts realizing profits.
Well, the risk here is that investors eventually lose patience. Furthermore, there are newer services coming in day and night, which mean the company cannot keep doing what it does without seeking something in return.
Where the big challenge lies
While WeChat claims to have an active user base of over 570 million people, it is true to say that most of these people make use of WeChat’s services for free. The app says that 60% of its users are below 30 years of age, which a group that is characterized by relatively low spending power but has the tendency to spend liberally.
The latest stats indicate that users are spending more time on WeChat, but this does not necessarily mean they are spending money during the same period. This lack of spending is what poses the biggest threat to WeChat, yet it was not highlighted in the information that Tencent provided during the recent Global Partners Meeting.
It was also reported that WeChat users spend a total of 280 million minutes per day on audio chats, which means one user accounts for about half a minute. Users do not need to pay anything to listen to an audio file, but WeChat has to spend a lot to ensure that the audio technology used is perfect.
Taking it slow
Perhaps WeChat is taking everything slow, gaining traction first before going for the killer – monetizing the services. One area the app has kind of succeeded is e-commerce and gaming. These are the main revenue generating services WeChat offers. There are also some ads that pop up via the Moments feature.
Tencent might have taken the go-slow methodology when it comes to monetizing WeChat thanks to the fact that it knows the app is very popular and as such, it needs to be very careful not to be too aggressive with the process of making money out of the app and in the end scare away potential users.
As of now, it seems the major stakeholders are cool with Tencent’s slow approach to things, but how long this is going to be is unknown. Nonetheless, what is quite clear is that the Chinese company is spending a lot in providing users with free services than it is gaining from its already monetized services.
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