WeChat's short video e-commerce drive suffers from a lack of customers
Tencent is pushing hard into the crowded social video market through its three-and-a-half-year-old Channels platform, a function embedded in WeChat. It has hopes of deriving associated revenue from livestreamed e-commerce. But how will this platform compare to frontrunners in the field such as Douyin and Kuaishou?
(By Caixin journalists Qian Tong and Mo Yelin)
How China's broader economy goes, so goes the nation's e-commerce spending. It may be little surprise then that after June's 618 shopping festival - an annual Black-Friday style event that stretches for weeks - e-commerce giants were tight-lipped about how their sales went.
China's sluggish consumer demand and sputtering post-pandemic economic recovery have come at an awkward time for Tencent Holdings Ltd., which is pushing hard into the crowded social video market through its three-and-a-half-year-old Channels platform.
Going head to head with ByteDance
The aim? Capitalise on associated revenue from livestreamed e-commerce, a kind of digital update of televised home shopping. And beat upstart ByteDance Ltd. at its own game.
Tencent is no stranger to e-commerce. It held significant stakes in firms like JD.com and Meituan before it pared those down in recent years as Chinese authorities targeted anti-competitive practices in the tech sector. And merchants have long been able to set up digital stores on Tencent's native WeChat app using sub-applications in the WeChat ecosystem known as "mini-programs".
But the new video-focused strategy has put Tencent head-to-head with ByteDance, which first popularised livestreaming e-commerce on short video platforms, namely Douyin, the walled-off Chinese mainland version of TikTok.
Ahead of the shopping festival, Tencent appealed to merchants to join Channels and sell products via livestreaming by offering more user traffic and lower service fees.
It achieved some success, at least based on feedback from some participating merchants. Stylist and fashion social media influencer Qiao Jiaozhu told reporters following the 618 shopping event that user traffic on her Channels account surged this year, and the conversion rate of her livestreamed sessions was two to three times that of last year. The increase in gross merchandise value (GMV) - the value of the goods sold on the platform - and followers would net her more brand deals, she said.
In an indication that Tencent's leadership sees Channels' success as an existential question for the company, the firm's chairman and CEO Pony Ma told a staff meeting at the end of 2022 that it was the entire firm's "hope".
In 2022, the company's revenue decreased by 1% to 554.6 billion RMB (US$77.5 billion), sharply down from the 16% growth rate for 2021, its latest annual financial report showed. Its bread-and-butter gaming business recorded revenues of 170.7 billion RMB for the year, down 2% from the previous year.
In an indication that Tencent's leadership sees Channels' success as an existential question for the company, the firm's chairman and CEO Pony Ma told a staff meeting at the end of 2022 that it was the entire firm's "hope". The next step is to build it into a complete e-commerce ecosystem, Ma said.
But industry executives and experts say Tencent will need to clear a series of hurdles before its e-commerce business can really take off. Of those challenges, the most urgent is a lack of content and content publishers that has led to low user "stickiness" on Channels, hindering Tencent's overall commercialisation effort on WeChat.
User advantage
Tencent's e-commerce ambitions hinge largely on Channels, which on paper boasts a monthly active user (MAU) count that exceeds each of the twin Chinese heavyweights, Douyin and Kuaishou. As of June 2022, Channels had 813 million MAUs, surpassing Douyin's 680 million and Kuaishou's 390 million, according to a report from QuestMobile.
Tencent owes the wide uptake to the fact that Channels is a function embedded in WeChat, instead of operating as a standalone app like Douyin and Kuaishou.
That means increasing the user base has been relatively easy, said Gong Haihan, CEO of Baizhun, a firm that makes tools for merchants to reach users on WeChat. Being part of a platform that boasts over 1 billion monthly active users, Channels will attract attention by simply having an icon alongside any unread notifications on the WeChat page, said Gong.
Getting users to idly tap on the Channels icon in WeChat is one thing. Getting them to do so regularly - and stick around long enough to make a purchase - is much harder.
The dearth of content and content publishers on the platform is one reason why Channels is behind its rivals on "user stickiness", a deeper measure of engagement favoured by advertisers.
The service is certainly gaining traction among sellers. "Driven by fear of missing out, merchants and brands in various sectors reached out to us starting from this year," said Gong. "How many sales they can make on the platform is not their main focus. They simply want to grab a spot so that they can be noticed by the WeChat team."
Tencent has been offering incentives. In January last year the firm rolled out a user traffic support policy, under which merchants can obtain free WeChat traffic on the condition that they can entice a certain number of users to their Channels account.
"Whereas on Douyin merchants will need to hand over 10% of their GMV to acquire traffic, obtaining [WeChat] traffic is almost free with Channels," said a content publisher familiar with the policy.
At an annual company conference in January, Tencent Vice-President and head of Channels Zhang Xiaochao said that in 2022 the GMV from livestreamed e-commerce on the platform rose by more than 800% year-on-year. Zhang did not provide a figure for GMV.
Lack of content
While it may have a large user base, a major challenge facing Tencent is the lack of people actually making content for them to watch, industry experts say.
The dearth of content and content publishers on the platform is one reason why Channels is behind its rivals on "user stickiness", a deeper measure of engagement favoured by advertisers. Tencent has performed weaker than Douyin and Kuaishou when it comes to retaining users and keeping them spending time on Channels. While each user on average spent about 41 hours on Douyin and 30 hours on Kuaishou in December 2022, they only spent about 18 hours on Channels in the same month, according to data from QuestMobile and Caixin's calculations based on figures from provider Shideng Data.
Tencent has been experimenting with ways to court content publishing since June 2021. One of its latest efforts, launched in April, is a dividend-sharing policy, under which certain Channels content creators receive a percentage of money generated from selling ads on their account. Other measures include helping content creators set up subscription services and allowing them to receive monetary tips from their followers.
Content creators active on Channels remained few and far between compared with Douyin and Kuaishou. A staffer of a multi-channel network company whose services are used by content creators to reach video platforms said that his clients have yet to start opening accounts on Channels, because the commercial value does not yet justify any investment.
While a number of merchants and brands saw encouraging e-commerce sales via Channels during the 618 shopping festival, some said they prefer Douyin and Kuaishou as Channels is still in its infancy.
It means that Tencent may not have enough material to improve its algorithms, which in turn could frustrate efforts to improve user stickiness. "It takes time for an algorithm to optimise, a process contingent on accumulating enough information about user behaviour. However, the lack of content with Channels has forced Tencent to focus on optimisation in specific scenarios, hindering the capability to improve the algorithm across the board," Baizhun's Gong said.
E-commerce challenges
The lack of user engagement means Channels is a secondary choice for many merchants focused on livestreaming. A staffer working at a Fortune 500 food brand told Caixin that Channels is not a sales channel for the firm, which is only using the platform for marketing.
While a number of merchants and brands saw encouraging e-commerce sales via Channels during the 618 shopping festival, some said they prefer Douyin and Kuaishou as Channels is still in its infancy.
"Many brands started using Channels only this year, and they have yet to stock a lot of products as they tend to prioritise rival platforms," said Zi Lu at Lingyi Shuke, another firm that companies pay to better reach users over WeChat.
Others complained that Channels' rules are confusing and difficult to follow. One person who works at a regional catering brand that operates 2,000 stores in China said that they were told they had to demonstrate experience in operating shops on other e-commerce platforms, and prove their sales volume was at a certain level, before being allowed to set up a shop on Channels. "But after we prepared all the evidence, WeChat changed its requirements," the person said, adding that Tencent had changed its policy several times within a month.
"Unless Channels makes some changes, its livestreaming shopping business will find it hard to compete with Douyin," the person said.
Qu Yunxu and Bao Yunhong also contributed reporting.
This article was first published by Caixin Global as "In Depth: WeChat's Short Video E-Commerce Drive Suffers From a Lack of Customers". Caixin Global is one of the most respected sources for macroeconomic, financial and business news and information about China.
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