Nicholas van Raalte
The Resignation of A Leader
Facebook has become a behemoth of the social media industry, and remains still at the top of the social media rankings despite an astounding launch for Twitter this week. There is in any case, a very threatening competitor that is emerging from the Western shadows, and has potential to cause real problems for Facebook. Twitter, on the other hand, I do not think will pose much of a threat. They are just the latest social-crazed hype. WeChat however, who is owned by the Chinese conglomerate Tencent, is rapidly approaching a userbase that top that of Facebook. Any its not too far away when this will happen!
Facebook has the largest number of active users of any online service in the world. Currently they have a reported 1.19 billion active users subscribed to their services. This is a league ahead of many of the other large social networks like Twitter, Skype, Google+, Linkedin and Whatsapp (listed smallest to largest). These companies have a pitiful range of 200 to 350 million users. In any case they fall significantly behind that of Facebook. There is however, one party that is not accounted for in this list, and it is not pitiful in any way. This unnamed party is, Tencent, with 1.04 billion users.
Tencent has experienced explosive growth over the last few years, and reflected their success through their stock prices. The company has made significant gains this year alone, with their stock rising 49% from November 2012. Currently the shares are trading at $401. It's amazing that a company that is primarily focused in software can become such a dominating force so quickly. This in part can be attributed to their global success with their investment of $400 million to Riot Games, the producer of the free massively multiplayer online game, League of Legends (LoL). Other driving factors of Tencent's growth include their production of QQ, an extremely successful instant messaging service.
However, we should focus on WeChat and Tencent's combined user population for the time being. WeChat focuses on making online and mobile chat as fun and easy as possible, and have even gone so far to include voice calling and video features. Yet, anyone I ask here in the states has no idea what WeChat is. This is because WeChat's major user population resides in the Western countries. China holds the most users of the app. In fact, only about 100 million users of the app are located outside of China!
This is where the potential for Tencent lies: in that they haven't needed to extend a global reach to acquire similar users to that of Facebook. What poses a real threat for Facebook however, is the expansion of Tencent and WeChat's userbase to international users. In a sense, Tencent has a strategic foothold in the social media industry; they have conquered the country with largest population in the world, and now need to move abroad. If their programs begin to become a major player in Europe, and the United States, Facebook may be in some real trouble. Another advantage that Tencent holds over Facebook's head is their diversification. They have expanded into many different sectors, ranging from games, to networking to entertainment. By having various networks in which their users are distributed, they can internally promote their own products at little to no cost. Facebook should take this example and follow their lead! They can only benefit by expanding their influence to other types of media.
With a new giant quickly stepping into the spotlight, we can expect a fierce competition between the two companies Facebook & Tencent. Although Facebook has been on a steady upward trend, it seems that it may have a very rough time keeping its pace in the years to come. Faced with much difficulty to expand their content to new areas, it is inevitable that Facebook will experience some type of decline. However, Tencent is in a stellar position at the moment, currently with positions in all areas of software and media. As their price reflects ($401 per share), they are doing something right, whereas Facebook ($47 per share) could stand to learn a thing or two. We may begin to see Facebook experience a steady decline, and in the near future, even stepping down from its throne.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.