One of Snap's (SNAP -0.09%) biggest investors is Chinese tech giant Tencent (TCEHY 0.54%). Tencent owns WeChat, the messaging app that counts over 1.2 billion monthly active users. A key part of its success has been expanding beyond messaging to gaming (another core part of Tencent's business), third-party apps, and commerce. 

Two years ago, Snap CEO Evan Spiegel spoke about finding inspiration from Tencent. Last year, it announced Snap Games at its annual developers conference. This year, it took the next step with the launch of "minis."

Minis are lightweight web apps that live inside Snapchat and build on the social capabilities of the core messaging app. Minis allow friends to buy movie tickets together, study, or meditate together.

Continuing down this path could lead to Snap further differentiating itself from competition like Facebook (META 3.87%), Instagram, and TikTok, as well as produce meaningful sources of revenue for the company.

Four smartphones displaying examples of the Headspace mini app interface

Screenshots of the Headspace mini app in Snapchat. Image source: Snap.

Mini apps are a big business

People spent over $115 billion in mini apps on WeChat in 2019. Practically every Chinese app is available through WeChat, and it has 300 million monthly active mini app users.

So there's a lot of potential in building a platform that enables easy discoverability, reduces the friction involved with downloading individual apps, and seamlessly integrates payment capabilities. Snap's working on all of those features with its early partners.

Of course, it's easier said than done. Facebook tried to integrate third-party apps and lightweight apps with Messenger in 2015 and 2016. But its lightweight games and chatbots haven't gained much traction. 

That said, Snap has had relatively good success with Snap Games. It announced 100 million people have at least tried games on the platform and the average user spends 20 minutes per day playing them.

Is Snap solving a problem that doesn't exist?

One big advantage Tencent has in China compared to apps like Snap is a disparate app store ecosystem. While users in the rest of the world have basically one choice for their app store depending on their phone model, China has a lot of different app stores. Seven different app stores have more than 5% market share in the country.

By offering a unified platform that works across devices, Tencent can make it easy for developers to reach a wide audience. That's just not as much of a problem in markets where Snap operates.

That's why the main focus of Snap's mini apps is on social capabilities it brings to the table. For example, buying movie tickets for a group of friends may be easier through the Snap mini app than through using a stand-alone app for ticket purchases. "One of the things that's so unique about minis is that they provide these shared experiences with friends," Spiegel said in an interview with The Verge.

That social focus may curb the potential breadth of apps on Snap, or at least those that can find success, but it does provide a unique advantage versus using a standard app. Facebook was unable to capitalize on its massive social network, but that doesn't make the idea inherently flawed.

The opportunity in e-commerce

Snap has been pushing into e-commerce for several years now. In 2018, it announced a visual product search engine, which hasn't really gone anywhere, especially compared to Instagram's and Facebook's efforts in e-commerce.

But Spiegel sees e-commerce as a key application for mini apps. "I actually think it has the ability to power more e-commerce. I'd think more about a shared shopping experience," he said. 

Tencent plays a big role in Chinese commerce. Most of that $115 billion spent on WeChat mini apps is from e-commerce, which Tencent is able to monetize through its payment processing feature, WeChat Pay. The feature is also used for peer-to-peer payments (another area Snap's explored in the past without success), as well as through in-store payments using a QR code.

If Snap is able to gather payment and shopping information from its users, it opens the door for more targeted advertisements in its apps, and the potential to convert direct-response advertisements more effectively through a mini app. It could also open the door for in-store payments as consumers search for contactless payment solutions following the COVID-19 crisis we're currently facing.

For right now, mini apps represent a lot of potential for the tech stock, and not much else. It could be a while before investors see widespread adoption by both users and developers, and even then the applications are much more limited than they are in WeChat. Still, it's an interesting development for Snapchat, and could be essential in differentiating its platform from other social media and communications apps.