INTERNET: WeChat Rattles Alibaba In Hongbao Wars

Bottom line: The huge success of Tencent’s hongbao promotions over the Lunar New Year reflects the growing dominance of WeChat, which could marginalize other mobile services unless regulators step in to create a more level playing field.

WeChat clobbers Alibaba in red envelope promotions

I remember a time not long ago when we China tech reporters used to write annual stories about the number of people who sent billions of simple Lunar New Year text greetings over their mobile phones. Those days now seem like a distant memory, and new data from Tencent’s (HKEx: 700) WeChat and Alibaba’s (NYSE: BABA) Alipay are showing just how small those earlier figures were, even though they seemed impressive at the time.

But the real story in this new tide of “red envelope grabbing wars”, known as qiang hongbao in Chinese, is the huge victory for Tencent over Alibaba, which I’ll describe shortly. That victory owes directly to the huge popularity of WeChat, which saw many of its hundreds of millions of users glued to their smartphones for much of the Lunar New Year while they ignored everything else. Instead of the usual New Year activities, they spent much of the holiday trying to “grab” millions of yuan in gift money being doled out over WeChat by their friends, bosses and also by Tencent and Alibaba themselves.

Wechat VS Alibaba

The huge loss for Alibaba represents the worst nightmare for company founder Jack Ma, who realized more than a year ago that WeChat was going to cause big problems for his company. That’s because a big majority of people now do their web surfing over mobile phones, where Tencent has a huge advantage due to the popularity of WeChat. Alibaba and other Internet firms all realize the importance of a strong mobile strategy for their future survival, and can only look on with envy and fear as Tencent and WeChat dominate the space.

WeChat is dominant

That dominance was on prominent display as early as last year, when Tencent held a highly popular red envelope, or hongbao, promotion that saw millions of WeChat users give New Year gift money to their friends over the mobile messaging platform. This year the craze kicked into high gear with a new set of promotions that allowed individuals to take sums of money from their bank accounts, and then figuratively “throw” them into their WeChat groups of friends. Those friends would then scramble to “grab” as much of the money as they could.

Tencent Wechat

Tencent reported that at the height of its promotions on the Lunar New Year’s Eve, WeChat was recorded a staggering 810 million shakes per minute on its popular “shake” function, and 120 million red envelopes being handed out. (English article) Obviously those figures represent a peak. But even if we assume a much smaller average of 200 million shakes and 20 million red envelopes being handed out a minute, that would still translate to a staggering 12 billion shakes and 1.2 billion red envelopes each hour.

Alibaba tried to counter with its own large figures, which were all outside the WeChat system since Tencent formally froze out all Alipay hongbao from WeChat a couple of weeks before the New Year holiday. (previous post) Alibaba said that more than 100 million people gave away Alipay hongbao over the four heaviest traffic days of the Lunar New Year, and that 680 million “grabs” were made for its hongbao on Lunar New Year’s Eve alone. (Chinese article)

I’m not usually one to feel much sympathy for Alibaba, but these 2 sets of figures really do show how big a challenge the company and other Internet firms will face in the mobile space due to Tencent’s dominance. I’ve previously said that China’s regulators should seriously consider stepping in to declare WeChat a monopoly and force Tencent to give equal access to other companies over the platform. But that looks unlikely to happen anytime soon, meaning Alibaba and other Internet firms could continue to see their mobile business initiatives marginalized under WeChat‘s growing clout.

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