Has WeChat Proved US Social Media Wrong About the Marketing Power of Privacy?

Advertising and its insatiable demand for customer data has brought western, especially US, digital businesses under increased scrutiny and threat.

Has China's WeChat found a better way through keeping communications largely private or is the real trick WeChat's mobile payment system, a tool Facebook doesnt yet have - and may never, given its history of violating user data protocols?

Photo of mobile bus payment validator. JL

Li Yuan reports in the New York Times:

WeChat lets people message each other via one-on-one texts, audio or video calls. Users can also form groups of as many as 500 people. While Facebook users constantly see ads in their feeds, WeChat users only see one or two ads a day because WeChat isn’t dependent on advertising. It has a mobile payments system, widely adopted in China, which allows people to shop, play games, pay utility bills and order meal deliveries all from the app. WeChat gets a commission from these services. WeChat, which has 1.1 billion monthly active users, shows that other models based on payments and commerce can support massive digital businesses.

As Mark Zuckerberg begins shifting Facebook to private messaging and away from public sharing and open conversations, the vision he has sketched out for the future of social networking already exists — just not in the United States.

Instead, it is a reality in China through a messaging app called WeChat.

Developed by the Chinese internet giant Tencent in 2011, WeChat lets people message each other via one-on-one texts, audio or video calls. Users can also form groups of as many as 500 people on WeChat to discuss and debate the issues of the day.

While Facebook users constantly see ads in their News Feeds, WeChat users only see one or two ads a day in their Moment feeds. That’s because WeChat isn’t dependent on advertising for making money. It has a mobile payments system that has been widely adopted in China, which allows people to shop, play games, pay utility bills and order meal deliveries all from within the app. WeChat gets a commission from many of these services.

“WeChat has shown definitively that private messaging, especially the small groups, is the future,” said Jeffrey Towson, a professor of investment at Peking University. “It is the uber utility of business and life. It has shown the path.”

What is happening in China offers clues to not only how Facebook may carry out its shift, but how the internet more broadly might change. Many of Silicon Valley’s tech giants are dependent today on online advertising to make enough money to keep growing and innovating on new services. Some call online ads the lifeblood of the internet.

But WeChat, which has 1.1 billion monthly active users, shows that other models — particularly those based on payments and commerce — can support massive digital businesses. That has implications for Google, Twitter and many others, as well as Facebook.

WeChat, of course, has its own flaws. The messaging app is heavily censored because of requirements by the Chinese government.

Facebook declined to comment and Tencent did not immediately respond to requests for comment.

Mr. Zuckerberg didn’t elaborate much this week on how the change toward private messaging would affect Facebook’s business, which relies on people publicly sharing posts to be able to serve them targeted advertisements. In a blog post, he said Facebook would build more ways for people to interact on top of messaging, “including calls, video chats, groups, stories, businesses, payments, commerce, and ultimately a platform for many other kinds of private services.”

Yet it’s unclear whether Mr. Zuckerberg can pull all those features off with Facebook. On WeChat, those services are underpinned by its mobile payments system, WeChat Pay. Because payments is already tied into the messaging service, people can easily order meal deliveries, book hotels, hail ride-sharing cars and pay their bills. WeChat Pay itself has 900 million monthly active users.

People also use WeChat Pay to transfer money and to buy personal finance products. More than 100 million customers have purchased WeChat’s personal finance products, which managed over 500 billion yuan, or $74 billion, by the end of last September, Tencent has said. Its users can buy everything from bonds and insurance to money market funds through the app.

Facebook lacks such a payments system. So to be more like WeChat, the Silicon Valley company could have to acquire banking and payment licenses in many countries. One sign that Facebook has been thinking about payments is its work on a new crypto coin that is meant to let people send money to contacts on their messaging systems.

To make Facebook a private messaging product, Mr. Zuckerberg may have a lot else to learn from Allen Zhang, the creator of WeChat. Mr. Zhang is famous for his perfectionist pursuit of a well-designed service.

“He is renowned in China’s tech scene as an artist and philosopher, as well as for his fierce mission against anything that degrades user experience,” Connie Chan, an investor at the venture capital firm Andreessen Horowitz, recently wrote of Mr. Zhang.

Mr. Zhang fought many internal battles when Tencent’s revenue department pushed to put more ads on WeChat. In a four-hour speech earlier this year, he pondered the question of why there were not more ads on the messaging service, especially the opening-page ads that are the norm in many other Chinese mobile apps.

Mr. Zhang’s answer: Many Chinese spent a lot of time — about one third of their online time — on WeChat, he said. “If WeChat were a person, it would have to be your best friend so that you would be willing to spend so much time with it,” he said. “How could I post an ad on the face of your best friend? Every time you see it, you’ll have to watch an ad before you can talk to it.”

Mr. Zhang, who has made restraint his product philosophy, has been lucky because Tencent makes most of its money from online games so that it does not need to sell ads for revenue.

Tencent doesn’t break out its revenues from WeChat, but its financial report for the third quarter of 2018 said that social advertising revenue, which includes WeChat, grew 61 percent from a year earlier, while the category called “other businesses,” which includes payment services, rose by 69 percent.

Mr. Zuckerberg does not have that luxury, given that he is trying to switch from an ad-based business into a different model. It will be far from an easy task to pull off.

“Zuck is clearly trying to address Facebook’s problems of privacy and fake news, but it will greatly affect its monetization capability,” said Ivy Li, a venture capitalist at Seven Seas Partners in Menlo Park, Calif. “How comprehensive the surgery is going to be and whether the implementation will be twisted by all kinds of compromises is a big question.”

She added: “Facebook is trying to seek a balance between a public square and a private space in an increasingly polarizing society. The final result could be it will be abandoned by both.”