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WeChat’s Hubris Could Open the Door to Needed Competition

Bottom line: WeChat’s growing hubris, reflected by increasingly aggressive content filtering, could open the door to a more user-friendly competitor.

WeChat gets overly agressive with word filtering

These days the following exchange seems to happen with growing frequency at companies around China.

Person 1, yelling across the office: “Did anyone see my message about [insert name of any random subject]?”

Colleague, yelling back: “Uh, don’t think we saw that one. Maybe it was blocked.”

Many in China will probably recognize what I’m talking about, but for those outside perhaps a bit more explanation is needed. The above dialogues are all talking about messages being blocked on the hugely popular WeChat instant messaging platform, which has become an integral part of most people’s social and work lives in China these last five or six years.

As readers can probably guess from the above dialogue, WeChat has become more aggressive over the past year in filtering its content for sensitive words. The service is hardly alone in such practice, since China’s cyber security law says all website and app operators must police themselves for and remove such content.

But when you talk about this kind of self-policing, it’s really up to the individual websites and apps to decide what to look for and remove. In WeChat’s case, it seems like the company has gotten lazy lately and begun filtering a growing number of keywords and topics, often without any obvious sensitive content. The result is that you often send a message or file and wait patiently for a response, only to later learn the post was never received by the intended recipients.

Rather than delve into the politics of what’s happening at WeChat, which declined to comment on its filtering policies, I want to focus the rest of this column on a more business-related topic that could have huge implications for WeChat and its parent, Tencent (HKEx: 700). The topic revolves around a basic question: Could WeChat’s recent policies turn off large numbers of its more than 1 billion users, and open the door for another more user-friendly rival?

To answer that question, I did one of my unscientific polls, putting a set of questions to my 2,000-plus friends and contacts on the very WeChat service that’s the subject of this column. The results were quite revealing, and seem to indicate that people aren’t quite ready to abandon WeChat just yet. But it could just be a matter of time if things keep up at their current pace.

More on that soon. But first I’ll quickly summarize WeChat’s current status to give people outside China a sense of how ubiquitous it has become in many people’s daily lives, mine included. I previously wrote about how entrenched WeChat has become as a work tool for many, providing convenient and cheap ways to hold all kinds of group and individual chats and calls over a wide range of distances.

Many people also use the platform these days for a big chunk of their online social interaction, including written and voice communications and group sharing through its Moments function that is similar to Facebook’s newsfeed.

And the survey says …

With all that background in mind, we’ll spend the second half of this column looking at my survey results and what they might say about whether WeChat’s filtering ways could provide a business opportunity for a smart rival app operator. My polling query returned 13 meaningful results, covering a wide range of industries that seemed somewhat representative.

Of the 13, seven said they had noticed the increased filtering and were frustrated by it. Three of those were from the media due to my own leanings, with others coming from such industries as education, international trade and other services. That does seem relatively significant, since it shows there’s a bit of discontent out there that a savvy alternate service provider could feed upon.

Most people who noticed the increased filtering said they were seeing it mainly in group chats, though one or two said they were seeing it in one-on-one messages as well. That said, no respondents said they were considering switching to other platforms as a result of their frustration. I would agree that at this point WeChat is so entrenched in my daily work and social routines that things would either have to get even worse, or an obviously better alternative would have to spring up for me to consider switching.

I particularly liked one response from a former student. She noted the change has been happening gradually over the last year and a half, and likened it to “using warm water to boil a frog” — in other words, a form of torture that’s so slow you may not even notice until it’s too late.

WeChat has certainly faced its challengers over the years, though in each case it fended off the competition with relative ease. One of the earliest assaults came from mobile giant China Mobile (HKEx: 941; NYSE: CHL), which accused WeChat of effectively being a rival network operator. E-commerce giant Alibaba (NYSE: BABA) would later try to mount a challenge with its Laiwang service, which ended in failure.

Last year a service called Bullet Messenger briefly surged into headlines as its downloads soared, though that also seems to have disappeared. And most recently, TikTok owner ByteDance in May launched a new challenger app called Flipchat.

So far I haven’t downloaded any of these apps, mostly because WeChat was providing me with perfectly good service at the time. But this latest behavior by WeChat is showing just how companies can abuse their position when they become near monopolies. Accordingly, I wouldn’t be at all surprised to see a new rival emerge in the next year — possibly quite suddenly — if WeChat continues in its current ways.

INTERNET: Loss Shakes Baidu to the Core

Bottom line: Baidu’s first-ever loss since going public reflects a long-anticipated decline for its core search business, which could mark the start of a longer-term decline due to lack of a strong new business lines.

Baidu in search of search replacement

It seems that profits are increasingly hard to come by these days on China’s Internet. That’s the major takeaway coming in the latest results from search giant Baidu (Nasdaq: BIDU), which has just posted its first loss since becoming a publicly listed company 14 years ago. Perhaps most worrisome, the biggest issue appears to lie in Baidu’s core search business, always a cash cow in the past, whose operating profits tumbled in the first three months of the year.

The surprise loss is one of the first-ever that I can recall for China’s three largest Internet companies or the BAT, namely Baidu, Alibaba (NYSE: BABA) and Tencent (HKEx: 700). That’s led many to wonder whether Baidu’s glory days are fast fading into the rear-view mirror, or whether perhaps this company has another trick pony beyond its search business that has sustained it for years. Read Full Post…

E-COMMERCE: Is Amazon Leaving China, or Not?

Bottom line: Amazon’s withdrawal from selling domestic goods to local buyers in China was inevitable due to its lack of a standout service and cut-throat competition from Alibaba and the money-losing JD.com.

Amazon shutters core China e-commerce selling domestic goods to domestic buyers

The e-commerce headlines have been buzzing these last few days with word that global giant Amazon (Nasdaq: AMZN) is abandoning China, representing the latest setback for a western Internet company in the large market. Amazon has come out with some statements clarifying the matter, in a move somewhat akin to what happened when Internet peer Google (Nasdaq: GOOG) made a similar withdrawal nearly a decade ago.

As Google did then and Amazon is doing now, both companies are being quick to point out that they aren’t completely withdrawing from China, but rather are just exiting what’s arguably their most important business. In Google’s case it shuttered its core China search engine. Now with Amazon, the company says it’s shuttering the part of its business that sells domestically-sourced Chinese products to customers in China. (English article) Read Full Post…

E-COMMERCE – Profit-Seeking JD.com in Overhaul Frenzy

Bottom line: A steady stream of layoff and cost-cutting reports around JD.com appear to show it’s trying to sharpen its operations to achieve sustained profits starting in the second half of this year. 

Reshuffle going on at JD.com

What’s up with e-commerce giant JD.com (Nasdaq: JD)? That seems to be the question of the moment, amid a recent series of nonstop reports of shakeup at China’s perennial No. 2 in the e-commerce world. The company was stuck under a cloud for much of the second half of last year as its founder, Richard Liu, stood accused of rape in the US. That cloud was finally lifted when the prosecutor looking into the matter decided not to file charges.  (English article)

Since then JD.com has been the subject of a nonstop stream of rumors and confirmed reports involving everything from layoffs to corporate overhauls to an imminent divorce between Liu and his wife. The latest reports seem to continue in that vein, including one saying the company plans to lay off about 8 percent of its workforce and another of some major moves in its top ranks. The latter comes after JD confirmed in February it was laying off 10 percent of its senior executives. (English article) Read Full Post…

MEDIA: Qutoutiao in Fund-Raising Frenzy

Bottom line: Qutoutiao’s recent flurry of fund-raising, including a major  loan from Alibaba, underscores rising confidence in the news aggregator after its lackluster IPO last year.

Qutoutiao in new fund-raising frenzy

News aggregator Qutoutiao (Nasdaq: QTT) is making up for lost time following its lackluster IPO last fall that raised far less than its original target. The company has just announced a new share sale that will generate about $30 million in cash, just days after raising another $171 million from e-commerce giant Alibaba (NYSE: BABA).

Investors didn’t seem too impressed with the latest cash-raising exercises, with Qutoutiao’s shares shedding some 8 percent in the last trading session. That drop appears related to announcement of the pricing of this latest share sale, since the company first announced the move a few days ago. Regardless of that, this does provide a good opening for us to take a closer look at this company. Read Full Post…

E-COMMERCE: Alibaba Eyes Germany, UK and Video Streaming

Bottom line: Alibaba’s interest in Metro’s China operations is part of its new retail strategy, while the purchase of a British payments company by its Ant Financial unit could give it a strong toehold in the European payments market.

Alibaba in new shopping spree

After a period of relative quiet, e-commerce giant Alibaba (NYSE: BABA) is suddenly springing into three relatively major headlines simultaneously on the investment front. Two have a European angle, one involving a major potential investment in German retailer Metro and the other in a British financial services provider by its Ant Financial affiliate. The other is a trans-Pacific deal of sorts, and has the company investing in Bilibili (Nasdaq: BILI), a leading U.S.-listed Chinese video streamer.

In all honesty, this particular flurry of deals seems a bit random and it’s almost certainly coincidence that all are in the headlines at the same time. But that said, each does reflect one or more tendencies by this hyperactive company, which I’ve previously said has far more cash than it knows what to do with.  Read Full Post…

E-COMMERCE: JD Dodges a Bullet, Gets Support from E-Commerce Has-Been

Bottom line: A US prosecutor’s decision not to file rape charges against JD.com’s founder may bring short-term relief to the stock, but the case still shows the importance of understanding the unusual role Chinese founders play at their companies.

Scales of justice tip in JD.com’s favor

On this day after Christmas I thought I’d play a little catch-up by weighing in on the controversial decision that saw a Minnesota prosecutor decline to press rape charges against JD.com’s (Nasdaq: JD) founder and CEO Richard Liu. Following the big announcement at the end of last week, there’s been a minor follow-up as another former China e-commerce executive came to Liu’s defense, only to get blasted himself and end up issuing an apology.

There are several big lessons in this tale, led by the fact that Chinese standards for what constitutes acceptable behavior are not always in sync with those in the West. That’s an important lesson for Western investors who may buy into these companies thinking that, for example, a JD.com is the same thing as Amazon.com (Nasdaq: AMZN). The JD case shows that clearly there are major differences in terms of behavior by both the companies and their founders. Read Full Post…

E-COMMERCE: China E-Commerce Answers Beijing’s Import Call

Bottom line: China’s drive to boost imports will benefit the nation’s big e-commerce companies with cross-border trade capabilities, though such purchasing will still be a small fraction of their overall volume.

China steps on import accelerator

It may be election day in the US, but here in China the focus is decidedly on imports with the staging this week of a massive import-focused expo in Shanghai. This particular event, officially called the China International Import Expo, has big political overtones, which I’ve looked at in a bit more depth in my weekly column on doing business in China, for anyone who is interested. (English article)

I’ll recap that element briefly in a moment, but the focus of this post will fall squarely on some relatively big numbers coming out of three of China’s leading e-commerce companies, in terms of the kinds of imports they think they can facilitate over the next few years. One report has added up commitments from Alibaba (NYSE: BABA), JD.com (Nasdaq: JD), Suning (Shenzhen: 002024) and NetEase (Nasdaq: NTES), and determined the four have collectively said they could facilitate 1.5 trillion yuan in imports, equal to about $216 billion. (Chinese article) Read Full Post…

E-COMMERCE: Alibaba Lays Out Big Goals in Annual Letters

Bottom line: Alibaba’s vague road map in its latest chairman and CEO annual shareholder letter is too far off to be meaningful, but does chart its aspirations to change from its current form to something more like an IT services company.

Alibaba shares future vision in shareholder letter

Alibaba (NYSE: BABA) founder Jack Ma and his heir apparent Daniel Zhang have just laid out their vision for the e-commerce giant in their latest annual letter to shareholders, and I have to say it’s at once very grand while also being quite short on detail. There are some lofty goals revealed inside, headlined by a new plan with some targets for what the company hopes to achieve by 2036. Never mind that that’s nearly 20 years away, which is like an eternity when it comes to the Internet.

At the same time, there’s a very general road map for how we get there, all of which I’ll detail shortly. Alibaba has actually executed relatively well so far on some of its road map, which roughly has it transforming from a mere e-commerce company to something more like an IT services provider. But nearly all of that diversification has been within its highly protected domestic market so far, and it’s far from clear it can replicate that model into its nascent international operations. Read Full Post…

E-COMMERCE: Dangdang Orphaned by Cash-Challenged HNA

Bottom line: The collapse of Dangdang’s $1.2 billion sale of itself to HNA shows the deal was most likely fueled by backdoor connections with no grounding in financial reality, and the company will probably be sold ultimately at a much lower price.

Dangdang comes out a lemon after HNA sale collapses

It’s Friday and I’m quite looking forward to the weekend, so I thought I’d indulge myself with a more gossipy post on the latest troubles of e-commerce has-been Dangdang. Anyone looking for good stock tips with this one will probably be somewhat disappointed, since Dangdang was one of a large group of Chinese firms to privatize from New York over the last few years in pursuit of higher valuations by re-listing at home.

A number of companies from that re-listing wave have already re-listed here in China, often with results that bore out the thesis that such a process was well worth the effort. Among those are names like Focus Media (Shenzhen: 002027) and Homeinns (Shanghai: 600258), which are now worth considerably more as China-traded companies than they ever were in New York. Another notable success is WuXi AppTec (Shanghai: 603259), a drug maker that was part of the larger WuXi PharmaTech that de-listed from New York in 2015. Read Full Post…

IPOs: Meituan-Dianping Heads List of Money-Losing New Listings

Bottom line: Meituan-Dianping’s IPO is likely to meet with lukewarm reception due to its big losses in several key areas, but could become more attractive over the medium term as it emerges as industry leader in one or two key areas.

Restaurant ratings leader takes IPO orders

As the rest of China continues to fixate on the sex scandal surrounding e-commerce giant JD.com’s (Nasdaq: JD) CEO, I thought I would end the week on a less controversial subject with a look at another blockbuster IPO by online-to-offline services giant Meituan-Dianping. The company has officially filed to make a listing in Hong Kong, and could be one of a growing number of Chinese Internet firms to choose the former British colony over the U.S. following a rule change earlier this year.

That change allowed companies to list in Hong Kong using a dual-class share structure that gives disproportionate voting power to company managers over ordinary shareholders. Previous prohibition of such a structure was the key element that led e-commerce giant Alibaba (NYSE: BABA) to make its own record-breaking IPO in New York instead of Hong Kong in 2014, and no doubt Hong Kong is still smarting over that loss. Read Full Post…