Tencent's (OTCPK:TCEHY) hugely popular WeChat and QQ instant messaging platforms are once again hogging the headlines, reflecting the increasingly important role the 2 services are playing for the future development of the Internet giant. This time WeChat is in the news after coming under new government restrictions aimed at censoring some of its content. Meantime, QQ has formally launched an official shopping channel in partnership with e-commerce giant JD.com (NASDAQ:JD), laying down a big challenge for sector leader Alibaba.
The non-stop chatter about WeChat over the last year reminds me of a similar phenomenon that happened about 3 years ago. Back then it was the hugely popular Twitter-like Weibo (NASDAQ:WB) that was making similar headlines. Barely a day would go by at that time without news about Weibo's explosive growth and popularity, as it added tens of millions of new users each month and became an alternate source for news for many Chinese consumers.
But then Weibo clashed with the censors in Beijing, who worried about the platform's potential to spread rumors and news on politically sensitive topics. Now that same thing is happening to WeChat. According to the latest reports, one of China's Internet regulators has published new rules aimed at curbing the spreading of rumors from services like WeChat and limiting content on politically sensitive subjects. (Chinese article) The rules apply to the entire online industry, but they are clearly aimed at WeChat, which boasts hundreds of millions of users and is the dominant social networking service on the mobile Internet.
One of the key new rules requires holders of WeChat public accounts to register with their real names, a requirement that looks almost identical to one imposed on Weibo when it clashed with the censors 3 years ago. WeChat public accounts are quite similar to Weibo accounts, disseminating information that can be followed by anyone on the platform. Thus such public accounts are often used by publishers big and small to promote their materials. Other new requirements include privacy protections and measures to maintain the quality of material posted on the platform.
This move really looks almost identical to what happened to Weibo 3 years ago, so it's probably useful to review what happened in that instance. In the end, Weibo didn't strongly enforce the real name registration requirement. Instead it took other steps to clean up its service of unreliable and sensitive content, and that was largely the end of the story. In this latest case, public accounts are a much smaller portion of the WeChat universe, and I suspect that Tencent may move a bit more aggressively to rid its system of accounts posting dubious and sensitive material. But at the end of the day, it probably won't have much affect on WeChat.
Next let's look quickly at JD.com, which has announced the formal launch of its shopping channel on Tencent's older but still highly popular QQ platform. The new service launch on a "top level" page of the QQ service comes after JD, China's second largest e-commerce company, launched a similar platform on WeChat back in June. Both moves come after Tencent and JD formed a strategic partnership earlier this year, which saw the former buy a stake in the latter and the pair combine their e-commerce operations into a single company managed by JD.
The effects of the WeChat and now QQ tie-ups will pose a big challenge for China's other e-commerce companies, since a majority of Chinese now access the Internet over their smartphones where the 2 Tencent services have a dominant presence. Alibaba is watching the development closely, and almost certainly is eying its own potential partners in the mobile social networking (SNS) space. Accordingly, I wouldn't be surprised to see Alibaba form its own SNS partnership in the next 6-12 months to counter WeChat's challenge, though it may have trouble finding a potent partner for the China market.
Bottom line: New government restrictions on WeChat are unlikely to have a major impact on the service, while a new JD shopping channel on QQ will pose a growing challenge to Alibaba.
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