More text messages are sent through messaging apps today than SMS ever saw. The two biggest apps, Facebook (NASDAQ:FB) Messenger and WhatsApp, account for 60 billion messages a day, more than three times the number of SMS messages sent at its peak. With 1.9 billion user between the two apps, Facebook dominates messaging on smartphones.
But Tencent's (NASDAQOTH:TCEHY) WeChat is holding its own. The app just surpassed 700 million active users, largely concentrated in China, where Facebook Messenger is locked out. Tencent's QQ is the second most popular messaging app in China, QQ, with 550 million active users.
Can Tencent continue growing its messaging apps and take on Facebook?
WeChat's biggest advantage is that it has access to the Chinese market. Facebook is blocked by the Great Firewall, but WhatsApp has access to the largest smartphone market in the world. WeChat had the first-mover advantage, the benefit of being tied to Tencent's other properties, and is tailored for a Chinese audience, which has enabled it to dominate the market. WhatsApp is mostly used by Chinese to communicate with people outside China.
But WeChat has mostly tapped out the Chinese market, given that 93% of smartphone owners in tier-1 cities already use WeChat. What's more, smartphone growth in China is slowing. An IDC report last December noted that "China has largely become a replacement market," meaning smartphone user growth is slowing to a crawl.
Outside China, WeChat's user base is relatively small at just 70 million. While Tencent is working to expand the app to other emerging markets such as India, Latin America, and Southeast Asia, WhatsApp and Facebook Messenger already have strong presences in those markets, which will make it hard for WeChat to catch up.
More utility could be the deciding factor
WeChat's popularity in China can be partly attributed to its utility. Users can do almost anything with the app, such as book a doctor's appointment, hail a taxi, or pay for things in stores. If it can extend those capabilities to new, growing markets, such as India, it could still surpass the popularity of Facebook's apps.
But Facebook just unveiled the new Messenger Platform at its F8 developers conference earlier in April. The move is aimed at making Messenger a more useful product beyond messaging friends. The first use of Messenger Platform has been to create bots that provide weather and news updates as well as basic e-commerce functionality.
With a built-in user base around the world, developers may be inclined to make apps for Messenger platform instead of WeChat. While Tencent has already proved capable of getting users to use its app for more than just messaging, Facebook has thousands of developers already using its tools to make stand-alone apps for mobile devices and the Web. Developers' familiarity with Facebook and its established user base definitely give it an edge, as both go after emerging markets.
Overall, that bodes well for Facebook to continue growing at a faster pace than WeChat. While WeChat grew 29% year over year last quarter, according to data from Quest Mobile, that's a significant slowdown from its pace in the high 30% range over the previous six quarters. Meanwhile, Facebook Messenger and WhatsApp are each growing in the mid- to high-20% range on a yearly basis, each adding about 200 million to 300 million new users over the past year despite larger user bases.
If Facebook can monetize its messaging apps as well as WeChat has in China, it could provide a significant boost to Facebook's top line. In the fourth quarter, Tencent's social networks (WeChat, QQ, and the like) generated over $1 billion in revenue for the company. Facebook generated $5.8 billion, mostly from advertising on its flagship social network. The opportunity is huge, but it needs to get developers on board as Tencent was able to do in China.
Adam Levy has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.