Tencent (NASDAQOTH:TCEHY) recently introduced the Weishi smartglasses, which bear a strong resemblance to Snap's (NYSE:SNAP) Spectacles but lacks the glowing yellow ring that indicated when the Spectacles were recording. This initially seems like a bizarre move, since the first version of Snap's Spectacles were poorly received and resulted in a $40 million writedown for the company last year.
However, Snap's decision to launch a second version of Spectacles earlier this year indicated that it still saw flickers of life in the maligned smartglasses market. It also wasn't surprising to see Tencent, one of Snap's top investors, test out a clone of the device in China. But does Tencent's decision to launch smartglasses in China make any more sense than Snap's decision to sell them in America?
It's all about chasing ByteDance
Tencent's Weishi glasses initially seem like another attempt to diversify its business away from video games, which face a government-mandated freeze on new game approvals until next year. It also seems like a way to expand its social networking ecosystem beyond WeChat and QQ.
However, Tencent's real goal is to counter ByteDance, the rapidly growing start-up that owns the news aggregator Jinri Toutiao, the short video app Douyin (also known as TikTok), and numerous other popular apps. QuestMobile recently reported that Tencent's share of China's mobile communications app market slid to 47.7% in June, compared to 54.3% a year earlier.
During the same period, ByteDance's market share surged from 3.9% to 10.1%. Douyin/TikTok now reaches over 500 million monthly active users (MAUs), Jinri Toutiao reaches over 200 million MAUs, and its other video app, Xigua, reaches another 100 million MAUs. The growth of TikTok's viral short videos is particularly troublesome for Tencent, since it pulls users away from its aging WeChat/QQ ecosystem.
Tencent tried to counter ByteDance by backing other high-growth platforms, including Jinri Toutiao's rival Qutoutiao, the Gen Z content platform Bilibili, and the live streaming app Kuaishou. It also recently restructured its businesses to put a heavier emphasis on its digital content platforms.
But most importantly, Tencent rebooted its short video app Weishi to challenge TikTok. Tencent launched Weishi in 2013 and hit 45 million active users in 2014, but its growth peaked and the company took the app offline last April.
When Tencent launched the "new" Weishi a month later, it looked more like Tik Tok. Tencent added an in-app dancing game, which cloned TikTok's popular "Dancing Machine" feature, along with a live trivia game to nurture user interactions. Tencent also announced that it would spend 3 billion RMB ($440 million) in subsidies to lure key influencers back to the platform.
Tencent hasn't revealed any active user counts for the new Weishi yet, and the critics think that it will be tough for it to catch up to TikTok. However, Tencent can still promote and integrate Weishi into its WeChat and QQ platforms, which have a combined MAU base of 1.86 billion, to narrow that gap.
Launching Weishi smartglasses is clearly an extension of that strategy. Unfortunately, smartglasses remain a niche product worldwide due to awkward designs, privacy concerns, and the notion that they're redundant in a market saturated by smartphones -- which are better suited for selfies and live video broadcasts.
Tencent also didn't seem to put much thought into the device, since it was designed and manufactured by Tonot, a Chinese manufacturer that also recently developed camera glasses for Japanese messaging app maker Line. Therefore, it feels like Tencent is simply throwing things at a wall to see what sticks -- which mirrors Snap's ill-advised strategy with Spectacles.
But could Tencent's bet pay off?
If Tencent is serious about selling smartglasses, it should remember that Snap actually generated plenty of initial interest in Spectacles with its ephemeral vending machines, which lured in customers with product scarcity.
However, interest quickly faded after Snap saturated retailers with the devices. Therefore, if Tencent wants its smartglasses to boost interest in Weishi, it should take one of two approaches: Promote the platform in clever marketing bursts like Snap's vending machines, or sell the glasses at steep discounts as a loss-leading strategy.