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China tech

Tencent's WeChat is door to Chinese giant's transformation

Social media giant says massive user base and data can spur new business

Tencent sees WeChat as a goldmine of data for potential industrial application.   © Reuters

KUNMING, China -- When Chinese social media giant Tencent Holdings announced last year that it was transforming itself into a "digital assistant for industries," analysts immediately had one question: How?

Ten months later and after significant investment, Tencent says it has found the answer in WeChat, its hugely popular instant messaging app.

"WeChat is a very important tool," said Dowson Tong, a senior executive vice president behind Tencent's transformation. "Reaching out to consumers is definitely among the needs of many industries, such as retail and fianance. At the end of the day, they are all serving consumers."

WeChat is used by 1.1 billion people -- mostly in China -- to do everything from messaging friends to paying bills and swapping secondhand goods.

To Tong and others at Tencent, this makes the app an invaluable source of data for everyone from hospitals to travel agencies. Tencent, like other Chinese tech companies, is keen to tap corporate demand as the country's economic slowdown weighs on consumer sentiment.

At Tencent's inaugural Global Digital Ecosystem Summit in Kunming, executives from across the Shenzhen-based company repeatedly credited WeChat with speeding up the development of their respective sectors. In health care, for instance, Tencent says that more than38,000 hospitals in China have embraced WeChat, using it to offer online registration, consultation and other services to patients. And at least 70 million passengers across the country have used WeChat Pay to pay bus and subway fares with just a swipe of the app.

While WeChat may not be a household name in the West, the Chinese equivalent of WhatsApp is an essential part of daily life for many in China. In Kunming, one of China's busiest tourist destinations, the app can even guide visitors to nearby public toilets, now that Tencent has inked a deal with local authorities to help improve the travel experience there.

"Thanks to our 1.1 billion WeChat users, Tencent has gained a deep understanding of Chinese consumers, which is very valuable for corporate clients," said Zhong Xiangping, a vice president.

Other Chinese internet companies scrambling to serve corporate clients include Alibaba Group Holding, China's No. 1 e-commerce company, which has offered artificial intelligence solutions to traditional industries such as agriculture and manufacturing. Search engine heavyweight Baidu, meanwhile, has expanded its horizons to include autonomous driving.

Tencent, for its part, also established a new group in September to focus on cloud computing and smart industries. "Tencent's mission is to become a digital assistant of all industries," President Martin Lau said in announcing the company's first restructuring in six years.

The company has "an edge" over Alibaba in terms of attracting corporate clients in sectors such as smart home appliances, according to Ethan Qi, a Beijing-based analyst with global consultancy Counterpoint Research.

With Chinese families switching to smart TVs and smart washing machines, Qi said WeChat could provide an all-in-one operating platform for controlling them, instead of having to download multiple, device-specific apps.

Alibaba has countered by launching a smart speaker called TmallGenie that controls other internet-connected devices, but the company still lags far behind its rival in terms of users. Alibaba says it has shipped around 10 million TmallGenie speakers, a far cry from the 1.1 billion monthly active users of WeChat.

The use of WeChat has paved a way for Tencent to tout other services. At least 160,000 shops, restaurants and other businesses using the app to interact with Chinese consumers have also purchased Tencent's cloud services, according to the company. Tencent also takes a cut whenever Chinese shoppers use WeChat to make a purchase.

Harry Yuen, an associate director at Hong Kong-based Oceanwide Securities, said Tencent's strategy of leveraging WeChat to serve corporate clients is a "natural and smart" move. But, he added, it is also "risky" to pin the company's transformation so heavily on a single app, as any change in regulations could threaten its success. In May, Nepal became the first country in the world to ban the use of WeChat Pay, alongside with Alibaba's Alipay, citing data security as its chief concern.

Analysts also worry that Tencent's efforts to serve industrial clients could spill red ink onto its balance sheet.

"The major pitfall or challenge for Tencent is that the current industrial internet concept is still young," said Billy Leung, director of equity research at Haitong International in Hong Kong. Because the market is in its infancy, some Tencent projects have generated sales as small as 200,000 yuan ($28,900), despite massive investment in infrastructure such as data centers, Leung said.

"Tencent's profitability could be negatively impacted," he said.

In its earnings conference last month, Tencent disclosed revenue from cloud computing, smart industries and financial technology for the first time, reporting a total of 21.8 billion yuan for the January-March quarter. Although that figure accounted for a quarter of its total revenue, the company acknowledged that many of its new initiatives remain loss-making.

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