The Business Models of WeChat

Roel Wieringa
Jaap Gordijn

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Copyright © March 2021 by The Value Engineers

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Contents
1 Introduction .......................................................................................................................................... 5
2 Tencent ................................................................................................................................................. 6
3 WeChat ................................................................................................................................................. 8
4 WeChat value propositions and value networks ................................................................................ 12
4.1 Value propositions for individuals .............................................................................................. 12
4.1.1 Instant messaging ............................................................................................................... 12
4.1.2 Social networking ................................................................................................................ 13
4.1.3 Gaming ................................................................................................................................ 16
4.1.4 Money transfer and other financial services ...................................................................... 18
4.1.5 Shopping ............................................................................................................................. 20
4.1.6 Digital products ................................................................................................................... 22
4.1.7 Value-added services .......................................................................................................... 22
4.1.8 Government services .......................................................................................................... 23
4.1.9 Home services ..................................................................................................................... 24
4.2 WeChat Value Propositions for Businesses ................................................................................ 25
4.2.1 Official accounts .................................................................................................................. 26
4.2.2 WeChat Advertising ............................................................................................................ 27
5 Revenue Model ................................................................................................................................... 31
5.1 Tencent revenue ............................................................................................................................... 31
5.2 WeChat Revenue model ................................................................................................................... 32
5.3 WeChat penetration in China ........................................................................................................... 33
6 The WeChat ecosystem ...................................................................................................................... 33
7 Governance of the WeChat ecosystem .............................................................................................. 35
7.1 A closed ecosystem ........................................................................................................................... 35
7.2 The role of the Chinese government ................................................................................................ 36
8 Strategy ............................................................................................................................................... 38
Bibliography ................................................................................................................................................ 39

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1 Introduction

WeChat is a mobile app used in china for instant messaging, social networking, entertainment, payment,
and shopping. Businesses and the Chinese government offer services to consumers and citizens on the
WeChat platform. Entertainment services include gaming and video streaming. Business services include
taxi hailing, booking train tickets, and booking a doctor’s appointment. Government services include
citizen identification and visa application.

WeChat has 1.2B monthly active users. It has become the operating system of daily life in China, used by
about 80% of the Chinese population. On average, about one third of the time Chinese spend on their
smartphone, they spend on WeChat.

WeChat is the flagship app of Tencent. Tencent was founded in 1998 and launched a PC-based instant
messaging system called QQ Messenger in 1999. It created the mobile messaging app WeiXin in 2011.
WeChat is the name of the international version of WeiXin. In what follows, unless otherwise stated,
“WeChat” refers to the WeChat and WeiXin apps.

In 2019, Tencent generated RMB 377B (€49B) revenue of which RMB 93B (€12B) profit. The contribution
of WeChat to this is not published.

Sections 2 and 3 provide a brief historical introduction to Tencent and WeChat. Section 4 lists the value
propositions of WeChat for individuals and for businesses. For each value proposition, we list WeChat’s
services, the value network it uses to offer them and some numbers relevant to the revenue model. In
section 5 we present some numbers relevant for Tencent’s revenue overall — numbers for WeChat
alone are not obtainable. In section 6 we provide a bird’s eye view of WeChat’s ecosystem and in section
7 we discuss two important issues of ecosystem governance. Section 8 lists some strategic choices for
further WeChat ecosystem growth.

WeChat’s ecosystem is huge and complex. In this White Paper we tried to provide an overview of it
based on publicly available information and estimates. If you find mistakes or important information
that is missing, please drop us a not at info@thevalueengineers.nl.

The Euro value of Renminbi is approximated by round numbers that are easy to read. They only give an
order of magnitude, based on the exchange value of approximately RMB 100 = € 13. For non-English
readers: 1B = 1000 000 000 000.

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2 Tencent

Tencent was started in 1998 by Ma Huateng (also known as Pony Ma) and four friends. Since then, it has
launched a steady stream of applications loosely related to social networking and online entertainment.

1999 • QQ Messenger, a desktop instant messaging service similar to ICQ.

2003 • QQ Games, a multi-player online game client.
2005 • Paipaicom, a C2C auction site. Sold to Jigndon (JD.com) in 2014.
• Qzone, a nickmame-based social networking system.
• TenPay , an online payment system similar to Paypal, for B1B, B2C and C2C
payments.
2006 • Soso, a search engine. Redirects to the Sogou search engine in 2013. Tencent
invested in Sogou in 2013, a subsidiary of the technology company Sogu.
2008 • QQ media player to play videos, movies and music.
• Tencent traveler, a web browser based on Trident.
2009 • iTQQ, a smart interactive TV in joint effort with China’s biggest television
maker, TCL technology.
• Tencent Cloud services
2010 • Tencent Weibo, a microblogging service to compete with Sina Weibo.
Discontinued in 2014.
• Pengyou, a real-name social network.
• QQ live, live streaming video freeware.
2011 • Tencent video, a video streaming website for video-on-demand and TV
broadcasts. Tencent develops original content. It has contracts with six major
production companies, including BBC Worldwide, ITV Studios, Fremantle
Media, All3Media International, and Endemol. Since 2017 it also streams
content from TCL.
• Weixin, the mobile messaging app of which the international version is
WeChat. Tencent repositioned the QQ family of apps as a one-stop
entertainment portal with games, video, and music. Weixin would focus on
connectivity and communication. Usage of WeiXin was boosted by allowing
QQ users to transfer all their contacts to WeiXin.
2012 • Tencent Animation and Comics, an animation and comics website.
2014 • QQ Music, a freemium online music web site.
2017 • Tencent Credit, a credit score system for users of QQ and WeChat, similar to
that of Sesame Credit of Alibaba.
• Xiaowei, a personal home assistant using voice and face recognition
• WeSure, an insurance platform set up with domestic (Chinese) insurance
companies.
2018 • Doctorwork, and online-to-offline medical platform
• WeTV, the international version of Tencent Video.

Until 2017, Tencent developed services in instant messaging, social networking, payment and
entertainment. Since 2017, it diversifies in different areas such as insurance and health care. It keeps all
these activities together by structuring them in six groups (Figure 1). Four of them are Cloud and Smart

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Industries, Interactive Entertainment, Platform & Content, and Connectivity (WeiXin). These are
supported by a Corporate Development and a Technology Engineering group.

Figure 1 Tencent structure (source: https://www.tencent.com/en-us/about.html, accessed 10th March, 2021).

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3 WeChat

WeChat (WeiXin) was founded in 2011 by Zhang Xiaolong, also known as Allen Zhang, as subsidiary of
Tencent. It started out as a mobile instant messaging system but over the years accumulated functions
from social networking, gaming, payment, shopping, third-part services, government services and smart
home services. See Figure 2.

Figure 2 WeChat services. WeChat added services roughly in clockwise direction, starting with instant messaging.

The history of WeChat is sketched in a case study by Yang, Sun and Lee and an article in the Economist,
both from 2016. The following table gives a summary of the highlights.

2011 • WeChat was launched in January 2011 with instant messaging functionality for
smartphones. Account creation was possible using a QQ identifier. This created a
single login for QQ and WeChat and created a large initial user base of WeChat.
• Voice messaging was added in May. The function was copied from TalkBox, a voice
messaging system started in in the same year, which had turned down an offer to
from Tencent to buy them. According to Yang, Sun and Lee, push-to-talk is still the
core function of WeChat because it avoids cumbersome typing of Chinese
characters.
• A QR code reader was added, a function to add a friend to your contact list by
scanning a QR code connected to their name card on their phone. Again this
avoids typing Chinese characters.
2012 • Moments was added, a social networking function similar to Facebook’s news
feed. Users can accept friend requests and share content such as photo’s, status,
and websites.
• Voice and video calling was added, similar to WhatsApp.
• Enterprise public accounts were added, now called official accounts. They require
a Chinese business license (for enterprises) or a Chinese ID (for people) and allow

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 sending posts to followers and staying in contact with your customers, depending
on the type of account (see section 4.2.1).
2013 • Mobile gaming was added. Joint release on QQ and WeChat gave it a large mobile
games user base.
• Mobile payment was added. Can be used by WeChat Official Accounts to sell
products and by individuals to transfer money.
• QR code scanning for purchase was added. Allows payment of a product by
scanning its QR code. The QR code can be attached to a physical product or shown
online. This minimizes the amount of typing required for a purchase. Almost every
store on Alibaba’s TaoBao now opened a WeChat official account.
2014 • Ride-hailing was added, by partnering with the ride-haling service Didi Chuxing.
• This was extended later with other third-part services such as food delivery, hotel
reservations, train tickets, airline tickets, physician reservations, etc.
2015 • Visa application was added, which is a government service.
• WeChat also introduced a toy to communicate with toddlers.
• Ads are now allowed for Official accounts. Ads appear in the Moments timeline of
followers of an official account.
2016 • A platform for WeSure, the Tencent insurance branch, was added.
2017 • Miniprograms were added, an infrastructure for running apps without installing
the app on the smartphone. This turned WeChat into an operating system with its
own mini-app store. Users can start a miniprogram quickly withoutn downloading
an app, and always have the latest version. App developers need to develop an
app for one infrastructure only, which runs on different smartphone platforms.
Miniprograms have a folder on the third of WeChat’s four home screens (Figure 3).
• An official electronic identification system for China was added, another
government service.
2018 • WeChat opened for non-Chinese businesses, who can now open a WeChat official
account by partnering with a Chinese company.
2019 • A voice-activated smart speaker for homes was added, similar to Apple’s Siri and
Amazon’s Alexa.

Figure 3 Shows how this wealth of functions is presented to the user in four home screens. The screens
shows chats , contacts, personal information, and the remaining functions on a screen called Discover.

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Figure 3 WeChat's four home screens: Chats, contacts, Discover, Me. Source: https://respond.io/blog/wechat-official-account/

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4 WeChat value propositions and value networks

We now give more detailed value propositions and value network models of the services listed in Figure
2.

4.1 Value propositions for individuals

4.1.1 Instant messaging

• Messaging
o Text messaging.
▪ Unique Selling point (USP): No typing or presence indicators. This avoids losing
face when you don’t respond immediately to a message, an important
consideration in China.
o Voice messaging. Also known as push-to-talk.
▪ USP: Users can enter a spoken message by pressing and holding a button. Upon
releasing the button, the message is sent. Receivers can answer instantly in the
same way. This avoids cumbersome typing of Chinese characters.
o Group chatting.
o Automated translation of messages.
• Calling
o Video calling
o Video conferencing
o WeChat Out: Skype-like VOIP

All of these services are free, and are available after registering with WeChat, as shown in the following
value model.

Figure 4 Instant messaging value network. The user obtains services in exchange for data.

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4.1.2 Social networking

The two social network offerings are sharing and finding people and content.

Sharing

• Moments
o Users can share text, photos and videos with their friends and see their responses.
Comments and likes can only be seen by friends and not by friend’s friends. There is a
feed of friend’s updates.
o USP: When users post their "Moment", they have the right to decide which group can
see it. The post can even be set to "private", allowing the user to use it as a tool for their
personal timeline.
o Problem: A negative USP is that some people, using a fake identity, act as intermediary
between manufacturer and buyer and sell stuff to friends outside the view of
authorities. They may sell counterfeit stuff.
• Stories Snapchat-like stories that stay available for up to one day.

Finding

• Localization
o Users can request to access another’s real-time location with a simple message within
WeChat. If the other party accepts it, their real-time location is shared until they end the
functionality (Figure 5).
o USP: the feature requires mutual consent.
o Problem: A negative USP is that criminals can see the location of their candidate victims.
This has led to some crimes.
• QR code
o Users can connect a QR code to their name card. They can add a friend to their contact
list by scanning the QR code of the candidate friend. Again, this avoids cumbersome
typing of Chinese characters.
• Friend radar
o Show other WeChat users in your vicinity in a radar-like manner. Click on those you
want to add to your Friend’s list (Figure 7).
• Drift Bottle
o Drift Bottle allowed a user to “throw a bottle” into “the sea” of WeChat users with a text
or voice message, and then wait for someone from anywhere in the world to pick it up.
The function was withdrawn in 2018 because it was used to spread porn and
advertisements for prostitutes.
• Shake
o If you shake your phone, WeChat looks for other users anywhere who were also shaking
their devices at the same time and match them up. This is used to meet unknown

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 people but also by shops to announce their presence nearby and offer price reductions
if you visit them.
• Searching
o Search content on WeChat (not outside the WeChat ecosystem).

Figure 5 Location sharing. Source: https://www.coolmuster.com/idevices/wechat-track-location-on-iphone.html

Figure 6 QR code attached to name card. Source: https://help.wechat.com/

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 Figure 7 Friend radar. Source: http://www.notexactlysoftware.com/FriendRadar.

These functions are all free. They allow WeChat to collect user data to be monetized later. The value
model (Figure 8) is very simple but the set of services offered is, as we have seen, very complex.

Figure 8 Social networking in WeChat does not involve matching by WeChat.

The striking contrast with the Facebook model of social networking is that WeChat does not perform a
matching function. Facebook matches posts to users to maximize engagement time, so that it can
capture more ad revenues (Figure 9). To maximize the number of impressions generated by a user,
Facebook tries to keep users glued to the screen as long as possible.

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 Figure 9 Facebook matches readers and writers of posts. Source: https://www.thevalueengineers.nl/download/a-business-
model-of-the-facebook-ecosystem/

WeChat does not match posts to users and does not have maximizing user engagement as a goal. The
social networking services a user consumes in Figure 8 are services chosen or subscribed to by the users.
The content that a user consumes on WeChat is similarly content from sources selected by the user.

WeChat’s business model aims at maximizing transaction fees. This requires maximizing the number of
transactions, which in turn requires maximizing the number of services consumed per user and
maximizing the number of users. The number of services used will be higher if the ease of use of a
service is higher, which means that the interaction with the service should be as short as possible.

As we will see in Section 4.2.2, WeChat does match advertisements to users based on advertising targets
and user profiles. But it does not match posts to users to maximize engagement time.

4.1.3 Gaming

WeChat is also a platform for playing games. These may be downloaded from the WeChat game center
and installed, or they may be played as miniprograms without downloading. The possibility to game on
WeChat grows the user base. According to WeChat, in 2019 there were 400M players of minigames
(games available as miniprogram). The most popular games attract over 100M users each.

Game developers earn money by selling in-game products such as avatars, weapons, upgrades etc.
(Figure 10). WeChat takes a transaction fee of 40% of the price of an in-game product. This may be
waived in some cases.

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 Figure 10 Game developers sell game updates, levels, avatars and other in-game products to players.

Game developers may also monetize in-game inventory by selling it to advertisers (Figure 11). WeChat
takes 50% of the transaction for games with a small number of users, and 30% for games with more
than 100 000 users. Minigame transaction volumes can go as high as RMB 10M (€ 1.3M).

Figure 11 Games contain inventory (empty space) sold to advertisers.

Advertising in games in based om cost per click. The pricing scheme is given in section 4.2.2 (page 27).

Games must be approved in China by the government before they are released. Approvals were frozen
from August to December 2018 when the National Radio and Television Administration and the Ministry

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of Culture and Tourism were reorganized to strengthen the Communist Party’s overall leadership of the
state. After the freeze was lifted in December 2018, Tencent expected “to produce more compliant and
higher-quality cultural work for society and the public.” For example in August 2019 it released two
games developed together with the state newspaper People’s Daily and with the Communist Party. In
these games, game policies echo real-life policies of the Chinese Communist Party.

4.1.4 Money transfer and other financial services

WeChat Pay is available Mainland China, Hong Kong, the USA, South Africa and is expanding in Europe.
To use WeChat Pay, users have to create a WeChat wallet in which money can be held. They need a
bank card for this. Once they have a wallet, users can transfer money from their bank account to the
wallet and back again, and transfer money from one wallet to another. For transfer from the wallet to a
bank account they pay a transaction fee, the other transfers are free. This is to motivate them to keep
money in WeChat wallets.

WeChat pay started in 2013 but took off when users could send HongBao (a red envelope with money)
as present to their friends with Chinese New Year in 2014 through WeChat. Receivers had to create a
wallet to receive the money. Sending a HongBao to your friends is a custom at Chinese New Year.

Figure 12 A HongBao (Red Envelope containing money). Source: https://www.whatiswechat.com/case-studies/

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The value network in Figure 13 is hypothetical because we could get no information about the
agreements between WeChat and banks. We assume in Figure 13 that WeChat will have an account at
some bank. And we assume that when a user has money in his or her WeChat wallet, the money is
actually in the account that WeChat has with the bank. When WeChat uses this account then this
generates service fees paid by WeChat to the bank. Several agreements are possible but we do not
know the details.

Figure 13 A hypothetical model of the WeChat wallet and money transfer. Payment for products is shown

To create a WeChat wallet, the user must provide

• personal identification (a Chinese ID card, a Chinese bank card, or an international bank card),
• a bank account (a Chinese bank account or an international credit card) and
• a phone number (the one you registered with the bank).

WeChat has agreements with over 300 Chinese banks and with Visa, MasterCard and the Japanese
credit card company JCB. The procedure makes clear that WeChat pay acts as a front end for existing
bank cards and credit cards, just as other smartphone-based contactless payment systems like Apple Pay
and Google Pay.

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Once you have a wallet, you can deposit money in it from the linked bank account and withdraw money
from it to deposit it back in your bank account. You can also transfer money to other wallets and pay
products with it. Foreign money transfers are not allowed. This is due to regulations imposed by the
People’s Bank of China which heavily restricts all forms of foreign currency outflow.

The service charge for withdrawal from a wallet (transfer to the bank account of the user) is 0.1% and
only applies to withdrawals over RMB 1000 (€ 130). This encourages users to use the money on their
WeChat wallet to do payments into other WeChat wallets. Vendors pay a transaction fee for WeChat
payments, just as they pay for credit card transactions. This generated an estimated US$1.76B (€ 1
480M) in 2017.

In 2018, 900M people used WeChat Pay on a monthly-basis. Most popular use is for payment in
supermarkets, convenience stores, online shopping, restaurants, and shopping malls, utility fees and
transportation.

There were 800M users in 2019, which makes it larger than Apple Pay with 227M users. Market share in
China in Q3 of 2019 was about 40%, compared to AliPay’s 55%. By the end of 2019, WeChat Pay
processed 1B payment transactions per day for 800M monthly active users and 50M merchants.

WeChat offers other financial services such as WeChat Loan and a credit rating service of all WeChat Pay
users based on their payment behavior and other “habits”. Based on this credit rating, WeChat can offer
a loan within minutes without further credit check.

Until 2018, WeChat used the funds in WeChat wallets to invest, just like banks do with customer
deposits. But WeChat (and AliPay) were prohibited from doing this by the People’s Bank of China since
2019. Third-party payment firms like WeChat must now keep all customer deposits in reserve.

In January 2021, the Chinese government published draft antitrust legislation that threatens to break up
the mobile payments duopoly of WeChat Pay and AliPay. The reason is that jointly, they have nearly
monopolized the payment market in China.

4.1.5 Shopping

Accepting payments from WePay is very convenient and requires no investment in payment terminals
from the shop owner. There are several ways consumers can pay.

• Quick pay. Vendors can directly charge customers money by scanning the QR code connected with
the customer’s name card.
• QR Code Payment. Vendors display unique QR codes on products for customers to scan. After
scanning, WeChat displays product information and the customer can pay. The QR code can be a
physical sticker attached to a product or can be displayed on a screen, so the method works for
offline and online shopping. It can be used for payment for physical products such as food, digital
products such as game avatars, and services such as a taxi ride or a meal in a restaurant.
• Miniprogram payments do not use a QR code but require the user to enter a password in a
miniprogram provided by a vendor.

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• Official account payments are done in the official account app of a vendor. Vendors offer products
in this app, which users can buy using a password.
• In-app Payments do not require a wallet. Users can buy products in a vendor’s app on WeChat
marketplace by entering their payment information.
• Web-based Payments use a QR code embedded in a web page to pay for products. The QR code is
scanned by the user.

All of this has the same business model, shown in Figure 14.

Figure 14 WeChat payment service

WeChat has agreements with shopping platforms Meituan-Dianping, Jingdong (JD.com), Pinduoduo, and
WeiPinHui (Vip.com). It is used in physical shops too, and even for payment for products sold by vending
machines (Figure 15)

Figure 15 Using WeChat Pay with a vending machine. Source: https://www.whatiswechat.com/case-studies/.

In physical shops, the shake function of WeChat turns out to be a killer app. For example, shaking your
phone in a shopping mall gets you into contact with shops nearby, who offer you coupons to attract you
to their store.

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4.1.6 Digital products

WeChat and partners sell virtual products such popular manga, anime and cartoon characters from
Disney, Sanrio, Pixar and others. You can find some examples here. Most of these are free but popular
ones must be bought for a price in the order of RMB 5 (€ 0.65) per set. It is not known how much
revenue this generates for WeChat, but the Japanese social network Line generated US$31.5M (€
26.6M) gross revenue from stickers in the third quarter of 2013. Selling stickers is thought to be the
biggest money maker for WeChat.

The business model for selling digital products is simple (Figure 16). WeChat produces some digital
products itself, others are sold by third parties through WeChat.

Figure 16 Selling digital products such as stickers.

4.1.7 Value-added services

WeChat has positioned itself as payment intermediary for a wide range of third-party services. You can

• top up your mobile phone balance,

• rent a bicycle through Mobike,
• call up a taxi from Didi Chuxing, the Chinese counterpart of Uber,
• book airline tickets,
• book railway tickets,
• book movie tickets,
• Book hotels,
• Take out an insurance with Tencent’s insurance platform WeSure,
• Book an appointment with a doctor,
• Pay your electricity and water bills,
• Read news,
• Search for houses that are for sale or for rent,
• And more.

The business model in all these cases is straightforward (Figure 17).

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In addition to third party services, WeChat offers some free services. An important one is the scan-to-
translate function . The algorithms are trained by WeChat.

Figure 17 Third party services.

The details of the business models for each value-added service may differ. However, the common
element is that WeChat offers a large market of consumers to these third parties, for which they are
willing to pay. To consumers it offers transactions with low friction, so that they are willing to use these
services.

4.1.8 Government services

WeChat is now so ubiquitous in Chinese daily life that it is now starting to be used for government
services too. Starting from December 2017, WeChat worked with the Chinese government with a pilot
program to incorporate personal IDs with their WeChat account. By using facial recognition software,
they can authenticate the WeChat account with the government issued ID.

Another government service offered through WeChat is applying for a visa. And a court in Beijing started
using WeChat for chats between judges and litigants.

What WeChat gets in return for this service to the government is not clear. At least it receives
government approval for some of its activities. This is the exchange we include in the business model
(Figure 18).

Figure 18 Government services.

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4.1.9 Home services

So far, WeChat has functions that cover the public sphere of daily life in China. It is now also extending
to the home.

• MonMon is a device for toddlers. Parents can send voice messages to the MonMon to play.
These might be stories, lessons, etc.
• In 2016, visitors of Ceasar’s palace in Las Vegas could interact with Ben the robot using WeChat
(Figure 20). This was built on an infrastructure produced by the AI startup ObEN, which
produces intelligent robots for the home, in which Tencent invested. The robot translates
between English and Chinese.
• In 2019, Tencent launched the WeChat voice assistant Xiaowei, similar to assistants like Siri and
Alexa (Figure 21).
• Waving your smartphone at a TV show allows WeChat to recognize the current program and
viewers to interact.

These functions have a physical business model where you buy a physical product and then use it. In
addition, when you use it, they have a digital business model in which WeChat collects usage data. See
Figure 19.

Figure 19 WeChat as home service provider.

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 Figure 20 The ObEN robot. Source: https://www.pcmag.com/news/i-dont-speak-chinese-but-my-oben-digital-doppelganger-
does

Figure 21 Tencent’s smart speaker. Source: https://medium.com/syncedreview/tencents-smart-speaker-tingting-brings-wechat-

to-the-entire-family-e0787eba8391.

4.2 WeChat Value Propositions for Businesses

WeChat offers businesses a market of over 1.1B monthly active users on a mobile infrastructure
integrated with daily life in China. This includes use abroad by Chinese tourists and the Chinese diaspora.
On a population of 1.4B, WeChat’s market penetration in China is near total. 95% of Chinese citizens

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aged 16 to 64 own smartphones and 78% of those use WeChat. To access this market, companies and
individuals must open an official account.

4.2.1 Official accounts

Official accounts are similar to company Facebook pages. They allow a company to gather followers,
send them notifications, and redirect users to a website. There are two kinds of official accounts.

• A subscription account allows you to send 1 message per day to users who subscribe to the
account. Users have a subscription area on top of the chat screen of WeChat, which is where
these messages will appear (Figure 22). This is a useful type of account if your product is
content, such as for newspapers or influencers. You need a Chinese ID to open the account.
• A service account allows you to send four posts per month and users who added you as friend
will see your updates on top of the Moments feed. Service accounts appear as Friends in the
Chat screen of WeChat. This is useful for service providers such as transport companies, banks,
etc. to provide customer care. It is available to businesses only.

Figure 22 Location of service accounts and subscription accounts folder on the chat screen. Source:
https://walkthechat.com/wechat-official-account-simple-guide/

The yearly verification fee for Chinese businesses is RMB 300 (€ 39) and for foreign businesses it is
US$99 (€ 84) per year. There were 20M official accounts early 2019. The business model is basic: sell the
right to maintain an official account for a yearly recurring fee. This generates a revenue between €
790M (if all accounts were Chinese) to € 1,7B (if all accounts were foreign). See Figure 23.

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 Figure 23 Official accounts must be renewed yearly.

4.2.2 WeChat Advertising

Official accounts can advertise in WeChat Moments, in articles of Official accounts, in miniprograms, and
in posts of influencers.

Moments ads appear as messages in the targeted users’ Moments feeds. Users can be targeted
according to their location, age, gender, marital status, education level, device, phone network, and
interests as shown by their past behavior. Lookalike targeting aimed at people who resemble a given
customer set is possible too. Pricing is based on cost-per-mille (CPM, cost per 1000 clicks):

• For users located in China, the price is RMB 50-150 (€ 6 -20) for text and images, and RMB 60-180 (€
8 – 23) for videos, depending on city size. The minimal entry price RMB 50 000 (€ 6500).
• For users located outside China, e.g. Chinese tourists or the diaspora, the price is RMB 150 (€ 19) for
text and images and RMB 180 (€ 23) for videos. The minimal entry price RMB 10000 (€ 1300) or RMB
50 000 (€ 6500), depending on the country.

The business model is shown in Figure 24. WeChat plays a classical matching platform role because they
match the needs of users and advertisers.

Users here want to read the feed. Note that they also write them, but this is not represented here. It is
shown more explicitly in our Facebook model, where we show that a social network matches the needs
of writers and readers of posts (Figure 9). In contrast to Facebook, WeChat does not match readers and
writers but serves content subscribed to by users.

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 Figure 24 WeChat Moments advertising.

Banner ads appear in articles posted by Official accounts. Similar to web site banners, they display
information about a company and may redirect you to a product page. In addition to the above criteria,
targeting is by type of official account in whose message the banner should be displayed. An ad
impression is a four-way transaction: An official account published content that users read and
monetizes inventory in their content by showing ads of other official accounts. WeChat matches the
needs of three stakeholders (Figure 25). We assume here that WeChat shares the revenue of advertising
with the publisher.

Pricing is by CPM and may be static or dynamic:

• Static pricing: RMB 15-25 (€ 2-3) depending on the location of the user (the tariff is higher in larger
cities).
• Dynamic: real-time bidding on inventory (ad space), starting at RMB 0.5 (€ 0.06) per click.

Minimal entry price for banner ads is RMB 50 000 (€ 6500).

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 Figure 25 WeChat banner advertising

Mini Program ads appear in a mini program. Miniprograms contain inventory (empty space that can be
filled by ads). When a user uses a miniprogram, WeChat fills inventory by matching the ad target criteria
to the user’s profile. The business model is shown in Figure 26.

Prices are determined by bidding:

▪ Minimum cost per click RMB 0.5 (€ 0.06)

▪ Minimum cost per day RMB 50 (€ 6).

For minigames, ad revenue is shared 50:50 for games with 1,000 users, and 70:30 in the developer’s
favor for those with over 100,000.

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 Figure 26 Miniprogram advertising. This is a variant of in-game advertising (Figure 11).

Influencers are called Key Opinion Leaders and influencer advertising is called KOL advertising.
Influencers are paid either based on a flat fee, a results-based fee, or are given free products as
compensation. The price for a banner on an influencer blog may vary from RMB 1000 (€ 130) for at least
5000 followers, RMB 2000 (€ 260) for blogs of influencers with up to 30 000 followers, and RMB 4000 (€
5200) if the influencer has 100 0000 followers. Prices may go up to RMB 300 000 (€ 39 000) per blog
advertisement. Some influencers offer pricing based on commission rather than the number of
followers, usually 20-40%. We don’t show the value network here, because it is very simple.

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5 Revenue Model

Tencent does not provide revenue numbers for WeChat separately, so let’s look at Tencent’s
consolidated revenue first.

5.1 Tencent revenue

Total Tencent revenue for 2019 was RMB 377.3B (€ 49B). This is in the same league as Facebook’s
revenue of US$71B (€ 60) in 2019.

Figure 27 Tencent Revenues in Billion RMB. Source: https://walkthechat.com/%c2%a5800-billion-wechat-mini-program-

transaction-volume-in-2019-tencent-annual-report/

Games were the greatest source of revenue (Figure 28). In another breakdown, for Q1-Q3 of 2018,
Mathew Brennan counts games 35%, social networks 23%, and advertising 18%.

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Figure 28 Tencent’s sources of revenue. Source: https://walkthechat.com/%c2%a5800-billion-wechat-mini-program-transaction-
volume-in-2019-tencent-annual-report/.

This includes revenue from QQ games and other desktop platforms of Tencent. Game revenue is mostly
revenue from in-game transactions.

The freeze in game licenses in the second half of 2018 has not reduced Tencent’s growth. The halt in the
growth of gaming income is apparently compensated for by the increase in advertising income. This
takes place on WeChat.

5.2 WeChat Revenue model

We showed fragments of WeChat’s revenue model in our analysis of WeChat’s value propositions
(Section 4). Basically, there are three sources of income.

• Value-added services, such as selling stickers, game avatars or game upgrades. This is estimated
to be 69% of WeChat revenue.
• Advertising. This includes Moments advertising, banner advertising, and miniprogram
advertisements. This is estimated to be 18% of WeChat's revenue.
• Other income (12% of WeChat’s revenue) includes Official Account registration fees and
transaction fees. These are fees for transactions in apps and miniprograms (including
minigames) that run on WeChat.

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5.3 WeChat penetration in China

WeChat has 1.2B users in China and abroad. Users outside China are mainly tourists and the Chinese
diaspora. Note that these users are actually accounts. Some people have more than one account.

The Chinese market is nearly saturated for WeChat. It is the most popular social network in China. On a
population of 1.44 B, there are 1.66B mobile phone accounts. 95% of Chinese citizens aged 16 to 64
own smartphones and 78% of those use WeChat. Walkthechat gives some more information of the state
of WeChat market penetration in 2018.

6 The WeChat ecosystem

Figure 29 The WeChat ecosystem: View from outer space. Only some illustrative stakeholders are shown.

Figure 29 shows the fragment of the WeChat ecosystem that we discussed. The ecosystem additionally
includes marketing firms and consultants who help vendors set up shops on WeChat and advertise on
WeChat. And we included WeChat work, formerly WeChat enterprise, which offers communication and
coordination functions for companies.

WeChat has created and enables this ecosystem by performing a huge variety of functions:

• Instant messaging,

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 • social networking,
• game platform,
• miniprogram platform,
• payment platform,
• shopping platform,
• third-party service platform,
• value added service provider,
• government service provider and
• home automation platform.

It is an abstraction platform on top of which third parties can run apps and miniprograms and a
communication platform on which users can communicate with each other and official accounts
communicate with an audience matched to their marketing targets.

Figure 29 gives an overview of the ecosystem and takes no particular point of view. This is why we call it
the view from outer space. If we take the point of view of the user, we get the representation in Figure
30.

Figure 30 The WeChat ecosystem: View from a consumer. Only some illustrative stakeholders are shown here.

This representation makes clear why WeChat is the operating system of daily life in China.

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7 Governance of the WeChat ecosystem

A business ecosystem consists of a value network that offers value objects to customers, plus a
governance system that makes decisions about the value network. This includes decisions about wealth
and about the norms and regulations applicable to actors in the value network. Actors in the governance
system include the government, financial stakeholders such as investors, banks and shareholders,
organized power such as trade associations, labor unions and lobbyists, threat agents who undermine
the network such as cybercriminals and state-like actors, as well as the media. Social networks
themselves are important governance actors too because they facilitate remote influencing of user
behavior.

Two aspects of the governance of the WeChat ecosystem stand out: the closed nature of the WeChat
ecosystem, and the role of the Chinese government.

7.1 A closed ecosystem

WeChat blocks access to competing ecosystems such as that of AliBaba and ByteDance. For example, it
blocks links to the shopping website TaoBao and the retail website TMall, both owned by AliBaba, and to
the new website Toutiao, the video sharing site Douyin (TikTok) and the video platform Xigua, owned by
ByteDance. In Januari 2019 it blocked three apps on the day they were launched: Liantianbao, formerly
called Bullet Messenger, Duoshan, launched by ByteDance, and Matong MT, launched by Ringo.AI.
(Some websites have published ways to get around these blocks.)

Also, companies that participate in the WeChat ecosystem must not participate in a competing
ecosystem. For example, JD.com, Meituan and other shopping apps in the WeChat ecosystem do not
participate in Alibaba’s ecosystem.

These competing ecosystems return the favor by blocking access to any app that lives in the WeChat
ecosystem. Apparently, Chinese platforms build closed ecosystems. As a consequence, they seem to end
up in the mutually detrimental square of the Prisoner’s Dilemma’s payoff matrix: They are both worse
off than they would have been by cooperating. The fear of betrayal motivates mutually hostile behavior.

Kai-Fu Lee describes the intensively competitive Chinese business landscape in which this takes place
[1]. Chinese companies relentessly copy each other’s successful ideas. Any company that cannot fully
insulate itself from competitors is a target for attack (p. 43). As a result Chinese companies tend to take
over an entire value chain (p. 71). For example, the ride haling company Didi ChuXing has started buying
up gas stations and auto repair shops to service its fleet.

As a consequence, if you enter WeChat’s ecosystem Tencent exercises centralize governance over you.
Tencent has shares in as few dozen game developers such as in Riot games (100%), Grinding Gear games
(80%) and the maker of Fortnite, Epic (40%). It has 12% of Snap (of SnapChat), 5% of Tesla and 5% of
ActiVision, maker of call of Duty. It owns 20% of Meituan Daiping, 17.1% of JD.com, and an estimated
30% of WeBank. Tencent owns 1.6% of Warner Music Group and at the time of writing (March 2021),
has just signed a cooperation agreement with Warner to launch the record label JV as a joint venture.

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An ownership network showing the shares Tencent has in companies that participate in its ecosystem
would reveal a lot about the distribution of decision power in the ecosystem.

7.2 The role of the Chinese government

In private enterprises, just as in state companies, the Chinese Communist Party is the ultimate authority.
Both domestic and foreign private companies must contain a party body and the CCP is now demanding
a seat in executive rooms. Chinese citizens and companies are required by law to participate in
“intelligence work”, regardless of geographical companies. This means that they must provide
information to the Chinese government, and that this obligation is extraterritorial.

The government’s influence on the WeChat ecosystem consists of three parts: Surveillance, censorship,
and manipulation.

WeChat collects a trove of data about citizen behavior and is an ideal instrument for state
surveillance. It stores search terms, profiles visited, and content that has been viewed within
the app, call times, call duration, and location information. Chats are stored unencrypted in
China. This information is made available to the government on request according to law. For
example, the Chinese government monitors Uyghur activity on WeChat.

The government can also access deleted WeChat messages. It is speculated that this is part of
the social credit system being implemented in China. The electronic identity system mentioned
earlier may also have this use.

WeChat messages are censored in real time (Figure 31). Following the overwhelming victory of
pro-democracy candidates in the 2019 Hong Kong local elections WeChat censored messages
related to the election and disabled the accounts of posters in other countries such as U.S. and
Canada. In 2020, WeChat started censoring messages concerning the coronavirus.

Censorship does not stop at the Chinese border. When NBA general manager Daryl Morey supported
Hong Kong protests, Tencent refused to continue streaming NBA matches. The ban lasted for more than
a year but is now being slowly lifted — Morey quit the NBA and moved to the Philadelphia 76ers. Games
that involve the Philadelphia 76ers are still blocked.

Games are censored too. In 2019, Tencent teamed up with the Chinese Communist Party to develop
patriotic games that implement game policies in line with the CCP’s policy.

The CCP also manipulates events in other countries by WeChat groups of diaspora Chinese, managed
by the United Front, a network of state and party agencies. During the 2019 federal election campaign,
United front groups targeted Gladys Liu, candidate for the electorate of Chisholm in Melbourne, by
flooding their WeChat groups with negative comments.

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Figure 31 Real-time censorship on WeChat. Source: https://citizenlab.ca/2020/05/we-chat-they-watch/

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8 Strategy

WeChat has always had the strategy to collect users first by providing free services and monetize their
attention later. This has led to a fast growth in the number of services offered and to a fast growth of
the user base. The Chinese market is now saturated and competition from ByteDance and Alibaba is
ruthless. Further growth of WeChat must come from (1) targeting the Chinese diaspora and Chinese
tourists abroad, (2) expanding in foreign markets or (3) extending the ecosystem of services of the
WeChat ecosystem.

Targeting Chinese traveling or living abroad is facilitated by expanding WeChat pay to shops and
services abroad frequented by Chinese. For example, Harrods and Selfridge already accept WeChat
payments.

Expanding in foreign markets is facilitated by hiring ambassadors like Messi. However, cultural, legal
and political differences have hindered this expansion. WeChat may not be banned in the USA, but it has
not built up a positive brand image by the proceedings so far. Together with TikTok, it has been
permanently banned from India.

Just as important, cultural differences so far have prevented WeChat to expand much beyond Chinese
users. It would need to expand its ecosystem with local actors in different countries under different legal
systems who would not all accept governance by the CCP. And there are already strong competitors
such as WhatsApp, who is now adding payment and other WeChat-like functions, and Google Pay, who
is now social network functions, and who are expanding in India, Indonesia, and South America.

Extending the WeChat ecosystem of services in China is a promising direction. Integration in the user’s
life takes WeChat to the home with smart speakers and to the car with WeChat for Auto. Further
expansion in the Internet of Things is also aimed for. For example, you can communicate with the ObEN
robot through WeChat.

All of these expansions must take place within the framework set out by the CCP. Tencent CEO Pony Ma
is deputy of the National People’s Congress, China’s legislative branch of government. Much-publicized
is the game "Clap for Xi Jinping: An Awesome Speech", in which players have 19 seconds to generate as
many claps as possible for the party leader. The app was released for the occasion of the 19th National
Congress of the Chinese Communist Party in October 2017.

The power of platforms like WeChat and AliBaba in China is now so large that the Chinese government is
preparing antitrust legislation that threatens to break up their mobile payments duopoly. WeChat will
remain and further expand as the infrastructure of Chinese life. But it will do so under the guidance of
the CCP and the Chinese government.

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