WeChat Channels - The Hope of Tencent
How Tencent stopped focussing on stand-alone short video apps and to build a successful alternative as part of the WeChat's ecosystem.
Before we get started, there is an offline event for Tech Buzz China subscribers! You can also nominate your friends.
Investor Dinner. Wednesday April 5, 2023 in Palo Alto with Rui and Six Degrees founder Jason and VP, North America Michael.
Preference is given to paid subscribers, e-mail rui@techbuzzchina.com for more info.
Things that caught our attention
Chapter 1: A short history of WeChat Channels
Chapter 2: Behind the scenes: details on WeChat Channels
Chapter 3: ‘The hope of the whole company’
Please note that chapters 2 and 3 are only available to paying subscribers.
Things that caught our attention
Two weeks ago we published an extensive article about Douyin’s local services initiatives. Last week 36Kr reported (link in Chinese) how Meituan’s Q4 report sheds some light on the impact. Merchants have been shifting advertising budgets from Meituan to Douyin. Meituan’s income from commissions increased by 13.7% YoY, but income from advertising dropped 4.8% YoY due to competition from Douyin. As a result, Meituan has been giving discounts on advertising prices. Meituan’s marketing expenses also increased 22.7% YoY, exceeding the growth rate of revenue (21.3% YoY).
Meituan is also introducing a new marketing tool, Shenqiangshou, that lets merchants launch limited-time deals. It is also testing live-streamed product introductions in Shenzhen, to be rolled out country-wide later. This is clearly a defense against Douyin's initiatives in local services in the past years.
Alibaba this week announced that it would split up into six different companies, some of which might see IPOs in the future. Alibaba will have a 1+6+N structure: 1 holding (Alibaba Group), 6 business units but also N separate businesses, including Ali Health, Hema, Sun Art, Intime, etc. We've made a little cheat sheet of the new holding structure for you. Download it here as a PDF.
Daniel Zhang will continue to head up both the cloud intelligence division and continue to run the parent company. If you are wondering why Zhang has recently been leading the cloud business, read our recent report on Alibaba Cloud.
Rui was recently interviewed by TBVS News about US-China Tech Decoupling. Is it really happening? Watch the video here.
Introduction
In this bi-weekly newsletter, we take a deep dive into Channels, the short video section of WeChat. Chapter 1 is a short background history of WeChat Channels and is available to all subscribers. Chapter 2 contains exclusive information we gathered from expert interviews in the Six Degrees Intelligence database. Chapter 3 summarizes relevant recent developments, mostly taken from Chinese language tech media. Chapters 2 and 3 are only available to paying subscribers.
Key Takeaways
After failing to get traction in daily active users on stand-alone apps like WeiShi, Tencent has been very successful in capturing part of the short video market by launching WeChat Channels.
Integration of Channels in the WeChat ecosystem has both been a key factor in its growth but is also limiting its further potential as it monetizes through e-commerce, advertising and creator tipping.
Channels has set itself apart from Kuaishou and Douyin by offering more knowledge and current affairs videos and targeting older 35+ users. Its live events also seem to focus on nostalgia among these users.
The average e-commerce revenue per user on WeChat Channels is significantly higher than on Douyin and Kuaishou.
Recognizing the importance of short video in the current day internet landscape, Tencent CEO Pony Ma has named Channels the ‘hope of the whole company’.
Chapter 1: A short history of WeChat Channels
To understand Tencent’s initiatives in short videos, we have to go 10 years back in time. In these days of fierce competition between Douyin, Kuaishou, and WeChat Channels it’s easy to forget that Tencent was actually one of the very first companies that offered a short video app.
Back in 2013, when WeChat was seeing explosive user growth from less than 200 million to 355 million, Douyin didn’t exist yet and Kuaishou had just transformed from a GIF-making app to short video, Tencent launched a stand-alone video app called Weishi (微视, ‘WeVideo’). At the time WeiShi was more like Vine, enabling users to create 15-second videos with added effects. Other early players in the market were apps like Miaopai and Meipai.
WeiShi’s user numbers peaked in early 2014, but its popularity quickly waned. In 2015 it was merged into the Tencent Video division. Tencent soon after abandoned the app, overlooking the potential of short videos, just a year before Bytedance launched Douyin.
Seeing the rise of Douyin, Tencent realized that growth in text and photos has stalled, and the future lies in micro-sized, digestible videos. [1] In 2017 it invested $350M in Kuaishou, and it revived WeiShi in April 2018. At the time, Tencent said it would reposition WeiShi to focus on film and TV content, helping distribute Tencent’s licensed content. [2]
True to its ‘horse racing’ approach whereby multiple teams work on the same objective and compete internally, Tencent released (according to some counts) up to 14 other short video apps in 2018, among which Yoo (later rebranded to Hotpot Video), Sukan, Yuguang, Yintu, Xifan, DOV, and Hapi, none of which made much of a splash. [3]
WeChat users would see promotional links to WeiShi when they posted videos on their Moments timeline. The look of this iteration of WeiShi was almost identical to Douyin, and the app had the same kinds of user ‘challenges.’ [4] Tencent also announced it would spend 3Bn yuan in subsidies for KOLs that made content on Weishi, but when rumors went around that Tencent was withholding these incentives, lots of KOLs turned their backs on the app. [5]
Around the same time, WeChat blocked sharing external links to videos from its competitors, resulting in a legal clash between Tencent and Bytedance. Initially, WeChat also blocked WeiShi content.
In 2018, WeiShi had 384 monthly active users [1], while Douyin had 500 million. But WeiShi’s daily active users were abysmal (having barely hit 5 million in June 2018, according to Questmobile [6]).
In June 2019, WeChat allowed users to post 30-second clips on their Moments timeline via Weishi, twice as long as regular videos uploaded to Moments from a phone’s gallery. This was a rare integration of another Tencent app into WeChat [7]. But while WeiShi users could log in with their WeChat and QQ accounts and the app was promoted in its bigger siblings, this was hardly the seamless integration that users had come to expect from WeChat and WeiShi remained a stand-alone app. It probably was precisely this weakness that led to the development of WeChat Channels.
Enter WeChat Channels
While WeChat continued to grow its user base, although at a much slower pace, it had been losing time spent on its app to Bytedance and Kuaishou. Bytedance had first taken time from WeChat Official Accounts with its Toutiao news aggregation app, followed by the onslaught of Douyin.
Source: Questmobile
In the race to develop a short video app to defend itself against these competitors, Tencent started testing a new short-video functionality called ‘Channels’ (视频号, Shipinhao) in its WeChat app in January 2020. WeChat’s creator Allen Zhang had also noticed a significant increase in the number of videos that users were sending in chats and posting on their Moments timeline. More users seemed to be interested in sharing content by video than laboriously writing blog posts for an Official Account.
On Channels, users could share one-minute videos to people that were not among their personal contacts, which was rather unique for the normally closed-network approach of WeChat. On the Moments timeline, for instance, it is only possible to share posts with actual contacts.
The first users that were allowed to test Channels had to provide ‘proof of influence’ (e.g. follower numbers on other social media). This showed that WeChat was trying to move popular KOLs (Key Opinion Leaders; influencers) to its new video platform.
The first incarnation of Channels left much to be desired. The demo below shows what happened after clicking on a video shared in the Moments timeline. WeChat Channels would open with the concerned video playing. Channels could also be accessed through WeChat’s Discover menu.
The following functionalities are demonstrated in the video.
Vertical scroll
Pause/view bullet comments
See other videos from the same location
Forward video to friends or share on Moments
Favourite a video
Liking a video
Viewing comments (like comments and leave your own comments on other people’s comments)
Seeing original music used
Seeing other videos by same user
The difference with Douyin was significant. Where Douyin used full-screen videos in a portrait layout, Channels used a more square-shaped landscape layout. On Douyin, you could move to the next video by swiping up, Channels required you to scroll. This pointed to an emphasis on consuming content on Douyin while Channels seemed to stimulate interaction.
Douyin is well-known for its strong recommendation engine based on a user’s personal preferences and on machine learning, making the app extremely addictive. During its testing phase, Channels seemed to be driven more by what contacts in your network had viewed and the location you were in than of complex algorithms. As such, the experience felt more like Kuaishou than Douyin.
As far as design is concerned, Channels soon changed to a format that is much more like Douyin’s and switched the scrolling for the more common and popular swiping navigation.
Later, Channels added three tabs to its main screen: Follow (accounts you are following), Friends (what friends are watching) and ‘Hot’ (Trending, content served by algorithms). Allen Zhang expected the distribution of time spent on these sections to follow a ratio of 1 : 2 : 10. His idea was that friends would be more reluctant than the algorithm to like (and thereby recommend) banal content. In reality, they found that people would spend more time on content their friends liked.
Source: iiMedia, January 2021 [8]
By June 2020, half a year after its launch, Channels had opened up to most WeChat users, 200 million of which were now using the video functionality in the app. By the end of 2020, Channels had 280 million daily active users (DAU) that, according to one research firm, spent 9.5 hours per month watching videos there [9]. This shows that it’s easier to convert WeChat users to new functionality in the app than to convince them to download an extra app like WeiShi (which had less than 50 million daily active users by the end of 2020).
WeChat also improved the integration of Channels with Official Accounts, Search, and Mini-Programs and started testing with live-streaming and 30-minute videos in October 2020. By September 2021, the maximum video length was further increased to one hour.
In January 2021, Tech Buzz China first discussed WeChat Channels on its first livecast with Dan Grover. At that time, WeChat had made it possible to view livestreams of people near you.
At a conference in January 2021, Allen Zhang, the director of WeChat, shared that he had realized that the kind of content people would see on WeChat would affect the quality of what people would produce [10]. This seemed to indicate a desire to offer higher quality content than Douyin. Zhang said that video would be the driver of social media in the coming decade, and Tencent would use all its available means to steer traffic to Channels.
Pig feed
In April 2021, Tencent would merge Tencent Video (long-form) and Weishi (short video) into a new video division under the Platform and Content Group (PCG). WeiShi had less than 50 million daily active users and 100 million monthly active users at the time (Douyin had 600 million and Kuaishou 520 million) [11a/12].
In June 2021, at an industry forum, Sun Zhonghua, the VP heading the new business unit, would call short video clips “increasingly low-intellect and vulgar”, comparing them to “pig feed.” and called people who watched them “like idiots”. He named the ways such apps use algorithms to recommend similar clips to viewers a style of “brainwashing” that was coming under pressure from industry regulators and auditors. It was no surprise that around the same time, Tencent once again announced it would reposition Weishi to focus on film and TV content, pivoting away from user-generated videos. [11]
In 2021 DAU of Channels further increased to 500 million. Note, though, that as Rui mentioned in her October 2021 update on Channels (read it here) that clicking on a single Channels video link shared in chat or Moments would make you a DAU. In that update, Rui also concluded that there were strong differences between Douyin and Channels.
The conclusion was that Channels, Douyin and Kuaishou were mainly competing for user time, not so much on content, although Channels and Kuaishou were closer together because of the focus on private traffic.
In December 2021, WeChat started showing Channel videos by accounts you followed in the Subscription section for official accounts.
Live Concerts: bringing out the has-beens
To further improve its popularity, WeChat started broadcasting live concerts of pop stars on Channels. In December 2021, WeChat Channels broadcasted a 2-hour livestream with Irish ‘boyband’ Westlife (yes, those of early 00s fame), which drew 28 million viewers. That number was not all that impressive compared to similar livestreams of its competitors, but it was the first in a series of live-streamed concerts of artists like Mandopop star Jay Chou, Canto-pop legend Leslie Cheung, Taiwanese singer Lo Ta-yu and The Backstreet Boys, the latter sponsored by luxury US carmaker Lincoln.
The choice of performers that were popular in the 1990s and 2000s shows that WeChat is aiming for a relatively older audience for Channels. A strategic choice since, like everybody else, these people are using WeChat and were underserved by other short video apps that focussed more on younger audiences.
Channels also started experimenting with paid live streams in 2022, with the National Basketball Association being the first to test out the function. [21]
Although the viewer numbers are impressive, such events are held more frequently on Douyin and Kuaishou, who also won the broadcasting rights to the Tokyo Olympics, the Winter Olympics and the Qatar World Cup, bringing massive viewership. [13]
WeChat Channels had now been connected to many other parts of the WeChat ecosystem, including mini-programs, Official Accounts, user profiles, and WeCom (the enterprise version of WeChat). As such, Channels is everywhere in WeChat and hard to avoid.
Still, by early 2022 not enough creators were making content for Channels. They were merely recycling content made for other platforms, and there were no breakout livestreamers.
In its Q1 2022 earnings report, Tencent claimed that the volume of videos and viewing time had seen ‘significant growth’ thanks to more entertainment programming and improved algorithms. During the Q2 2022 earnings call, the company said it would focus on improving efficiency and launching new revenue initiatives, including in-feed advertisements on Channels. The app also launched its own 618 shopping festival on Channels, handing out incentives for livestreamers to sell on Channels.
In July 2022, WeChat started adding video ads on Channels, allowing users to shop directly from an advert and share it with friends on WeChat. It also introduced an e-commerce tool to create online stores on Channels [14]. WeChat’s video unit also set up a live commerce team in July. Citic Securities estimated the advertising revenue from Channels would be 37Bn yuan in 2023 (Douyin’s revenue from advertising was believed to be more than 75Bn yuan in 2022).
In 2022 the number of short video users in China exceeded 1 billion for the first time, up 8.3% compared to 2021. This means that almost every Chinese internet user is watching short videos [9]. With Tencent’s disappointing revenue results in 2022, Channels had become the key focus for future growth.
Chapter 2: Behind the scenes: details on WeChat Channels
Despite its strategic importance, WeChat Channels is not broken out as a separate business, and details on its operations and performance are incomplete and scattered. Below we lay out a comprehensive look at its operational performance and business strategy based on proprietary sources.