I’m pleased to see that after a major socialist-style clash in China’s mobile Internet space earlier this year, all of the relevant parties are turning to the business of more market-oriented competition with the roll-out of new rival products. Internet followers will know I’m talking about the high-profile clash in early 2013 between China Mobile (HKEx: 941; NYSE: CHL) and Internet leader Tencent (HKEx: 700) involving Tencent’s highly popular WeChat mobile instant messaging service. In the latest wrinkle to the story, media are reporting that online game operator NetEase (Nasdaq: NTES) is teaming up with China Telecom (HKEx: 728; NYSE: CHA), the smallest of China’s 3 mobile operators, to roll out their own WeChat rival product.
This kind of tie-up is exactly what the market needs, as it will create more choices for Chinese consumers and foster creation of newer and better products that could help China become a global leader in the fast growing mobile Internet. China Telecom’s initiative comes as its 2 larger rivals, China Mobile and China Unicom (HKEx: 762; NYSE: CHU), each tackle the WeChat challenge in their own different ways.
Let’s take a closer look at this new tie-up that has China Telecom and NetEase preparing to roll out their new WeChat challenger called Ding Ding. (English article; Chinese article) The new product is reportedly based on China Telecom’s own mobile messaging product called Yi Liao, and will formally be launched next month. China Telecom will be mostly responsible for operational and promotional issues, while NetEase will focus on promotion and product design.
This particular alliance looks quite smart to me, pairing China Telecom’s technical knowledge and big customer base with NetEase’s expertise in social networking. NetEase is already one of China’s top online game operators, and can use that position to encourage its gamers to subscribe to the new Ding Ding product. China Telecom can also promote Ding Ding by pre-installing the software on its handsets. From the broader perspective, the tie-up could also become a major new growth area for NetEase as it seeks to leverage its position as an online game leader to expand into other related areas.
Instant messaging has emerged as one of the biggest growth areas on the mobile Internet, which is booming as more people access the web over a new generation of sophisticated smartphones. That trend has fueled WeChat’s explosive growth, with the service now boasting more than 300 million registered users less than 3 years after its launch.
China Mobile complained that WeChat’s popularity was costing it money, since the program used lots of bandwidth and also allowed users to circumvent traditional fee-charging SMS text messaging services. China Mobile tried to force Tencent to charge fees for WeChat, which is free, and then to give some of that revenue to China Mobile. But Tencent resisted, even as China Mobile got the telecoms regulator to step in to mediate the matter.
That socialist-style clash finally subsided when the regulator said it wouldn’t become involved in the dispute, which should instead be decided by market forces. Since then, China Mobile has begun developing its own rival product through an overhaul of its popular Fetion text messaging service and roll-out of a new Internet voice service called Jego. Unicom has tackled the problem by forming its own friendly alliance with Tencent to promote WeChat.
This new NetEase-China Telecom tie-up seems to complete the picture, as all 3 telcos are now taking their own approaches to become more active in instant messaging services over their mobile Internet networks. It’s clearly way too early to say if either the new Fetion, Jego or Ding Ding can seriously challenge WeChat. I would probably give Ding Ding the best chance of success due to NetEase’s expertise in similar products. But China Mobile’s new Fetion and Jego will also have some advantages that could also help them to mount a serious challenge to WeChat.
Bottom line: A new mobile instant messaging product from NetEase and China Telecom could mount a serious challenge to Tencent’s WeChat.