In its latest earning report of Chinese Web Giant Tencent, Wechat, a mobile communication app, pulled in US$3.21 billion in revenue in Q2 2014. Its “Value-added Service” generates US$2.51 billion and US$487.4 million comes from social games on Wechat and QQ( another mobile communication app which dominated Chinese mobile telecommunication market in the last 10 years) The report also shows that From Q1 to Q2, WeChat grew 10.6 percent in terms of active users with 438 million monthly services. Tencent makes US$948.26 million profit in Q2, yet its revenue in eCommerce drops significantly. This is due to Tencent’s huge investment in JD, Chinese second largest eCommerce Company, and JD is now part of Wechat’s online shopping.
What is Tencent’s business model that enables the company to make such enormous amount of profit?
The membership system both Wechat and QQ have. For members of Tencent, they can download stickers for free, have a faster growth rate of rank ( the rank is based on the length of time users stay QQ online) and cloud storage of all friends’ history data whereas ordinary users can only have seven days of cloud storage. In comparison, the privilege members of Wechat enjoy is limited in which they can only download the stickers for free. Since both Wechat and QQ have millions of users, Tencent can earn a lot of profit from the membership even though there is only a small percentage of members.
The value added service is primary part of Tencent’s revenue. Tencent provides online gaming, sports and information services, music tracks play and mobile payment. Online gaming including ” CrossFire”, “League of Legend” and games on QQ and Wechat is the company’s largest business. Tencent shows ranks of users’ Wechat and QQ friends in the game so that users can be more enthusiastic when they try to compete with their friends. Besides online gaming, Tencent also challenge Alibaba, chinese biggest eCommerce Company by partner with JD. Tencent is trying to take advantage of its massive user group by providing a convenient way of paying items on JD. This is the strategy as Membership– even though there is only a small percent of users will use Wechat’s mobile payment, there still will be thousands of them. If Tencent advertises its mobile payment through Wechat or QQ, the number of mobile payment users will increase significantly.