1. i
Tencent’s Moment: The Marketing and Financial Implications of WeChat’s
Transformation from a Messaging Platform to a Virtual Wallet
By
Scott DeVoy Su
A Thesis
Submitted to the Business School
in Partial Fulfillment of the Requirements for
the Bachelor’s Degree in Marketing
at the University of International Business and Economics
UIBE, BEIJING, CHINA
2015
© 2015 Scott DeVoy Su

2. ii
Tencent’s Moment: The Marketing and Financial Implications of WeChat’s
Transformation from a Messaging Platform to a Virtual Wallet
by
Scott DeVoy Su
APPROVED BY:
______________________________________________
Professor Xie Yi
Business School

3. iii
DECLARATION OF ORIGINALITY
I hereby certify that I am the sole author of this thesis and that no part of this
thesis has been published or submitted for publication.
I certify that, to the best of my knowledge, my thesis does not infringe upon
anyone’s copyright nor violate any proprietary rights and that any ideas, techniques,
quotations, or any other material from the work of other people included in my thesis,
published or otherwise, are fully acknowledged in accordance with the standard
referencing practices. I certify that I have obtained a written permission from the copyright
owner(s) to include such material(s) in my thesis and have included copies of such
copyright clearances in my appendix.
I declare that this is a true copy of my thesis, including any final revisions, as
approved by my thesis committee, and that this thesis has not been submitted for a higher
degree to any other University or Institution.

4. iv
ABSTRACT
In just four years, Tencent’s WeChat application has managed to
revolutionize the social landscape of China. What started off as a simple
messaging application has now transformed into an all-encompassing mobile
platform. The incorporation of a payment system in WeChat has effectively
monetized the app, placing it in direct competition with Alibaba’s Alipay Wallet.
Both Tencent and Alibaba have since been engaged in a bitter virtual war, the
skirmishes of which have seemingly altered countless business models, including
that of China’s taxi industry.
This dissertation postulates that as of March 17, 2015, Tencent is an
undervalued company. This is in large part due to: WeChat’s social features, which
give it an inherent competitive advantage over Alipay Wallet; Tencent’s headway
into the financial services industry; the sale of lottery tickets and sports betting;
and WeChat’s Official Accounts and sponsored Moments.

5. v
ACKNOWLEDGEMENTS
I am grateful to all the educators I’ve had the privilege of studying under -
both in the Business School and the School of International Education. The
knowledge and insights I’ve garnered throughout my undergraduate studies at
UIBE have no doubt shaped my understanding of the business world, especially
when pertaining to the complexities of the Chinese business environment. Special
thanks go to Professor Xie Yi, my thesis supervisor, who graciously sacrificed her
own time in helping me make the most out of this dissertation.

6. vi
TABLE OF CONTENTS
DECLARATION OF ORIGINALITY.............................................................................. iii
ABSTRACT....................................................................................................................... iv
ACKNOWLEDGEMENTS.................................................................................................v
CHAPTER 1: INTRODUCTION.......................................................................................1
Background & Significance.........................................................................................................1
Main Study Content .....................................................................................................................2
Methodology of this Study ...........................................................................................................3
CHAPTER 2: MARKET OVERVIEW..............................................................................3
Global Mobile Messaging App Market: Overview & Potential...................................................3
CHAPTER 3: TENCENT’S STRATEGIC POSITIONING..............................................6
Tencent’s Strategic Objective: Turning WeChat into a Cash Cow..............................................6
Monetizing WeChat: A Confrontation with Alipay......................................................................7
Red Envelopes and Taxi Apps......................................................................................................8
CHAPTER 4: CRUCIAL POINTS.....................................................................................9
WeChat’s Competitive Advantage over Alipay Wallet ................................................................9
Tencent’s foray into the Financial Services Industry ................................................................10
Lottery Tickets and Sports Betting.............................................................................................11
Official Accounts and Sponsored Moments ...............................................................................12
CHAPTER 5: CONCLUSION .........................................................................................13
Tencent’s Underrated Market Value .........................................................................................13
BIBLIOGRAPHY..............................................................................................................15
APPENDICES ...................................................................................................................17
Appendix A: Chapter 3 Supplementary Images ........................................................................17
Appendix B: Chapter 4 Supplementary Images.........................................................................19

7. vii

8. 1
CHAPTER 1:
INTRODUCTION
Background & Significance
In late June of 2007, Apple Inc. released a product that would inexorably change
the world we live in: that was, of course, the first generation iPhone. Fast forward to
2015, now smartphones, and the bevy of manufacturers that make them, have altered not
just the way individuals communicate, but also how we stay informed, share media, are
entertained, and more recently, how we shop.
The impact of smartphone technology – and the application software that powers
it – on society as a whole has been profuse. Even for those who don’t own or use a
smartphone, it’s difficult not to acknowledge the effect this technology has had. Now,
more than ever, our offline physical environment is being shaped through the happenings
of our online virtual world; in Beijing, alone, for example: commuters riding the city’s
subway system are bombarded with advertisements depicting the conveniences of
ecommerce; convenience stores, like Haolinju, now tout their ability to receive in-store
mobile payments; and well-known retailers and small businesses alike offer promotions
to customers willing to scan QR codes at traditional points of purchase. Smartphone
technology is quite clearly the catalyst behind all this dynamic change; and there is no
bigger smartphone market in the world than in China – in the first quarter of 2014,
approximately 40% of smartphones shipped worldwide were intended for Chinese
consumers.1
China’s importance in the smartphone market extends beyond its massive
consumer base; innovative Chinese technology companies - some state-owned – are at
the forefront of both smartphone manufacturing and app development. One company in
particular, Shenzhen-based Tencent Holdings Ltd., through its ubiquitous mobile
messaging app WeChat (known phonetically in Mandarin as Weixin), has emerged as a
dominant force in the industry. According to digital consulting company China Internet
Watch, as of September 2014, WeChat was the most popular mobile app in China with
377.92 million monthly active users (MAU). For comparison sake, WeChat’s MAU in
China is greater than the entire population of the United States of America. Moreover,
WeChat is catching on globally as well; in a quarterly press statement issued by Tencent,
as of September 30, 2014, WeChat had a total of 468 million monthly active users
(MAU) – using the prior figure as the subtrahend, we can deduce that WeChat has
roughly 90 million MAU outside of China.2
The data speaks for itself: WeChat’s position
in the Chinese market is secure, and its presence internationally is only growing stronger.
1
Data according to the International Data Corporation (IDC) Worldwide Phone Tracker, April 30, 2014.
2
Note: Monthly average users (MAU) is different than registered users; as of August 2013, WeChat had
over 100 million registered users outside of China.

9. 2
When Tencent first launched WeChat in 2011, the app, like Facebook-owned
WhatsApp, gained traction because its messaging service gave smartphone users a more
convenient and economical alternative to SMS text messaging. However, unlike
WhatsApp, which was released in 2009 and has seen relatively few changes aside from
aesthetic ones, WeChat has evolved into much more than just a messaging platform.
Early features, namely the “Shake” and “People Nearby” functions, allowed users to
spontaneously connect with strangers. Then came the “Moments” feature, which allowed
users to share their musings in a more social media-like platform.
Yet, the most important of all the updates for WeChat came with version 5.0,
which was released in August of 2013. That update saw the inclusion of social gaming
and a sticker store (for emoji that can be inserted into conversations), but the real focal
point of the update was the incorporation of a mobile payment function – marking a
watershed moment not just for WeChat, but Tencent as a company. The payment
function, which gives users the ability to tie their bank cards with a WeChat account,
monetizes an otherwise free app. Soon afterwards, the functionality of the app expanded
as more features – many of which will be described in detail in later sections of this paper
– were developed and integrated, building upon the ability to make monetary
transactions.
Main Study Content
The primary focus of this dissertation is twofold: this paper will examine the
potential of WeChat to alter existing business models through its payment system;
further, it will analyze the app’s growth and profit potential – while taking into
consideration its ongoing rivalry with competitor Alibaba Group Holdings Ltd.
It’s relevant to point out that WeChat’s payment system gives Tencent a unique
platform to market services and products, especially through online-to-offline (O2O)
business channels. O2O commerce is different from other ecommerce marketing
channels, such as business-to-consumer (B2C) or consumer-to-consumer (C2C), in that
online services supplement the offline experience, and sometimes even vice-versa. As a
platform, O2O commerce has significant potential in changing the marketing landscape;
hence, many of the examples used in this paper pertain to this nascent, yet promising,
marketing channel.
The framework of this dissertation is relatively straightforward: Chapter 2 will
provide a terse overview of the global mobile messaging app market – showing where
WeChat stands amongst other big-name apps; Chapter 3 is dedicated to illustrating
Tencent’s current strategic positioning; whereas Chapter 4 will identify certain key
attributes within WeChat’s functionality, marking the potential to propel Tencent’s value
as a company; Chapter 5, lastly, will be the conclusion for this dissertation.
It’s important to note that the scope of this paper is primarily limited to WeChat
in the Chinese market (with exception to Chapter 2). This is because most of the unique

10. 3
features offered through WeChat’s payment system are currently only available within
China. And although WeChat has huge growth potential overseas, its profit potential is
still anchored within its domestic market.
Methodology of this Study
The majority of the information garnered for the research of this dissertation was
taken from secondary sources. This includes major news outlets, including the Financial
Times, Bloomberg, and the Wall Street Journal; market research firms, such as the
International Data Corporation; and digital consulting companies, such as China
Internet Watch. One secondary source in particular, technology media company Tech in
Asia, proved incredibly valuable – many of its articles pertained exclusively to certain
subjects that this dissertation is based upon. The charts provided in Chapter 2 are adapted
from a featured Tech in Asia article published on Dec. 11, 2014, entitled: “Race to the
top: the state of chat apps in 5 charts.” As for primary sources, the information taken was
compiled from Tencent’s press releases and quarterly earnings reports.
CHAPTER 2:
MARKET OVERVIEW
Global Mobile Messaging App Market: Overview & Potential
When examining the competitive landscape WeChat operates in, it’s hard to
pinpoint exactly which mobile applications Tencent is competing against. That’s because
WeChat is no longer just a mobile messaging platform. Its continued evolution makes it
uniquely different from WhatsApp, Kaokao Talk, or Line; thus, a straight-up comparison
with other messaging apps doesn’t properly illustrate Tencent’s strategic positioning.
However, it’s still necessary to examine how the app fares in comparison with what many
deem as “similar apps” from a global standpoint.
Internationally, WeChat isn’t the most widely used mobile messaging app – that
title belongs to WhatsApp, with approximately 600 million monthly active users (MAU).
(Note: MAU is the most accurate metric when evaluating the user base of an app; going
by other metrics, such as registered users or number of downloads, isn’t as reliable.)3
WeChat is, however, the second most popular messaging app globally; with Viber,
Facebook Messenger, Line, Snapchat, and Kaokao Talk all trailing respectively.
The chart on the following page shows a graphical breakdown of MAU figures
for all the major messaging apps:
3
According to Steven Millward, Chief Editor, China, for technology media company Tech in Asia.

11. 4
Although WeChat’s MAU figures are impressive, it by no means has the same
worldwide appeal that WhatsApp has. WhatsApp has managed to do what few mobile
apps have done – to have a larger user base internationally than it has in its own domestic
market. Line, which originated in Japan, also has a strong presence in Southeast Asia,
Taiwan, and in a handful of Spanish-speaking countries, but its stronghold is still in
Japan, which is a market they dominate.4
Likewise, Kaokao Talk, which originated in
South Korea, is a staple app in the pockets of millions of South Korean smartphone users.
The evidence seems to show - that much like tangible goods and services - marketers of
virtual apps need to understand that a divide exists between foreign and domestic
markets.
India, which is potentially the second largest market due to their enormous
growing population, is an excellent barometer of sorts, illustrating how WhatsApp is
primed to quickly dominate the mobile messaging app market in developing countries.
(In this context I consider China not as a developing country, but as an emerging or
newly industrialized country.) Tencent’s strategy to expand WeChat in India has included
endorsements by local celebrities. One advertisement in particular showed actors
Parineeti Chopra and Varun Dhawan flirting in a manner that all too resembled a
Bollywood spot - all the while touting WeChat’s voice messaging ability. Yet, despite all
the advertising Tencent has spent in India, and even with competition from local
messaging app Hike, WhatsApp has remained dominant in India, with over 70 million
MAU as of November 2014. What exactly is WhatsApp’s appeal in these developing
countries? What does WhatApp have that WeChat doesn’t? The answer, perhaps, is the
4
Information from an Oct. 9 2014 press release showed that Line had a combined 63 million registered
users in Thailand & Indonesia; 18 million in Spain; and 17 million in Taiwan. However, I was unable to
ascertain how those figures fit in with Line’s reported global 170 million MAU.
0
100000000
200000000
300000000
400000000
500000000
600000000
700000000
WeChat
WhatsApp
Viber
Facebook
Messenger
Line
Snapchat
Kaokao
Talk
MAU
Figures

12. 5
very opposite, in that, WeChat has more features and functions than is necessary. The
simplicity WhatsApp provides is important. A no frills app typically requires less storage
capacity on a smartphone, and many times it is perceived as more reliable than an app
that is seemingly more complicated. This falls in line with WhatsApp’s overall credo as
stated by its co-founder, Brian Acton: “No ads. No games. No gimmicks.”
And, although, WhatsApp is winning in terms of global market share, it by no
means is winning in terms of profit. The lack of features also means a lack of potential
revenue, which is reflected in its paltry annual average revenue per user (ARPU) figures.
The chart below illustrates the discrepancy between WhatApp’s ARPU figures and that
of other leading chat apps.
Having a large user base, but not being able to able to capitalize on it - in other
words, not being able to translate high MAU figures into high gross revenue figures -
means that WhatsApp isn’t performing on the same level as WeChat. Nevertheless, it’s
still too early to predict what will happen in the near future for WhatsApp. There is a very
real possibility that WhatsApp will make similar functional adjustments to monetize the
app once it has acquired what they might deem as “enough” users globally. This is in line
with Facebook CEO Mark Zuckerberg’s strategy of not having a product being entirely
profit orientated until reaching a billion users.5
Lastly, the Indian market reflects the rest of the developing world in that millions
of consumers are transitioning away from feature phones and buying smartphones for the
5
In an October, 2014, quarterly conference call, the Facebook CEO was quoted saying: “For us, products
don’t get that interesting to turn into businesses until we get about a billion people using them.”
$-­‐
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
WeChat
Kaokao
Talk
Line
WhatsApp
ARPU
Figures
(in
US
dollars)

13. 6
first time. This is buoyed by the fact that retail prices for smartphones have steadily
decreased over time (especially for lower-end and previous models). All this means that
as smartphones transition from a luxury item to a necessity, the entire world population
may someday be viewed as a potential customer base.
CHAPTER 3:
TENCENT’S STRATEGIC POSITIONING
Tencent’s Strategic Objective: Turning WeChat into a Cash Cow
Tencent is in the business of all things related to the internet. This is evidenced by
their mission statement with the aim “to enhance people’s quality of life through Internet
services.”6
Over the years, the Shenzhen-based company has maintained an eclectic mix
of internet-related products and services. However, in order to truly corner the market,
there must be some form of integration between these said products and services. Hence,
the theoretical strategic objective for Tencent has been to create an all-encompassing
platform which provides this integration. In many regards, Tencent has already
accomplished this through the continual expansion of WeChat’s features and functions.
Tencent, is also no different from any other corporation, in that it's a profit-driven
entity that seeks to maximize the interests of its stakeholders – and especially of its
shareholders. The majority of Tencent’s products and services, including its instant
messaging and online media services, is offered freely to the general public. (Some of
Tencent’s lesser-known services, such as QQ Enterprise, are specially made for other
businesses - grossing revenue on a subscription basis.) However, for its better-known
free-to-use software and applications - such as WeChat and many of the QQ-related
brands – profit levels aren’t yet as lucrative as one may expect. This, of course, is a
problem many internet-based technology companies face: where selling advertising space
is the only viable means of making money. The burst of the dot-com bubble in 2000, for
example, could be partly attributed to irrational expectations placed upon tech companies
that really didn’t have the means of turning in substantial profits. Likewise, one could
argue that Tencent’s lackluster P/E (price-to-earnings) ratio shows that although future
expectations are high for Tencent, it simply doesn’t yet have the established revenue
streams. That is, of course, until now.
WeChat’s payment system is the transformative feature that will turn WeChat
from “a great social-app” into “a great social-app that earns huge profits.” Within the past
eighteen months new unconsidered revenue streams have emerged (revenue streams that
are only beginning to show on Tencent’s financial statements). And the linchpin that
holds the system together, and the key to monetizing the app: getting WeChat users to
link their bank accounts to their existing WeChat accounts. Herein, Tencent’s strategic
6
According to the Corporate Culture section of Tencent’s official website.

14. 7
imperative is: how do you go about incentivizing your massive user base to adopt a
process that links one’s bank card to their WeChat account?
Monetizing WeChat: A Confrontation with Alipay
The viability of Tencent’s future doesn’t necessarily depend on a global
showdown for market share between WhatsApp and other mobile messaging apps.
Instead, a more pressing strategic quandary is outdoing Alibaba Group’s Alipay (known
phonetically in Mandarin as Zhifubao) in becoming China’s preeminent mobile payment
system.
Alipay has been an integral component of Alibaba Group’s massive online retail
empire, acting as an escrow service for its different platforms (including Alibaba.com;
Taobao.com; and Tmall.com). Although having been in service since 2004, Alipay
wasn’t as widely recognized as its own brand until the mobile application Alipay Wallet
came along in November 2013. Now the mobile payment systems of both Alipay and
Tencent are in the midst of a virtual war, vying for additional users. The key, as
mentioned earlier, is having a prospective user link their banking information to the given
app.
In September 2013, just a month after WeChat released its version 5.0 update, the
first real campaign to integrate WeChat users’ bank accounts with the app took place
throughout Beijing’s subway system. The initiative involved “smart” vending machines,
operated by Ubox (known phonetically in Mandarin as Youbao), allowing users to make
typical vending machine purchases through their smartphones. (Photo images of the
Ubox vending machines are shown in Figure Compilation 1, in Appendix A.) Other than
the novelty, the appeal from a consumer prospective was that beverage prices were
marginally cheaper when compared to more traditional coin- and paper bill-based
vending machines. As of February 2015, Ubox’s vending machines remained scattered
throughout Beijing’s subway system, however Tencent no longer has a firm competitive
advantage over this unique marketing channel. Ubox now also accepts mobile payments
through Alipay along with other upstart mobile payment systems (including payment
systems from Baidu and Sina).
The next major initiative to generate exposure and interest from the public
happened on November 27, 2013. This time, Tencent managed to collaborate with
Xiaomi, the makers of what many Chinese consumers perceive as low-priced, yet decent
quality smartphones. Xiaomi has a unique business model in that it only sells its products
through online channels, hence a partnership with WeChat seemed fitting. The event was
a flash sale of Xiaomi’s Mi3 smartphone – altogether, 150,000 devices were sold in less
than 10 minutes. The rationale behind the flash sale was that users could reserve their
Mi3 smartphone on WeChat, but in order to finalize the purchase, the linkage of a bank
account was needed via WeChat Payment.

15. 8
Red Envelopes and Taxi Apps
The initial campaigns mentioned in the prior section were successful, but the
Spring Festival and so-called “taxi-war” that followed more rapidly increased the number
of people linking their banking and WeChat accounts. The Spring Festival promotion
brilliantly merged traditional Chinese customs – the gifting of cash-filled red envelopes –
with the social and mobile facets of WeChat. The feature allowed anyone to gift either a
specified amount to an individual, or random amounts to multiple individuals, which
worked well in group chats, and added a unique twist to the traditional Chinese custom.
All the while, the gifting and receiving of money was done through an interface that
prominently displayed the red envelope – giving the feature a somewhat authentic feel.
(Figure Compilation 2, in Appendix A, captures this display through screenshots taken
from a smartphone.)
The campaign saw 5 million WeChat users gift over 20 million red envelopes
within only the first two days of the Spring Festival. The new feature was such a success
that Jack Ma, founder and Executive Chairman of Alibaba Group, was compelled to issue
a public response. In fact, Ma posted a comment on his Laiwang account (Alibaba’s own
mobile messaging app), likening the red envelope gifting initiative to a Pearl Harbor-
styled attack against Alibaba Group. A partial translation of his post, provided by Tech in
Asia, is as follows:
“… Almost overnight, everyone under the sun suddenly believes that Alipay has been
beaten because of WeChat’s red envelopes… It was really impressive! This year’s ‘Pearl
Harbor attack’ was indeed beautifully planned and executed. Thankfully, Chinese New
Year is almost over, and the days are long ahead. But we definitely learned a lesson.”
The above post couldn’t have been more of a premonition as both tech companies
were soon engaged in a bitter battle in a completely different business sector: taxi apps.
Taxi hailing apps are naturally compatible with smartphones, as GPS chips embedded in
those devices help prospective passengers and drivers locate one another. Moreover, taxi
drivers wanting to go in a specific direction can now more easily locate suitable
customers wishing the same.
The two taxi apps in question are Didi Dache and Kuaidi Dache, part-owned by
Tencent and Alibaba Group respectively. The so-called “taxi app war” saw billions of
renminbi in subsidies being doled out to taxi drivers and customers alike – all, of course,
with the aim of gaining an advantage in market share over the other. In fact, in a recent
Financial Times article, expert Wang Jian estimated around 2 billion RMB was spent
promoting the two taxi apps, all within a six-month period: between January and June of
2014.7
Perhaps the most intriguing aspect is that neither Didi Dache nor Kuaidi Dache
gained a firm advantage over the other.8
Both companies used up considerable amounts
7
Wang Jian is an expert with Beijing consultancy firm Analysys International; her background is in
ecommerce.
8
As stated in the Financial Times article; nevertheless, both companies have declared victory.

16. 9
of money, escalating a price war to the levels of irrationality. The only true benefactors
were the users of the app: the customers and taxi drivers.
If there is any strategic lesson to be learned, it is this: Tencent and Alibaba
executives need to implicitly understand that implementing an aggressive pricing strategy
will be seen as an encroachment of sorts on the others’ market share. This holds true not
just for taxi apps, but the gamut of other mobile services offered that seem to overlap
between the two tech companies. At the very core, this deals with the principles of game
theory: Tencent and Alibaba can either tacitly deescalate the situation – in the case of taxi
apps, to gradually minimize the subsidies – or both companies can continue to lose heaps
of money for the benefit of the customer.
CHAPTER 4:
CRUCIAL POINTS
WeChat’s Competitive Advantage over Alipay Wallet
The service offering provided by both WeChat and Alipay’s wallets are uncannily
similar. This is made apparent simply by observing the features - in the form of icon tiles
– shown in the root menus of both payment systems. (Screenshots comparing these
features are shown in Figures 3 & 4, in Appendix B.) Upon further examination, we can
see that there isn’t much discrepancy between the two apps in terms of functionality.
Both apps share a litany of common features, including but not limited to: topping up the
balance for a prepaid SIM card; transferring money - either to oneself or to another
individual; buying movie tickets; buying airplane tickets; ecommerce (JD.com for
WeChat; and Taobao.com for Alipay); and a feature that makes it easier to split the cost
of a meal. In fact, one could speculate that the apps are deliberately adding features tit for
tat, copying features that work well for their competitor. For example, WeChat’s
innovative red envelope gifting idea was fully utilized by Alipay Wallet for the 2015
Spring Festival. Furthermore, Alipay’s variation included more unique ways to gift the
red envelopes; so, to a degree, Alipay Wallet didn’t just replicate the feature, they
improved upon it.
Thus, if we examine both apps purely from a functional standpoint, neither
payment system has an edge over the other. Instead, WeChat’s inherent competitive
advantage lies in the fact that it is used mainly as a chat app. This is vitally important,
because most consumers tend to use their smartphones more for socializing than anything
else. This means WeChat is more than likely to be the first point of contact with the
mobile internet when compared to Alipay Wallet. Also, it’s easier to navigate within an
app than switching between apps; hence, from a convenience standpoint, users who
already adopted WeChat’s payment system, and don’t yet have an Alipay Wallet account,
have no reason to set one up – especially if the features between the apps are identical.
This, however, isn’t true in reverse, meaning users who already use Alipay Wallet, but

17. 10
don’t yet have a WeChat account, still have a reason for getting WeChat because of its
ability to connect socially with others. Undoubtedly, Jack Ma and the rest of Alibaba
Group’s strategic planners are aware of this. Their efforts, however, to challenge
WeChat’s dominance in China’s mobile messaging app market, through their Laiwang
app, have proved unsuccessful. And without a chat app that catches on with the public,
Alipay Wallet will never be the all-encompassing platform WeChat is turning into.
Tencent’s foray into the Financial Services Industry
Tencent’s strategic plan of luring enough users to bind their bank cards with their
WeChat accounts – whether it be through Ubox’s vending machines, red envelopes, or
taxi apps – was by many estimates successful. However, in order to make the app truly
lucrative, WeChat needed services that compelled its users into making monetary
transactions; and what service is more profitable than financial services? The notion of a
mobile messaging app acting as a financial intermediary can be somewhat bizarre,
however Tencent is just one actor in a larger mix of companies that is slowly
transforming China’s banking sector.
The precedent was set by Alipay in June 2013, after it launched Yu’E Bao, a type
of money market fund which users could deposit their idle cash into. What made Yu’E
Bao distinctive was that it was paying interest rates that were substantially higher than
what was offered by traditional banks. Additionally, there was no minimum threshold
investors needed to deposit, and perhaps more appealing, investors could withdraw their
money at any time. The concept caught on quickly with the public: within 9 months,
Yu’E Bao had over 81 million individual investors – a figure that was greater than all the
investors in China’s equity markets.9
Tencent - being consistent with matching successful services offered by
competitors – created a “wealth” section in WeChat’s payment system. The section,
launched in January 2014 and named Licaitong, offered an annualized yield similar to
that of Yu’E Bao. (Screenshots showing Licaitong’s home screen and service offerings
are shown in Figures 5 & 6, in Appendix B.) Currently, Licaitong’s seven-day annualized
rates of return are slightly below 6%.
According to a recent article by the China Daily USA, Licaitong has over 10
million users, with a combined value of over 100 billion Renminbi deposited. In contrast,
China Internet Watch reported that Yu’E Bao had 149 million users by the third quarter
of 2014, and more importantly had amassed over 578.9 billion Renminbi in funds –
significantly more than Licaitong. Despite being behind Alipay in this regard, Tencent is
still in theory making significant amounts of money from the difference in borrowing and
lending rates – known as the “net interest rate margin.” Moreover, most of the money is
9
The figure of “81 million” individual investors is according to data from Tianhong Asset Management
Co., the company that manages the funds deposited in Yu’E Bao.

18. 11
being siphoned off to other banks, hence the risks involved with lending money are
somewhat more manageable.
Tencent is looking beyond internet-based money market funds and is setting its
sights on more legitimized banking. After receiving approval by government regulators,
Tencent launched China’s first solely online private bank in a joint venture with several
other firms. The bank, known as WeBank, began a trial period in January of this year
behind the full backing of Chinese premier Li Keqiang. Li was on site for the bank’s
opening ceremony in Shenzhen and was quoted by the Financial Times saying:
“We will lower costs for and deliver practical benefits for small clients, while forcing
traditional financial institutions to accelerate reforms. It’s one small step for WeBank,
one giant step for financial reform.”
The small clients Premier Li Keqiang referred to are small and medium-sized
businesses (SMEs) that have in the past routinely struggled to secure loans from the
bigger state-owned banks.10
In this sense, WeBank may be more than just gaining an
additional revenue stream; it may in fact be alleviating systemic problems within the
Chinese economy. WeBank has the potential to expunge China’s notorious – and largely
unregulated – shadow banking system, which in the past played the role of lending
money to SMEs.
Lottery Tickets and Sports Betting
The 2014 World Cup, held in Brazil, was a watershed moment for sports betting
in China in that betters were able to legally wager money on soccer games through
mobile apps. Although gambling is illegal in China, there is one exception to that law: the
state-sponsored lottery system, which is comprised of the China Welfare Lottery and the
China Sports Lottery. This system allows individuals to purchase not only traditional
lottery tickets, but also to bet on both professional soccer and basketball matches.
(Placing bets on China’s domestic sports leagues, however, is seemingly restricted –
presumably to avoid corruption within those leagues.) The way Tencent and Alibaba
Group profit from lottery tickets and sports betting is by brokering agreements with
provincial lottery venders who seek to exploit the mobile and social platforms WeChat
and Alipay Wallet provide.
Helping facilitate the purchase of lottery tickets and wagers on sporting events is
definitely an intriguing new source of revenue for WeChat. And although Tencent is in
effect playing the role of a bookkeeper, the business model carries surprisingly little risk
mainly because the odds are greatly in Tencent’s favor.
For example, when betting on professional basketball games, such as NBA
(National Basketball Association) games, a point spread is typically utilized so that each
10
According to the Financial Times: “Economists say small and medium-sized businesses provide about
60% of China’s gross domestic product and about 75% of new jobs.”

19. 12
team has an equal chance of winning. This means, a team might lose the actual game, but
because of the point spread, you can still win the bet. Las Vegas bookkeepers and other
legal sports gambling intermediaries typically charge a fixed fee for these sorts of bets.
Typically the payout for winning such a bet is the amount wagered multiplied by 1.909 –
so if an individual wagered $110 and won, the payout would be $210. Betting on NBA
games through WeChat, however, entails more risk for the better. The payout for winning
typically is the amount wagered multiplied by 1.75; however, sometimes the payout
fluctuates in order to keep the aggregate money wagered balanced between both teams.
The best example to illustrate how Tencent fluctuates such payouts in order to
hedge the risk of an unequal balance of aggregate bets is through the AFC Asian Cup,
which was held in January of this year. Notably, the Chinese Men’s National Soccer team
took part, winning in its group stage and advancing to the quarter-finals of the
tournament against host Australia. Naturally, most individuals who place sports bets
through WeChat would be inclined to bet for one’s own team. Hence, we can assume that
the aggregate money wagered in those games was in favor of China winning. In China’s
game against Australia, WeChat opened bets on January 21 with a payout of 6.15 in favor
of China winning; 1.44 in favor of Australia winning; and 3.75 in favor of a draw.11
A
day later those figures changed dramatically, no doubt in response to more betters
wagering money on China than Australia; the payout shifted to 4.5 in favor of China;
1.56 in favor of Australia; and 3.85 in favor of a draw. (Screenshots illustrating this
fluctuation are shown in Figure Compilation 7, in Appendix B)
It seems that through the selling of lottery tickets and sports gambling, Tencent
has found an infallible way to generate profit. WeChat has enabled sports betting to reach
the fingertips of its 377.92 million monthly active users in China. The risk, however, lies
in the social harm this might bring. Gambling can be a form of addiction, and when the
source of one’s addiction lies within the convenience of a smartphone, problems will
arise.
Official Accounts and Sponsored Moments
Managing money market funds and selling lottery tickets are both promising
sources of revenue, however these are services that aren’t solely exclusive to WeChat. As
discussed earlier, Alipay Wallet and WeChat’s payment system are almost identical in
terms of features – the important exception is that Alipay Wallet cannot replicate the
social features commanded by WeChat. Tencent’s ability to rely on its vast social
networks gives WeChat two unique features: the ability for its users to subscribe to
Official Accounts and the inclusion of paid advertising in WeChat’s Moments.
Official Accounts, set up by approved businesses and organizations, provides
distinct and direct channels to communicate with interested individuals/customers. In
11
The payout figures are based on the conclusion of regulation time; it doesn’t take “extra time” into
account because theoretically a draw in the quarter-finals couldn’t happen.

20. 13
fact, after subscribing to such an account, the business or organization is filed as a contact
– much like a family member or friend is. For big-name brands and smaller businesses
alike, Official Accounts offers an unparalleled form of interactive marketing. Many
businesses leverage the medium to advertise special promotions, collect customer
feedback, communicate important information, and manage loyalty programs.
Importantly, Official Accounts can also be utilized as virtual stores, whereby customers
can finalize their purchases through WeChat’s payment system. The significant benefit
Official Accounts provides Tencent has less to do with the fees it can charge businesses,
and more to do with the fact it’s vying to take away market share from Taobao and
Tmall’s mobile platforms.
On January 26, 2015, Tencent finally broke the mold on its Moments feature in
WeChat, allowing for paid advertisements by a select group of companies. The
advertisements, by BMW, Coca-Cola, and Vivo, targeted only a specific number of
WeChat accounts. Nevertheless, it still managed to capture a lot of attention even from
WeChat users who didn’t receive any of the ads. Targeted ads, like those on Facebook,
can be an incredibly lucrative source of revenue for WeChat. Purportedly, BMW paid 5
million Renminbi for its right to be amongst the first advertisers on WeChat.12
Perhaps
the only downside to such targeted ads is potential backlash from the way Tencent
collects user information. In fact, many WeChat users felt slighted after receiving ads
from Coca-Cola and not BMW – presumably after they realized that they were being
classified into a lower socioeconomic group.
CHAPTER 5:
CONCLUSION
Tencent’s Underrated Market Value
The findings presented in this dissertation clearly corroborate the fact that
Tencent is not only poised to further bolster an already robust strategic position, but is
also in the midst of altering countless business models. As mentioned earlier, WeChat is
so much more than just a mobile chat app; the incorporation of a wallet feature has
morphed the app into a multifaceted platform - whether it be through purchasing a movie
ticket or managing investments in Licaitong.
It may still be too early to ascertain the influence WeChat’s payment system has
on Tencent’s profit margins or P/E ratio, but it shouldn’t be by any means insignificant.
In fact, Tencent is very much still an undervalued company, especially when compared to
the market value commanded by Alibaba Group. More than a month after Alibaba’s
record breaking September 19 initial public offering, its market capitalization soared
above 247 billion US Dollars, making it easily one of the world’s most valuable
12
As reported by financial news website Yicai.com.

21. 14
companies.13
On the other hand, according to Tencent’s 2014 Third Quarter Results
released November 12, 2014, Tencent’s market capitalization was slightly less than 135
billion US dollars – a far more modest valuation when compared to that of Alibaba
Group’s.
Although Tencent cannot compete with Alibaba when it comes to the scale and
scope of their ecommerce activities, WeChat does give Tencent an immeasurable
advantage in a spectrum of other internet-related activities. And in today’s fast-paced
world dictated by the smartphone, having an advantage in “just” ecommerce isn’t going
to be good enough. Consumers desire a platform that can do it all; a platform that can
integrate the most-sought after features into one mobile application – and that platform is
WeChat. Hence, as of March 17, 2015 (the day before Tencent releases its 2014 Fourth
Quarter Results), this dissertation surmises that the intrinsic value of Tencent is far
greater than what its current market value is.
To conclude, Tencent may be doing more than just altering business models – it
perhaps is helping reshape the way Chinese companies are perceived around the world.
After all, China has long been stigmatized as a place where creativity and innovation
don’t normally thrive. Nevertheless, that may soon change. WeChat has already
accomplished so much in its mere four years of existence, so imagine what the future
holds for this pioneering app and the titanic company behind it.
13
This market valuation is based on Alibaba Group Holdings Ltd.’s October 28, 2014 share price, which
closed at $100.5.

22. 15
BIBLIOGRAPHY
Baxi, Abhishek. "WeChat Makes Headway in India." ZDNet. July 30, 2013.
http://www.zdnet.com/article/wechat-makes-headway-in-india/.
Bischoff, Paul. "Xiaomi Sells 150,000 Smartphones in Less than 10 Minutes on
WeChat." Tech in Asia. November 28, 2013. https://www.techinasia.com/xiaomi-
sells-150000-smartphones-10-minutes-wechat/.
Brustein, Joshua. "Mark Zuckerberg Accounts for Facebook's Purchases With a Lot of
'Goodwill'" Bloomberg.com. October 29, 2014.
http://www.bloomberg.com/bw/articles/2014-10-29/mark-zuckerberg-accounts-
for-facebooks-purchases-with-a-lot-of-goodwill.
Clover, Charles. "China’s Internet Giants End Expensive Taxi App Wars." Financial
Times. August 17, 2014. http://www.ft.com/intl/cms/s/0/6bae3d98-2497-11e4-
9224-00144feabdc0.html#axzz3XkCcFsEY.
Clover, Charles. "Backlash in China over WeChat’s Targeted Adverts." CNBC. January
28, 2015. http://www.cnbc.com/id/102377977.
Horwitz, Josh. "Chinese WeChat Users Sent out 20 Million Cash-filled Red Envelopes to
Friends and Family within Two Days." Tech in Asia. February 5, 2014.
https://www.techinasia.com/wechats-money-gifting-scheme-lures-5-million-
chinese-users-alibabas-jack-ma-calls-pearl-harbor-attack-company/.
Horwitz, Josh. "Line Finally Reveals Its Monthly Active User Count." Tech in Asia.
October 9, 2014. https://www.techinasia.com/line-japanese-messaging-app-has-
170-million-monthly-active-users/.
Jing, Meng. "Big Cities Rank Highest in Wealth Generation." China Daily. January 19,
2015. http://usa.chinadaily.com.cn/epaper/2015-01/19/content_19348057.htm.
Lee, Terence. "Race to the Top: The State of Chat Apps in 5 Charts." Tech in Asia.
December 11, 2014. https://www.techinasia.com/state-chat-apps-7-charts/.
Millward, Steven. "It’s Time for Messaging Apps to Quit the Bullshit Numbers and Tell
Us How Many Users Are Active." Tech in Asia. January 23, 2014.
https://www.techinasia.com/messaging-apps-should-reveal-monthly-active-users/.
Millward, Steven. "WeChat Users in China Get Their Own Vending Machines." Tech in
Asia. September 23, 2013. https://www.techinasia.com/wechat-users-china-
vending-machines/.

23. 16
Platt, Eric. "Alibaba’s Market Value Surpasses Wal-Mart." CNBC. October 28, 2014.
http://www.cnbc.com/id/102130123.
Tencent Holdings Limited. "Tencent Announces 2014 Third Quarter Results."
November 12, 2014. http://www.tencent.com/en-
us/content/at/2014/attachments/20141112.pdf.
"Top 100 Mobile Apps in China." China Internet Watch. October 24, 2014.
http://www.chinainternetwatch.com/10154/top-mobile-apps-september-2014/.
Velayanikal, Malavika. "Hike and WeChat Fill TVs with Commercials, but WhatsApp
Stays on Top with 70 Million Active Users in India." Tech in Asia. November 3,
2014. https://www.techinasia.com/whatsapp-stays-on-top-70-million-active-users-
india/.
Wildau, Gabriel. "Tencent Launches China’s First Online-only Bank." Financial Times.
January 5, 2015. http://www.ft.com/intl/cms/s/0/ccc5a6dc-9488-11e4-82c7-
00144feabdc0.html.
"Worldwide Smartphone Market Grows 28.6% Year Over Year in the First Quarter of
2014, According to IDC." International Data Corporation. April 30, 2014.
http://www.idc.com/getdoc.jsp?containerId=prUS24823414.
Ye, Zhang. "Tencent to Buy Stake in Lottery Tech Firm to Capitalize on Online Boom:
Report." Global Times. June 6, 2014.
http://www.globaltimes.cn/content/863906.shtml.
"Yu’E Bao Exceeded 578.9 Bln Yuan in 2014." China Internet Watch. January 7, 2015.
http://www.chinainternetwatch.com/11837/yue-baos-2014/.
Zhang, Moran. "Alibaba's Online Money Market Fund Yu'E Bao: 8 Things You Need To
Know." International Business Times. March 11, 2014.
http://www.ibtimes.com/alibabas-online-money-market-fund-yue-bao-8-things-
you-need-know-1560601.

24. 17
APPENDICES
NOTE: All the screenshots and photographs featured in the following appendices are
images taken by this dissertation’s author using a Samsung Galaxy S5 smartphone.
Appendix A: Chapter 3 Supplementary Images
Figure Compilation 1: Photographs of the Ubox Vending Machines

25. 18
Figure Compilation 2: Screenshots showing the red envelope interface displayed when
gifting money and receiving money.

26. 19
Appendix B: Chapter 4 Supplementary Images
Figures 3 & 4: A side-by-side screenshot comparison (Wechat’s on the left; and Alipay
on the right) showing the root menus of both Tencent and Alibaba’s mobile payment
systems. Notice that both apps are formatted somewhat similar, also both have icon tiles
that display similar features.

27. 20
Figures 5 & 6: The screenshot on the left shows Licaitong’s home screen; the screenshot
on the right gives an overview of the various investment products and their corresponding
interest rates.

28. 21
Figure Compilation 7: Both screenshots show the payout figures for an AFC Asian Cup
quarter-final match between Australia and China. The screenshot on the left was taken on
January 21, 2015; the screenshot on the right was taken on January 22, 2015.