Tencent's (NASDAQOTH:TCEHY) WeChat and Weibo (NASDAQ:WB) are generally considered social networking platforms instead of e-commerce ones. WeChat is China's most popular messaging app with 1.1 billion monthly active users (MAUs), while Weibo's microblogging platform has 465 million MAUs.
However, Tencent and Weibo are now the top gateways for product searches and research regarding luxury products according to the "Tencent x BCG 2019 China True-Luxury Playbook", a joint study conducted by Tencent Marketing Solutions and Boston Consulting Group.
The survey found that 52% of consumers discovered new luxury products on WeChat, followed by 28% on Weibo and 19% on the "social shopping" app RED. Meanwhile, 43% of consumers researched the brands on WeChat before making a purchase, compared to 35% on Weibo and 29% on RED.
The survey didn't reveal where the consumers made their final purchases, but it indicates that luxury brands that want to attract Chinese shoppers should establish meaningful presences on WeChat and Weibo.
Tencent's e-commerce strategy
Two years ago Tencent launched Mini Programs for WeChat. These mini apps -- which included games, ride hailing services, meal delivery services, and more -- run inside WeChat and allow Tencent to operate a mobile ecosystem of apps without owning a mobile OS like iOS or Android.
Last year Tencent revealed that over a million Mini Programs were running inside WeChat, and more than 200 million users were accessing those apps daily. The growth of Tencent's Mini Programs attracted the attention of leading luxury companies like LVMH (NASDAQOTH:LVMUY), which launched a dedicated Mini Program earlier this year.
LVMH's Mini Program invites WeChat users to explore its six major business lines, listen to LVMH employees discuss their experiences, and sign up for exclusive events. LVMH also debuted new products on the Mini Program to generate word-of-mouth buzz.
This strategy is catching fire: Gartner recently reported that 70% of fashion-focused luxury brands now operate WeChat Mini Programs in China, up from just 40% in 2018. This benefits Tencent in four ways: It tethers brands to its WeChat Pay payments platform, boosts the appeal of WeChat ads, locks users into WeChat (which widens its moat against Alibaba (NYSE:BABA) and Baidu (NASDAQ:BIDU), and makes it easier to cross-sell cloud services to major companies.
The popularity of WeChat for luxury searches also benefits Tencent's biggest e-commerce partner, JD.com (NASDAQ:JD). JD operates Mini Programs inside WeChat, and its e-commerce services are integrated into WeChat and WeChat Pay. Therefore, shoppers who want to shop around after doing their homework on WeChat could finish their purchases on JD.
Weibo's e-commerce strategy
Weibo has a smaller audience than WeChat, but it's the top platform for China's celebrities and social influencers. Weibo's top four celebrities -- Xie Na, He Jiong, Yang Mi, and Angelababy -- each have over 100 million followers. This makes Weibo an ideal platform for launching celebrity-backed luxury brands.
LVMH's Louis Vuitton, which has over 4 million followers on Weibo, recently launched ad campaigns featuring Chinese-Canadian actor Kris Wu, who has over 46 million followers on the platform. Leading social media influencers like KillerBigSweet and new actors like Turbo Liu -- who has over 28 million Weibo followers -- have also promoted products from Louis Vuitton and other luxury labels.
Weibo is often compared to Twitter, but its popularity with celebrities and social media influencers also makes it similar to Facebook's Instagram. Weibo generates most of its revenue from ads, so its growing popularity as a product search platform could spark more ad purchases from major luxury brands.
Investors should also note that Alibaba, China's top e-commerce player, also owns a major stake in Weibo and integrates its Tmall marketplace into the social network. That alliance, which mirrors Tencent's partnership with JD, enables Alibaba to retain a foothold in the booming "social shopping" market.
The key takeaways
Tencent and BCG's report claims that China's luxury market grew 6% to $123 billion in 2018 and accounted for 33% of all luxury spending worldwide. It expects that figure to rise to 41% by 2025, buoyed by higher spending from China's younger Gen Z and Millennial shoppers.
That's great news for major luxury companies like LVMH, and it could help WeChat and Weibo lock in users and generate more advertising revenue. However, this shift could also be bad news for older online search platforms like Baidu, which could struggle to retain those ad revenues as brands eye hotter social platforms like WeChat, Weibo, and RED.