Tencent is actively marketing WeChat outside China in markets like India.

NOV. 19, 2013 • Last August Tencent Holdings Limited added a game center to its WeChat Messenger service. The mobile app was launched in 2011 and is available on all major platforms and features mobile text and voice messaging. According to Tencent half of all Chinese smartphone owners use WeChat. Somewhat like the arrival of social games on Facebook, WeChat is growing in popularity within China as a social network for mobile gameplay. Games on the service require a WeChat login to play. Despite the recent arrival of WeChat games, Android app store Wandoujia reported that two of its top three game downloads – Rhythm Master and WeRunner – were WeChat titles. Tencent has invested $2 billion on game and chat apps awaiting the rollout of 4G networks in China hoping to bolster profit margins as revenue from computer-based content starts to level out. It is expected that the faster 4G speeds will encourage more smartphone owners to play games on the devices. For the quarter ending September 30, monthly active users on WeChat grew by 124.3% to 271.9 million compared to the same period in 2012. Tencent’s QQ game platform’s average concurrent users dipped 7% year-on-year to 3.9 million as users started to migrate from the PC client to web and mobile. For now computer titles generate the majority of the company’s revenue. Online game revenues increased 35.4% year-over-year to 8.4 billion yuan ($1.38 billion) thanks to higher revenues from major domestic PC titles, plus contribution from new PC titles. Social networks revenues increased by 3.7% to 3.2 billion yuan ($527 million) driven by growth of item-based sales within applications.

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Impact: Chat apps have been taking off in Asia. Much like KakaoTalk in South Korea and Line in Japan, WeChat is coming on strong in China. But Tencent is not stopping with its home market and has already localized WeChat into English, Hindi, Indonesian, Italian, Japanese, Korean, Malay, Polish, Portuguese, Russian, Spanish, Thai, Turkish, and Vietnamese. So far the app has more than 80 million international users. It is no surprise that accessible smartphone games are all the rage as more consumers in global markets get access to the devices. Although social features in mobile titles are not in as much demand with many North American users, in Asia, playing games with others inside a messaging app while spontaneously sharing scores is very popular. It is obvious that companies such as Tencent see the limits to growth in the PC side of the games business. Computer clients are not going to go away in the face of increased smartphone popularity, and will remain huge generators of income for years to come. Yet keeping revenue growth margins where investors like them demands the strong investment in mobile games and apps in evidence at Tencent. It will be intriguing to watch as these Asian mobile chat/social networks fight for market share globally. No one really knows how many major players can be supported, or which services will appeal more to different world markets. There are also questions regarding how long before consumers will tire of the platforms. The competition will be fierce, which will drive down pricing and mean a lot of developers and others will find it difficult make much money for their efforts.