NEW YORK (MarketWatch) — Once the darling of tech investors, Weibo failed to excite Asian investors during its pre-IPO investor education in Hong Kong recently.
Investors appear to be highly concerned about competition between the social-networking service and Tencent Holdings’ HK:0700 +0.19% WeChat — a fear that is far overblown.
Sina Corp. SINA -0.04% is expected to spin off Weibo in an IPO on April 17, with Goldman Sachs (Asia) and Credit Suisse serving as the lead underwriters. Weibo’s 20 million shares are likely to be priced at $17-$19 each, based on a $3.2-$3.6 billion enterprise valuation.
Investors appear to be overly concerned about competition between Weibo and Tencent Holdings’HK:0700 +0.19% WeChat — a fear that is far overblown.
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Weibo and WeChat have been mistakenly thought of as competitors in the Chinese social networking space. In reality, they differ drastically in terms of their core user base, user behavior, and functionality.
Sina Weibo is essentially China’s Twitter TWTR +1.85% , only with richer multimedia functionalities. Effectively, Weibo can be thought of Twitter with elements of Yahoo’s YHOO +1.98% Tumblr and Facebook’s FB +0.36% Instagram. The other major difference with Twitter is that Weibo’s 140-Chinese-character limit allows for a lot more information to be transmitted — typically the equivalent of 70-80 words. With Sina Weibo’s expanded blog feature, one Weibo post can contain far more information than a tweet.
WeChat is sort of China’s Facebook, but differs in several important respects: It offers heightened privacy, and is used more for communicating among an exclusive friend circle than for broadcasting information. By erecting larger privacy barriers, WeChat has created a social networking space that captures an element of the Chinese psyche and society: the taboo against sharing divergent opinions in public.
The competitive and complimentary relationship between Weibo and WeChat is somewhat similar to that of Twitter and Facebook. Are Twitter and Facebook in competition for advertiser budgets? Yes. Are they competing in terms of functionality? Not really. Moreover, the adoption of one has furthered the other. Just think of the vast numbers of people who purchased smartphones to stay in touch with friends and family via Facebook, only to adopt Twitter as well.
In contrast to the mainstream fear that WeChat’s extraordinary rise is eroding Weibo’s user base, Weibo remains a unique and indispensable social media platform. Indeed, Weibo’s social influence and monetization potential far exceeds that of WeChat, and WeChat’s trending popularity has helped speed broadband mobile Internet adoption in China, which in turn helps Weibo’s social media platform.
Part of Weibo’s staying power is due to its role as a source of on-the-ground information in China’s rarified media climate. Just like Twitter, Weibo allows for immediate distribution of information from grassroots sources, including user-uploaded photos and videos. It mostly serves as a platform for snippets of interesting news and conversation flows on socially popular topics.
WeChat, on the other hand, is a mobile messaging app that focuses on communication among close friends. It contains a “Moments” feature that allows its users to broadcast updates to those in their friend circle and to comment on their friend’s updates, similar to Facebook’s mobile version. Unlike Facebook, however, WeChat provides a much more intimate and private social-networking experience. It is essentially a tool for one-on-one interaction.
WeChat has become especially popular among China’s young people because of its ease of communication. Due to the platform’s private nature and a walkie-talkie voice-messaging feature that eliminates the need for typing on tiny smartphone keyboards, many young users have also started to introduce WeChat to their parents as a more efficient way to stay in touch.
In the process, young WeChat users have helped bring their parents over the substantial barrier of buying and learning to use a smartphone, thus expanding the demographics of mobile Internet users. Once they’re used to smartphones, older users gravitate to Weibo as an efficient and timely way to learn about current affairs. Thus the rise of WeChat has expanded Weibo’s potential user group.
How will these services compare when it comes to making money? They are not exactly cash cows: WeChat is undoubtedly losing money, while Sina reported that Weibo only turned profitable in the fourth quarter of last year.
Even so, Weibo has far better potential in terms of generating advertising revenue.
WeChat users rely on the application for personal communication. They expect a high level of privacy, and tend to see advertisements and promoted content from corporate accounts as comprising their user experience.
Over the past year, WeChat experimented with placing promoted messages from official, media, and branded accounts (for example, newspapers and clothing companies) at the top of personal chat windows. Users found this frustrating because they needed to scroll down to retrieve their personal chat windows.
As a result, the updated version of WeChat groups these updates from official accounts into one chat window called “Subscriptions.” The new feature directly reduced the visibility and the open rate for promoted content. As a result, many official accounts are returning to Weibo to promote their content. Essentially, WeChat’s intimate format is barring it from monetizing its service through advertising.
Weibo has no such problem. The far more asymmetric user relationship on Weibo, where one person may follow hundreds or even thousands of people, allows corporate accounts to distribute ads and promote products without causing Weibo users too much frustration.
Like Twitter and Facebook, Weibo and WeChat are clearly complementary in terms of their functionality. Unlike Western social media services, however, Weibo and WeChat may not fight tooth and nail for advertisers.
Junheng Li is Head of Research at JL Warren Capital, a China-focused equity research firm based in New York. She is the author of Tiger Woman on Wall Street(McGraw-Hill, Nov, 2013). Priscilla Zhu and Ana Swanson contributed research for this article.
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