The rise of WeChat mini-programs, or “sub-applications” within the WeChat ecosystem, puts pressure on Apple and Chinese mobile phone brands.
Recently, nine Chinese mobile phone manufacturers, Xiaomi, ZTE, Huawei, Gionee, Lenovo, Meizu, Nubian, OPPO, and vivo jointly launched a unified standard called Quick Application aiming to empower developers through standardization.
Quick Apps is not something new for Chinese smartphone users. Last year, Xiaomi has launched a “direct service”, and Meizu launched a “fast app”, both similar to the WeChat mini-programs. Users could directly access the apps without needing to download them. Today, the nine main mobile phone manufacturers in China have finally decided to unify in an attempt to take the lead on apps.
This alliance transpired from the popularity of the WeChat mini-program in 2017 that allowed it to harvest major app traffic and control user access. Before that, the entry of mobile traffic belonged to hardware manufacturers and Apple. At the company’s conference, a vivo executive said that within a year, vivo users can directly access over 5,000 apps without having to install them.
This is a big deal for the hardware industry. “China’s phone manufacturers should have joined together to do something a long time ago, and it’s good to be able to form an alliance,” a vivo executive said. “However, strong standards must be promoted to facilitate smooth cooperation between all parties, and to provide ease for more apps developers to participate.”
Counterattack to WeChat mini-programs
The scale of the WeChat ecosystem is still growing. Pony Ma, the chairman and CEO of Tencent, revealed during the Spring Festival last month that the number of monthly active WeChat users globally exceeded one billion for the first time.
Public data shows that since April 2017, WeChat mini-programs have seen an explosive growth in the number of users. As WeChat mini-games such as “Jump Jump” became more popular, the total number of WeChat mini-program users climbed to 400 million by December 2017.
At present, WeChat mini-programs are attracting investments to become commercialized. On the other hand, the strength of hardware manufacturers cannot be underestimated. Data show that at the end of 2017, China’s three major telecom operators had a total of 1.13 billion mobile broadband users (ie. 3G and 4G users). Even though the nine largest phone manufacturers account for only 60 percent of the market, they have more than 600 million users.
A mobile phone industry official who declined to be named said the real purpose of the Fast Application was to combat WeChat mini-programs. Although there is no direct proof that WeChat mini-programs have impacted the app store, hardware manufacturers must still take precautions to avoid being marginalized. “I’m still more optimistic about the alliance. The app can’t be very large as all apps are getting smaller. The Quick App is an attack by manufacturers to compete for WeChat’s market and earnings.”
Fight for service
In the commercial market, there are no eternal friends, only eternal interests. Even though rivals like Huawei, Xiaomi and Lenovo have always competed vigorously, they managed to reach a consensus on Fast App.
This situation is largely determined by the business model of mobile phone manufacturers. Before WeChat became the only “super app”, almost all mobile apps had to rely on Apple’s App Store and Android app stores for lower user access costs. Mobile phone manufacturers strive to maintain good relationships with channels and suppliers.
“Previous mobile phone manufacturers did not think far enough, because visions for hardware and software are completely different. Everyone only knows that you can make money by promoting app downloads. Now that mobile applications are very rational, investors no longer blindly burn money,” said the unnamed official.
Mobile phone users need only to open WeChat to obtain any basic service, whether it is hailing rides, ordering food, buying movie tickets, booking hotels or paying by mobile. With the growth of the WeChat ecosystem, consumers no longer need the app store.
Therefore, it is urgent for manufacturers to find a new way to earn money. The recently disclosed Xiaomi prospectus shows that in 2016, 79 percent of Xiaomi‘s revenue was from selling mobile phones, and 21 percent was from the internet service business. The net profit margin for the hardware business was only 2.8 percent, while the net profit margin of the internet service business was over 40 percent.
Currently, Xiaomi is planning to increase the proportion of revenue from the internet services business. In 2017, Xiaomi hardware business revenue accounted for 68.3 percent of its total revenue, and it is expected that by 2019, the proportion of internet service business revenue will exceed hardware revenue.
However, there is no clear information on the operational details of the Quick Application. Industry analysis shows that when the Quick App covers enough functional areas and traffic, the nine manufacturers are expected to receive advertising revenue corresponding to their user volumes. In addition, the development of their own platform will also help mobile phone manufacturers to increase user retention and accumulate more data resources.
The debate on importance
The hardware business represents the present, and the software service represents the future. This truth has been confirmed by technology giants like Apple, IBM and Microsoft. However, it is not easy for mobile phone manufacturers to transform. How can they win the favor of internet players?
An application development tool leader said that the limitations of Quick App is the same as that of WeChat mini-programs. They are not as smooth as a native app and is slower to load. “WeChat mini-programs limit SDK sizes, with only one or two megabytes. Low-frequency tool classes are more suitable,” adds the industry official.
In addition, WeChat mini-programs rely on the WeChat account and payment system, requiring a WeChat account to access it.Quick Apps users would not have a ready-made account, and so its barriers to market adoption may be larger than those of the WeChat mini-programs. Some paid apps will still need WeChat.
Whether this high-profile alliance can shake up the existing market structure is worthy of attention.