INTERNET: SNS Wars Heat Up As Weibo Freezes Out WeChat

Bottom line: Weibo’s latest moves to stop users from defecting to WeChat reflect the company’s concerns over its fading momentum, and send a negative signal that will put pressure on its stock.

Weibo takes new steps to counter WeChat’s rise

An entertaining war is breaking out in the social networking (SNS) space, with word that the Twitter-like Weibo (Nasdaq: WB) is taking steps to punish people who use the service to promote their parallel accounts on archrival WeChat. I say this particular war is somewhat entertaining, as it seems quite petty and reflects the intense competition between these 2 companies. But at a more serious level, Weibo’s move reflects the very real fact that its service is rapidly losing eyeballs to the trendier WeChat, which is far more versatile and is also optimized for the fast-growing mobile Internet space.

According to the latest headlines, Weibo began taking actions in April to stop its users from promoting their public accounts on WeChat, which is owned by SNS giant Tencent (HKEx: 700). (Chinese article) But that campaign has picked up momentum recently, reflecting Weibo’s concern about users defecting from its platform to WeChat. The latest reports say Weibo sent out a warning earlier this week to verified account holders saying they could be barred from posting and their accounts could even be frozen if they continued to promote their WeChat accounts.

I had to smile after reading about this new development, since I had previously considered using my Weibo account to promote my recently opened WeChat public account. But now I probably won’t do that, even though I do sense from falling activity that my readership on Weibo is steadily declining even as my actual number of followers remains high. Tencent has responded to the move by saying it also opposes this kind of overzealous marketing that has become quite common on the Chinese Internet. (Chinese article)

In fact, this kind of freeze-out is quite common on the Chinese Internet due to the fierce state of competition. A few years ago many of China’s top e-commerce firms blocked their sites from indexing by an e-commerce search engine operated by industry leader Alibaba (NYSE: BABA). Some sites have also blocked their content in the past from indexing by online search leader Baidu (Nasdaq: BIDU).

I’ve previously said this kind of freeze-out seems contrary to the open nature of the Internet, and ultimately hurts consumers. But that said, China’s Internet does seem far more fragmented and competitive than western markets that usually have 2 or 3 companies as clear leaders in individual sectors.

Back at the company level, this particular move by Weibo does seem to reflect a certain level of despair. Weibo itself began life as Sina’s knock-off of American SNS pioneer Twitter (NYSE: TWTR), and rose to rapid prominence after the real Twitter was blocked in China in 2009. But since then, Weibo has done little to adapt the service to changing times, and still looks very much like Twitter.

Sensing that its momentum was rapidly fading, Weibo rushed to make an IPO earlier this year even though it’s still losing money. While many other newly listed Chinese Internet firms have soared since their listings this year, Weibo’s stock has been quite mediocre and now trades just 6 percent its IPO level. The shares were down 3 percent over the last 2 trading sessions before the US Thanksgiving Day holiday, as investors watched with concern over this latest move against WeChat.

At the end of the day, this kind of freeze-out probably will have little or no effect to stop the momentum that is clearly moving in WeChat’s direction. Instead, this kind of move is quite negative for Weibo, as it sends a signal of concern and even desperation to the market about its future prospects. That kind of signal is likely to keep coming in the next year, which will pressure Weibo’s stock and push it below its IPO levels.

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