WeChat Therefore We Bot?The Commercial History of WeChat

May 2016

By Joe Medved (@joevc @LererHippeau)

& Entry Level VC Candidate*

*Contact @joevc for introduction

Messaging Has Become the Dominant Social Medium

See full report here: http://www.businessinsider.com/the-messaging-app-report-2015-11

Enterprises Want to Join the Conversation

Are Bots the Answer?

Sometimes But Not Always

“ How are you today ”

“ Do you know tomorrow’s weather? ”

“ New York ”

“ Where are you based ”

Summary of the

weather

?

2010s

2000s

1990s

1980s

1970s

1960s

1950s

SmarterChild: Launched in 2001, this chatbot on AIM & MSN reached 30M users

Humanoid Robots: Robots capable of interacting with humans commercialized

Loebner Prize: Awarded to a bot that beats the Turing test. No winners since start in 1990.

Deep Blue: In 1997, IBM’s Deep Blue chess machine beats world chess champion Garry Kasparov.

Chinese Room: In 1980, John Searles’ paper Minds, Brains and Programs proposed the “Chinese room” experiment, arguing that just because a computer can have a conversation by recognizing symbols, it does not prove the machine can think and have consciousness as the Turing test proclaims.

Interactive Voice Response (IVR): Advances in speech recognition technology spawned the growth of IVR within the call center industry, enabling automated systems to more efficiently route callers with a simple, scripted voice interface.

ELIZA: In 1966, MIT Professor Joseph Weizenbaum published ELIZA, a program applying primitive natural language processing to users’ responses to scripts. ELIZA utilized pattern matching rules to determine its replies.

Turing Test: In 1950, Alan Turing developed a test of a machine's ability to exhibit intelligent behavior equivalent to, or indistinguishable from, that of a human. The test requires a machine to convince users of its human intelligence 70% of the time after five minutes of conversation.

Where Are We in the Bot Evolution?

WeChat is Recognized as the Mobile Messaging Pioneer

So what does WeChat’s history tell us about the potential for commercialization in messaging, and what role bots may play?

Connecting 700 millionPeople with chats, calls and more

The Commercial History of WeChat

HOUSEHOLD NAME IN CHINA

MOBILE PLATFORM ENTRY TO TENCENT

SOCIAL MEDIA EMPIRE

CENTRAL COMMUNICATIONS

AND SERVICES HUB

EXTRA KEY LAYER TO DIFFERENT

TYPES OF APPS

HIGH USER STICKINESS ON

HIGHLY INTEGRATED PLATFORM

161

355

500

697

0

200

400

600

800

FY2012 FY2013 FY2014 FY2015

WeChat MAU (mm)

WeChat – From a Messaging App to the Social Services Hub

Moments

• Share articles & pictures / write posts

• Follow Official Accounts (merchants, celebrities etc.)

WeChat

Started as a Messaging App

Multimedia content

• Send pictures, stickers, files

Message

• Send text, audio messages

• Create group chats

Long-distance calls

• Enables voice call, video call

1

GLOBAL COMPS

2

3

Find new friends

• “Shake” and “People Nearby” enables adding strangers as friends

ExampleChina Eastern Airlines Official Account on WeChat• Shown as a contact in WeChat

after users add its official account• Users can check flight info,

reserve tickets, check-in, select seats, manage membership through the airline’s WeChat account

• All subscriptions are gathered under a separate tab called “Subscriptions”

• Good for individuals or companies that provide contents as a core service

• Less efficient at collecting data from users and at providing online services than Service accounts do

Added Official Accounts for

brands

Subscription accounts providing news and media articles – Content is King

WeChat

Service accounts providing corporate services to customers – Service is King

China Eastern Airlines

4

4

5

5

• “App-within-an-app”: Not full scale apps but simple website-like apps using WeChat’s API

• Benefits early stage companies that do not have resources to build a fully developed app

• Requests information either by navigating through menus or sending texts (applies to simple requests such as checking flight)

• Builds automated responses → reduces customer calls for businesses

Incorporated Bots into Official Accounts

Weather update on Yellow Mountain

↓↓↓↓↓↓↓↓

Chumen Wenwen China Southern Airlines

• Google Now / Siri type of digital assistant; Supports voice recognition

• Answers requests including weather, restaurants, navigation etc.

• Connects to other third party apps such as Dianping where users can book restaurants / ordering delivery

• Investors include Google

“ Is it going to be cold in the Yellow

Mountains this weekend?

“ 4/27 To Shanghai”

“ Please enter origin”

“ Beijing ”

“ For what day? ”

“ 4/27 ”

“ Sorry we don’t have tickets that match your need

yet ”

XiaoIce

“ How are you today ”

“ Do you know tomorrow’s weather? ”

“ New York ”

“ Where are you based ”

Summary of the

weather

• Developed by Microsoft; A chatbot that users can add as a friend and casually converse with. Over 20 million users.

• Able to answer questions such as weather update, restaurant suggestions etc.

• Not only responds to text messages but also identifies and reacts to pictures and voice messages

Some popular bots built upon WeChat API

6

More customized, context-based More conversational More accurate leveraging chat history Less apps to be downloaded Less 800 customer services calls

Tenpay19%

Others11%

Alipay70%

Tenpay14%

Others9%

Alipay77%

WalletWeChat Pay

Incorporated Payment that

transformed WeChat into a gateway of m-commerce and enhanced user stickiness

• Each individual or business account has a unique WeChat QR code that enables users to pay and receive money by scanning the code without adding a contact

• Historical growth

2015 2016

1

8

RED ENVELOP VOLUMEDURING CHINESE NEW YAER (BN)

100

200

300

2014 2015 2016

# OF BANK CARDS BUNDLED2 (MM)

~ 420mm users (90% of urban mobile users1)

Source: iResearch1 QiEZhiKu (owned by Tencent) 2 Bank cards bundled to WeChat Pay and QQ Wallet 3 Includes WeChat payment and QQ Wallet

TENCENT PAYMENT3 HAS GAINED MARKET SHARE OVER ALIPAY

1Q’15 3Q’15

MeilishuoGroup BuyMovie Tickets

SpecialRail & FlightsOrder Taxi

• Pay and receive money: card repay, utilities bills, healthcare bills

• Mobile credits top up• Link loyalty cards from multiple

merchants to one WeChat account

• Transfer money among friends • Split bills• Send out red packets, monetary

gifts given for special occasions

• Crowdfunding• Wealth management products (i.e.

LiCaiTong)• Loan application

WalletWeChat Pay

GLOBAL COMPS

7

8

7

7

8 8

8

7

9

9

9

Incorporated Payment that

transformed WeChat into a gateway of m-commerce and enhanced user stickiness

• Facilitate B2C transactions and off-platform services:

• Enhance C2C transactions:

• Provide various financial products

MeilishuoGroup BuyMovie Tickets

SpecialRail & FlightsOrder Taxi

• Access links under “WeChat Wallet” to some of the most popular third-party apps to enrich more mobile payment scenarios

• Weidian: Allow third parties to open stores and connect with consumers on WeChat

• Virtual app stores: Announced to launch “Application Account ” where users can subscribe third party services in HTML5 format

WalletWeChat Pay

Evolved into Platform that integrates

O2O initiatives and third party apps

10

10

Download on the

Virtual App Store

To come….

Order taxi on demand

Book rail / flight tickets online

Online shopping

Reserve seats / buy movies tickets

GLOBAL COMPS

Provide user reviews of local services (i.e. restaurants) and group buying

(Bot Store)

MeilishuoGroup BuyMovie Tickets

SpecialRail & FlightsOrder Taxi

Online shopping guide for women

Current Search within Official Accounts, individual /

group chats, and Moments Search without leaving current dialogues Bring subscribers to Official Accounts Access to industry expert articles through

subscription accounts Available from Sogou platform both on

desktop and mobile

Challenge

Embedded Search function

within chats and accountsGLOBAL COMPS

11

Much less contents on WeChat than those on traditional search engines

How to bring traffic to other WeChat third-party services (JD.com, Didi Kuaiche etc.) besides Official Accounts?

Search through Official Accounts

Search through Moments, Chat history

Higher stickiness

Search gateway

More personal

More contextual

More traffic to third party

services

E-Coupon

Game Center

Ads on Official

Accounts

Ads on Moments

Accelerated Monetizationthrough diversified product offerings and cross-selling opportunities

Sticker Gallery

TargetedAds

Future monetization on

payment transactions1

Wealth management & other financial

services offerings

1 Tencent currently still subsidizes payment transactions, which incurs an increasing burden of bank handling fees

Lessons from WeChat

Most WeChat Bots Take a Hybrid Approach

• XiaoIce, Microsoft’s conversational bot, has over 20 million users. It functions reasonably well

within the Chinese internet, where conversation is more restricted and less prone to trolling.

• However, the majority of bots are conversation-centric but leverage graphical user navigation

and/or human involvement

• Even as bots inch closer to Turing’s test, GUIs will be utilized in visual messaging platforms

• Most conversational commerce will not be text only. GUIs save 100s of keystrokes.

• As with IVR systems, some complex user requests require human engagement

ChumenWenWen

ChinaSouthern Airlines

The Power of the Platform

• WeChat has over 10 million Official Accounts operated by third parties. Relatively high data

costs in China benefit WeChat, with users less prone to download apps.

• The entire app ecosystem for Android and iOS is ~2 million each, including games. The bar to

create an Official Account with simple “App-within-an-app” functionality is significantly lower.

• However, WeChat’s platform dominance is similar to Android and iOS, with WeChat’s

proprietary commercial features prioritized much like default apps

WalletWeChat Pay

“WeChat Wallet” channels exclusively operated by 3rd party services in Tencent’s portfolio

DESCRIPTIONSTENCENT

INVOLVEMENT KEY INVESTORS

• Tencent• Wanda Group• Southern Capital

• Online movie ticket booking platform based on WeChat, QQ and WePiao App

• 8% market share, 3rd largest• Dec 2015: Announced to merge with Gewara to

consolidate ~ 30% of the market share

• Developed by Beijing Weiying Technologies, a company owned by Tencent, Wanda Group etc.in 2012

• Tencent• Alibaba• SoftBank• DST Global• Temasek

• Added to WeChat platform in Jan 2014

• Invested in Didi Dache since Series B in 2013

• Feb 2015: Didi Dache and Kuaidi Dache merged into Didi Chuxing, forming Chinese biggest taxi-hailing platform

• 21mm cab rides were booked in the first month after integration into WeChat platform

DIDI CHUXING

• Level 1 access to WeChat platform since Mar 2014 (accessed under “Discover” as well as under “Wallet”

• Purchased 15% (~ $220mm) in 2014

• Chinese largest B2C e-commerce platform that offers online direct sales in electronics and general merchandise

• Mar 2014: Merged with Tencent’s online marketplace Paipai and Yixun

• Mar 2015: WeChat and QQ together drove ~20% of JD.com’s new customers

• Tencent• Tiger Global• KPCB• Sequoia Capital

JD.COM

WEPIAO

LY.COM

• Added to WeChat platform in Apr 2014

• Tencent• Ctrip

• Chinese online travel booking services including rail and flight tickets booking

DIANPING

• Oct 2015: Dianping and Meituan merged to form a dominant player in the group-buying and local services businesses

• Jul 2014: Experienced ~ 86% y-o-y growth in MAUs one quarter after landing on WeChat

• Tencent• Alibaba

• Acquired ~ 20% of Dianping and integrated it on WeChat in Feb 2014

E-C

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ME

RC

ETA

XI

HA

ILIN

GM

OV

IE

BO

OK

ING

LO

CA

L

SE

RV

ICE

ST

RA

VE

L

BO

OK

ING

• Added to WeChat platform in Mar 2014

• Tencent• Sequoia Capital• GGV

• Provides Pinterest-like functions that enable women to find clothing and skin care products

• Jan 2016: Acquired by MojujieMEILISHUO

Investing in Exclusive Commercial Partners

CONCLUSION: Bots Are A Nascent Contributor to WeChat• After stickers, monetization at WeChat was driven by the introduction of Official Accounts and

their lightweight, app-within-an-app capabilities

• Payments, Platform & Exclusive 3rd Party Apps, Commerce, Branding, Search, and Games have

contributed to the commercialization of the world’s most innovative messaging platform

• Bots have immense potential but are just starting to play a role on the WeChat platform

• Broad bot functionality requires massive investment. Cash-rich companies like Amazon (Echo),

Apple (Siri), Facebook (M), Google (Now), Microsoft (Cortana, XiaoIce) & SoftBank (Pepper) are

in the early days of developing bots with seamless conversational capabilities. A few startups

like Viv, comprised of the former Siri team, will compete to build the leading bot platform.

• A wider array of bot startup opportunities will focus on discreet use cases like scheduling with

x.ai or weather with Poncho, or rely on some human involvement for broader use cases like Fin.

There is also an opportunity for cross platform bot development tools. Beyond just bots, startups

can also offer a broader suite of messaging solutions for brands like Snaps.

• For enterprises looking to follow consumers into the messaging world, bots alone are not yet

ready to facilitate frictionless conversational commerce. The chase for the Turing test continues.

General

http://www.businessinsider.com/the-messaging-app-report-2015-11

https://www.techinasia.com/talk/5-ways-mobile-messaging-evolve

http://blog.appannie.com/messaging-apps-where-theyre-popular-and-major-revenue-opportunities/

http://www.scaruffi.com/mind/ai.html

WeChat related

http://techcrunch.com/2015/11/26/the-many-ways-of-wechat-how-messaging-is-eating-the-world/

https://www.techinasia.com/wechat-697-million-monthly-active-users

http://techcrunch.com/2016/03/17/messaging-app-wechat-is-becoming-a-mobile-payment-giant-in-china/

http://qrcodetracking.com/qr-codes-help-wechat-become-a-social-media-platform/

https://walkthechat.com/wechat-public-accounts-difference-subscription-service-accounts/

http://dangrover.com/archive/

Apps within an app model: https://blog.passkit.com/wechat-offers-insight-into-the-future-of-apps-and-mobile-payments/

WeChat Third Party Apps

JD: http://technode.com/2015/03/04/tencent-mobile-messaging-apps-drove-20-percent-of-new-customers-for-jd-in-q4-2014/

JD: http://blogs.wsj.com/chinarealtime/2016/01/06/qa-with-jd-mall-ceo-on-balancing-shopping-and-social/

Didi: https://www.techinasia.com/wechat-21-million-taxi-rides-booked

Facebook related

http://techcrunch.com/2016/03/17/facebooks-messenger-in-a-bot-store/

Sources