Please ensure Javascript is enabled for purposes of website accessibility

Tencent's Taking the Facebook Approach to Fight Back Against TikTok

By Adam Levy - Jan 27, 2020 at 11:00AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The WeChat owner is leveraging its user base and introducing similar features to best its rival.

ByteDance's TikTok has taken the world by storm, but nowhere is it more popular than in its home country, China, where it goes by Douyin. Douyin has over 500 million monthly active users sharing and viewing short-form videos of themselves. The app's robust growth puts ByteDance in a position to take on the dominant social media and app company in China: Tencent (TCEHY 2.46%).

Tencent's WeChat (Weixin in China) had 1.15 billion global monthly active users as of the end of September. Its Moments feature, which is similar to Facebook's (META 7.19%) newsfeed, has been a big driver of its ad revenue over the past couple of years. Social advertising revenue grew 32% in the third quarter, compared to 13% for the overall online advertising segment.

So the growth of Douyin and its push into social advertising represents a considerable threat to one of Tencent's biggest growth drivers. To stem that threat, Tencent is using a strategy comparable to Facebook's attempts to thwart Snap's (SNAP 5.45%) Snapchat and other smaller competitors. It's leveraging its massive user base and co-opting features from its smaller rival to prevent its users from spending as much time in other apps.

A phone capturing a scenic riverbank on WeChat Moments.

Image source: WeChat/Tencent.

Tencent's latest copycat tactic

As an answer to Douyin and TikTok, Tencent is testing a new feature that enables users to upload short videos and photos to WeChat Moments, according to a report from Bloomberg. Moments focuses more on articles users want to share than on the type of content users might create for TikTok or Snapchat. 

This isn't Tencent's first foray into social video. In December 2018, the company introduced a Stories product called Time Capsule. The feature failed to catch on last year, perhaps hampered by the placement of the feature within the app. Instead of making it boldly noticeable at the top of the user interface in Moments, like in Instagram's feed or Snapchat's Discover sections, Tencent buried it within the main chat feature.

The company's latest attempt to copy video features from its rivals might require more willingness to overhaul a product that's working and boldly feature the new format in one of the most popular sections of WeChat. That would leverage the large user base on WeChat to discover and create more engaging content and spend more time in the app that already consumes a lot of time on mobile for Chinese consumers.

Does the Facebook strategy even work?

Some investors may be concerned that Facebook's strategy of copying features from rivals doesn't really work very well. Stories, which Instagram blatantly copied from Snapchat, has certainly been a standout success. But other features Facebook has tried to copy from Snapchat, and its efforts to emulate YouTube with Watch, haven't always worked out quite as well. Instagram's latest attempt, Threads, hasn't exactly taken the market by storm.

But investors panning the Facebook copycat strategy miss two important details. First, a flop for Facebook could be a massive success for a smaller company. Facebook's sheer size (2.8 billion unduplicated monthly active users across its family of apps) makes attracting only a few million users to a new product seem like a failure.

Moreover, when Facebook succeeds, as it has with Stories, the profit potential is enormous. Stories already accounts for around 10% of ad spend on Facebook's platform, according to data from Socialbakers. That'll be around $7 billion for 2019. It only takes a single success for the strategy to work, and even when it doesn't work out the losses are minimal.

Facebook's massive user base allows it to get a successful and engaging product in front of a lot of people very quickly, and that's exactly what it did with Stories. The tech company expanded the feature to its other main apps, highlighted the feature in the user interface, and iterated on the product quickly in order to increase engagement.

To that end, Tencent ought to copy as many features as it can jam into WeChat without degrading the user experience. If a new feature fails to catch on, Tencent can degrade or delete it and move onto the next one. If it succeeds, it has one of the biggest platforms in the world to scale quickly and maximize engagement and potential revenue.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Tencent Holdings Limited Stock Quote
Tencent Holdings Limited
TCEHY
$49.18 (2.46%) $1.18
Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
META
$170.16 (7.19%) $11.41
Snap Inc. Stock Quote
Snap Inc.
SNAP
$14.70 (5.45%) $0.76

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
336%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.