We Chat

ASIAN CASE RESEARCH JOURNAL, VOL.
20, ISSUE 2, 401–427 (2016)
ACRJ
Micro-Innovation Strategy:
This case was prepared by
Dr. Xiaoming Yang of the The Case of WeChat
University of Nebraska at
by CHINESE UNIVERSITY OF HONG KONG on 01/29/17. For personal use only.
Omaha, USA, Dr. Sunny

Asian Case Res. J. 2016.20:401-427. Downloaded from www.worldscientific.com
Li Sun of University of INTRODUCTION

Missouri–Kansas City, USA,
and Dr. Ruby P. Lee of
Florida State University,
USA, as a basis for class
On January 28, 2013, a new application (“app”) called
discussion rather than to “Virtual Red Package” went viral in China. Suddenly,
illustrate either an effective
or ineffective handling of Virtual Red Package became a buzzword among smartphone
an administrative or business users. Red package, also called “hongbao,” is a red envelope
situation.
containing cash that is traditionally handed out to family
Please address all correspond- members, friends, or employees during the Chinese Spring
ence to Dr. Ruby P. Lee,
Department of Marketing, Festival. In the Year of the Horse, however, the hot item
College of Business, Florida was not the old paper envelope, but the Virtual Red Package
State University, Tallahassee,
FL 32306-1110, USA. E-mail: launched on Tencent’s social media app, WeChat. By linking
rlee3@fsu.edu
a bank account to the app, users could distribute cash-filled
virtual red packages directly to a recipient. Within just two
days, a total of five million users participated in the game,
distributing over 75 million red packages. During this period,
an average of 9,412 virtual red packages were received every
60 seconds.1
As the founder and the chief executive officer (CEO)
of Tencent, Ma Huateng was fairly satisfied with such a
result; however, he knew that the success of the feature could
extend far beyond the Chinese New Year. The real objective
behind this nationwide carnival was to make WeChat users
link their apps to their bank cards — a prerequisite to both
sending and receiving the “Virtual Red Package” — and thus
substantially strengthen Tencent’s ability to charge WeChat
1 WantChina Times, 2014, WeChat’s virtual red envelopes prove a viral hit, retrieved
on November 30, 2014 at http://www.wantchinatimes.com/
news-subclass-cnt.aspx?id=20140205000127&cid=1102.
© 2016 by World Scientific Publishing Co. DOI: 10.1142/S0218927516500152
S0218927516500152.indd 401 16-01-17 3:35:07 PM

402 ACRJ
users in the future. Such a success is only a small milestone in

Tencent’s innovation journey. Since the inception of the
company, Huateng has deliberated such questions as:
(1) What product could be developed that would surprise
customers and immediately outstrip existing competitors, and
(2) more critically, with so many new products coming and
going, how could the company sustain its innovativeness in
this fast-changing industry? These two questions posed the
biggest challenges that lay ahead for the company.
BACKGROUND
Tencent was founded in November 1998. With a mission

to “enhance the quality of human life through Internet
services,” Tencent has developed rapidly over the past 16
years, becoming the biggest Chinese virtual service portal
offering value-added Internet, mobile, telecom, and online
advertising services.
In 1999, the company released its first instant mes-
saging software, OICQ (“Open ICQ”), renamed “QQ” after
the threat of a trademark infringement lawsuit by the AOL-
owned ICQ. QQ, similar to ICQ, provided an easy way for
users to contact each other. As convenient as phoning or
emailing, QQ was an immediate hit in the personal computer
(PC) market. The number of QQ users rose from 100,000 in
2001 to 17 million in 2005 and 113 million in 2010.2 As the
company’s flagship product, QQ helped Tencent to attract
high quantity and highly interactive users, the firm’s most
valuable resource. QQ’s traffic distribution enabled Tencent to
gain revenue in various ways such as gaming, microblogging,
portal websites, music, search, and WeChat.
In April 2004, the number of QQ users reached 300
million.3 Based on such a large user base, Tencent launched
its online gaming platform and sold virtual goods, weapons,
and gaming power, as well as emoticons, extra storage space,
and ringtones. Such products met the needs of Chinese
2 Tencent website, retrieved on November 30, 2014 at

http://www.tencent.com/en-us/at/pr/2014.shtml.
3 See footnote 2.
S0218927516500152.indd 402 16-01-17 3:35:07 PM

MICRO-INNOVATION STRATEGY: THE CASE OF WeChat 403
Internet users to show off when online and Tencent became

the first company in the country to sell virtual goods. Two
months later, Tencent went public in Hong Kong as Tencent
Holdings Limited.
In 2003, Tencent launched its QQ game. With QQ’s
huge user base, the average concurrent online QQ game users
reached 620,000, the biggest leisure game portal in China. The
QQ game beat the then-market leader, Ourgame, and Tencent
became the biggest gaming company in China.4
However, Tencent was not without competition in
China. Since the day it began, Tencent and the other mega
Internet companies in China, Alibaba — essentially Amazon,

eBay and Paypal in one entity — compete intensively for
e-commerce users. In the search industry, Baidu, the Chinese
version of Google, directly confronted Tencent. In Internet
security, Tencent competed head to head with Qihoo 360, a
Chinese software company known for its antivirus software.
In instant messaging, Tencent faces a threat from Fetion,
developed by China Mobil, one of the biggest telecommunica-
tion companies.
Tencent is one of the few companies that has wit-
nessed and experienced the phases of Internet development
in China’s online history. The company gradually built up its
core business model and competitive advantage and became
known for its unparalleled imitative capability. Once a
proven product or business appears promising or successful,
Tencent summons its elite research teams to develop a similar
but superior product and then distribute it through online
advertisements, such as through QQ. In this way, Tencent can
always gain on competitors and quickly surpass them. After
the new product proves successful, Tencent effectively inte-
grates it into its product platform.
Tencent originally made profits through online adver-
tising and memberships from premium QQ users. However,
when sales of mobile smartphones began to surge and pre-
vious PC users moved to mobile wifi, the company realized
that it was time to switch to the mobile Internet era.
4 ChinaInternet Watch, 2014. The story of the rise of Tencent empire, retrieved on
November 30, 2014 at
http://www.chinainternetwatch.com/6031/tencent-rising-of-penguin-empire/.
S0218927516500152.indd 403 16-01-17 3:35:07 PM

404 ACRJ
In 2011, with the aim of satisfying increasingly diversi-

fied and personalized user needs, Tencent launched its open
platform strategy.5 At that time, eight open platforms had
been launched, which include Qzone (Tencent’s social net-
working website), Tencent weibo (Tencent’s blog), Tenpay
(Tencent’s online payment system similar to PayPal), Tencent
e-commerce, pengyou.com (a social network website), Soso
(Tencent’s search engine), cb.qq.com (shopping coupon
website) and QQ. Eventually the number of open platforms
increased, to 30. The developers of these open platforms only
needed to focus on developing products while Tencent’s
open platforms would provide other resources. For example,

Tencent set up a funding company named Corporate VC,
with RMB 10 billion (USD 1.64 billion), to support enterprises
developing on the open platforms.6
Tencent’s multiple open platforms covered every link in
the Internet application development chain and played a posi-
tive role in improving the whole ecosystem’s competitiveness.
Such multiple-platform traffic helped developers to distribute
their products on any platform. Developers could use the
Tencent cloud as server, use QQ, Tecent weibo, and Qzone
to do online marketing and distribute products via Qzone,
Tencent weibo, pengyou.com, and QQ game platforms. In
addition, developers could also use the Tencent advertising
system over different platforms to conduct product promo-
tion and use Tenpay to facilitate transaction.
In 2014, Tencent was voted one of “The World’s Top
10 Most Innovative Companies in Social Media” by Fast
Company.7 With more than 50% of its employees working in
R&D, Tencent has obtained patents relating to technologies
in areas such as telecommunications, information technology,
and audiovisual technology, among others. In 2007, Tencent
5 Tencent website, retrieved on November 30, 2014 at

http://www.tencent.com/en-us/content/ir/fs/attachments/investorintro.pdf.
6 See footnote 4.
7 Fast Company, 2014. The world’s top 10 most innovative companies in social
media, retrieved on December 1, 2014 at

http://www.fastcompany.com/3026321/most-innovative-companies-2014/
the-worlds-top-10-most-innovative-companies-in-social-media.
S0218927516500152.indd 404 16-01-17 3:35:07 PM

invested more than RMB 100 million (USD 16 million)

in establishing the Tencent Research Institute in Beijing,
Shanghai, and Shenzhen. As the first Internet research insti-
tutes in China, these centers focus on the development of core
mobile Internet technologies through innovation strategy.8
By October 2014, Tencent was the fifth largest Internet
company in the world, after Google, Amazon, Alibaba, and
Ebay.9
INDUSTRY
China’s Mobile Internet Market
China has 618 million Internet users, which account for

45% of the country’s population, and a quarter of the global
Internet users. By the end of 2013, the number of mobile
phone users in China was around one billion, of which
more than 50% were smartphone users. It is estimated
that the number of users will increase to 90% or higher in
2014.10 Fueled by the popularity of smartphones, China’s
Internet industry has reached an unprecedented new stage.
As Internet companies migrate their businesses from PC
to mobile, online channels are growing. The mature of the
mobile Internet market in China is driven by lower cost,
locally produced smartphones, especially within rural areas
where economic development is relatively low. The average
price of smartphones made by domestic companies such as
Lenovo, Huawei, Xiaomi, ZTE, Oppo, and Coolpad is about
half the price of the latest Apple iPhone. In 2011, the average
purchase price of a smartphone in China was RMB 2,321
8 Tencent website, retrieved on December 1, 2014 at

http://www.tencent.com/en-us/at/abouttencent.shtml.
9 Graphics Web, 2014. Who are Asia’s Internet giants? Retrieved on November 16,
2014 at http://graphicsweb.wsj.com/asias-internet-giants/#selected=none.
10 China Internet Network Information Center, January 17, 2014, CNNIC released the
33rd statistical report on internet development in China, retrieved on December 1,

2014 at
http://www1.cnnic.cn/AU/MediaC/rdxw/hotnews/201401/t20140117_43849.htm.
S0218927516500152.indd 405 16-01-17 3:35:08 PM

406 ACRJ
(USD 374), while in 2013 this number dropped to RMB 1,773

(USD 286).11
Social Media
The rapid surge in the access of mobile Internet has served as

a great platform for the development of social media in China,
which has the largest amount of Internet users as well as the
most active social media users in the world. More than 300
million people nationwide actively engage daily with instant
messaging, blogs, social networking sites, and microblogs. The

social media landscape in China is highly fragmented. Four

(Qzone, Sina Weibo, WeChat, Tencent Weibo) of the world’s
top twelve social networks are based in China, along with
some smaller firms that are not well known in the market.12
Another feature of Chinese social media is that
government-directed Internet censorship has blocked inter-
national competitors such as Facebook, WhatsApp, Twitter,
and YouTube, thus enabling the domestic social media
companies to grow more quickly and easily. For example, QQ
and WeChat are the main software instant messaging pro-
grams, Sina Weibo (Sina’s Twitter and Facebook in one) and
Tencent Weibo (Sina’s microblog) are the main outlets for
microblogging, and Youku and Tudou are the two predomi-
nant video platforms.
There are three main types of social media platforms
in terms of the kind of function and value offered. The first
type is IM (Instant Messenging) and video platforms, which
has the largest user base. By the end of 2013, IM users and
video users reached 532 million and 428 million respectively,
with penetration at 86.2% and 69.3%. QQ (Tencent’s instant
messaging) and iQiyi & PPS are the largest IM and video
platforms in China.
11 Leanne Wang, April 2014. China’s mobile-internet industry is booming.

Retrieved on December 1, 2014 at http://www.fidelity.com.au/insights-centre/
investment-articles/chinae28099s-mobile-internet-industry-is-booming/.
12 John Heggestuen, November 5, 2014. Confused by China’s social networks?
Here’s a simple infographic showing their US-based equivalents, retrieved on

December 1, 2014 at
http://www.businessinsider.com/a-quick-guide-to-chinas-social-networks-2013-10.
S0218927516500152.indd 406 16-01-17 3:35:08 PM

The second type of social media includes blogs, micro-

blogs, SNS (Social Networking Service), and BBS (Bulletin
Board System). By January 2014, QZone (a social networking
website under Tencent) had 625 million active users, while
Weixin (WeChat) and Sina Weibo had 355 million and 129
million monthly active users, respectively.
The third type of social media is mobile social and
e-commerce. In the past 10 years, e-commerce has boomed
in China due to its cost effectiveness and convenience. In
2013, online transactions surged to RMB 1.9 billion, which
accounted for 7.8% of total retail sales. In addition, the
total transaction value of mobile shopping reached a total

of RMB 168 billion, accounting for 9% of the total online
shopping market. Among all the players in the e-commerce
market, Alibaba is the market leader with 90% share in C2C
(Customer to Customer) and 50% in the B2C (Business to
Customer) space.13
Social media is so popular in China that by January
2014, 98% of Chinese Internet users had a social media
account as opposed to 67% of US users. Among the former,
56% had an account on Youku (the Chinese version of
Youtube.com), 74% had a QQ (Tencent’s instant messaging)
account, 75% had account on Tencent Weibo (a Tencent blog),
76% use Qzone (a Tencent social networking website), and
83% have an account on Sina Weibo (a Sina blog).14
Key Players in the Instant Messaging War
In the mobile messaging app market, multiple apps were

developed in China and abroad, causing direct and indirect
market battles.
13 CIC Corporate, February 26, 2014. CIC 2014 China social media landscape —
Where to play & how to play? Retrieved on December 3, 2014 at http://www.cic-
corporate.com/index.php?option=com_content&view=article&id=1204%3Acic-2014-
china-social-media-landscape-where-to-play-a-how-to-play&catid=99%3Aarchives-
2014&Itemid=208&lang=en.
14 Go Globe, 2014. Social media in China — Statistics data and trend. Retrieved on
December 3, 2014 at
http://go-globe.cn/social-media-china/(中国社交媒体 — 统计数据和趋势).
S0218927516500152.indd 407 16-01-17 3:35:08 PM

408 ACRJ
Overseas, there were four major players.

Kik. Kik was the world’s first released mobile terminal
product and available at Apple and Android stores. Back
in October 2010, Kik Interactive of Canada launched Kik, a
local address book used on mobile phones. Kik was a social
application software program with a free SMS chat function.
Because it was the first of its kind, one million users installed
Kik on their mobile phones within 15 days after it was made
available.15
WhatsApp. Founded in 2009 by former Yahoo
employees, WhatsApp was a multimedia communication app
that included text messaging, sharing of images videos, voice

messaging, and location finders. All of these new features
disrupted the telecommunications industry so drastically
that The Financial Times commented that, “The app, which
allows unlimited free text-messaging between users, has done
to SMS on mobile phones what Skype did to international
calling on landlines.”16 On February 19, 2014, WhatsApp was
acquired by Facebook for USD 19 billion.
Line. After the Tohoku earthquake and the Fukushima
disaster, Naver’s branch office in Japan launched Line in June
2011 to offer residents a reliable and Internet-based alterna-
tive to a landline. Naver was an Internet company headquar-
tered in South Korea. The app was so user-friendly that it
easily drew 100 million downloads in less than two years.17
Kakao Talk. This app was first released in South
Korea on March 18, 2010 by Kakao Corp. In August 2012,
Kakao Talk had 57 million registered users. It was estimated
that 24 million people used the app daily and over 3.4 billion
messages were sent each day.
15 Huang Jinping, February 6, 2012. How did WeChat take off. Southern Weekly (黄金
萍, 2012年2月6日. 微信是如何腾飞的, 南方周报).

16Bradshaw, Tim, WhatsApp users get the message. The Financial Times (London).
November 14, 2011.

17 Line Corporation, 2014. About us, retrieved on December 1, 2014 at
http://linecorp.com/en/company/info.
S0218927516500152.indd 408 16-01-17 3:35:08 PM

In China, Gexin and Millet were two key players prior

to the inception of WeChat.18
Gexin. Gexin, the first instant messaging app in China,
was launched by Interactive Technology in November 2010.
Millet. This app was launched by Millet Technology a
month after Gexin. Millet quickly attracted millions of users
and became the leading instant messaging app for a short
time in China.
THE INTRODUCTION OF WECHAT

WeChat, developed by Tencent, was a mobile text and voice

messaging communication service first released in January
2011. The app was available on multiple platforms such as
Android, iPhone, and Blueberry, among others. It allowed
users, upon registering at www.wechat.com, to down-
load the app on their smartphones for free. WeChat offered
multi-media communication such as text messaging, hold-
to-talk voice messaging, broadcast (one-to-many) messaging,
photo and video sharing, and more. More recently, Tencent
looked into making WeChat an all-in-one platform where
users can chat, shop, play games, pay bills, and even manage
bank accounts. This all begs the question: How did Tencent
develop this great product?
QQ was a big hit in the instant messaging market.
However, despite the continuous growth of QQ users,
Huateng knew that a big thing was coming: namely, the
mobile Internet era would soon take over the PC era. And
Huateng was right! Sina Corp., an online media company
founded in 1999 in China, entered the mobile market in
August 2009 with the introduction of “Sina Weibo.” Sina
Weibo was similar to Twitter — that is, a microblog social
network. In less than two years, the site had attracted more
than 100 million users. Sina Weibo took more than 50% of
the market share among mobile phone users and surpassed
18 AlianneTango, March 15, 2014, Line, Kakao Talk, WeChat, and Viber: Mobile
messaging apps in Asia topples over the use of regular text messaging. Retrieved on
December 1, 2014 at http://www.techviewasia.com/line-kakao-talk-wechat-viber-
mobile-messaging-apps-asia-topples-use-regular-text-messaging.
S0218927516500152.indd 409 16-01-17 3:35:08 PM

410 ACRJ
the mobile devices market share of QQ to become Tencent’s

biggest threat.19
Huateng understood that Tencent could not solely
count on QQ to sustain the growth of the company and it
needed something creative in order to tap into the mobile
Internet market. Mobile phone users were dramatically dif-
ferent from PC users in several ways. Plus, the hardware and
software systems of mobile phone and apps were changing
rapidly and unpredictably. Huateng received several product
proposals from different departments. One proposal came
from the wireless business department at the Shenzhen head-
quarters. The department put together a team to develop a

new product from QQ, but for the mobile Internet market. In
essence, it was an optimized wireless version of QQ. Mean-
while, the QQ mailbox team at the Tencent Research and
Development (R&D) Center in Guangzhou created a product,
WeChat, based on their experience in managing and devel-
oping large capacity mailboxes. On November 18, 2010, Ma
Huateng pulled resources from two internal departments and
officially formed a team to oversee the WeChat project. He
claimed that the budget for the wireless business depart-
ment would be unlimited, thus showing his full support of
the emerging mobile social networking product. His deter-
mination and efforts paid off. In 2012, the company’s fourth-
quarter report showed that its monthly active instant messaging
users reached 798.2 million.20 However, such impressive
results did not come easily. To achieve its success with
WeChat, Tencent had created a special organizational struc-
ture and implemented a set of unique innovation strategies.
Innovation Organization
To facilitate the firm’s innovation activities, Tencent adapted

the following organizational structure.
19 Willis Wee, March 4, 2011. China’s microblog, Sina Weibo is approaching 100
million users. Retrieved on December 3, 2014 at www.techinasia.com/sina-weibo-

100-million-users/.
20 Tencent Announces 2012 Fourth Quarter and Annual Results. PR Newswire. March
20, 2013. Retrieved March 4, 2014 at http://www.tencent.com/en-us/content/

at/2014/attachments/20140319.pdf.
S0218927516500152.indd 410 16-01-17 3:35:08 PM

Decentralization
First, because most ideas in regard to micro-innovation origi-

nated from the lower levels of the company, a flat structure
could facilitate information flow. In practice, any department
that brought in the most profits attained the highest privi-
leges and the strongest influence in innovation strategy and
activities in the organization. However, substantial influ-
ence of innovation strategy by a particular department could
be detrimental to an organization’s long-term growth and
profitability. Tencent had done a great job of decentraliza-
tion. As the cash cows of Tencent, the wireless system depart-

ment and the interactive entertainment-system department

were not allowed to exert any influence on the development
of emerging departments. Products such as WeChat were
developed totally independently from the wireless system
and interactive entertainment-system departments. Innovative
activities were afforded a high degree of freedom and were
not affected by their short-term performance.
Tencent iterated and upgraded its various mobile social
products in their own fields. Zhang Xiaolong, the founder
of WeChat and the manager of Tencent’s R&D Center in
Guangzhou, believed that mobile QQ met users’ need for syn-
chronous communication, and that Tencent’s microblog met
users’ need for asynchronous communication, while WeChat,
with greater flexibility, allowed users to manage social rela-
tions and interpersonal communication at their will. Hence, in
order to successfully conduct micro-innovation within an
organization, a company should establish a standalone unit
that is separated from its relationship with other existing
dominant businesses to avoid unnecessary interference.
Small teams
Breaking norms and established procedures and making

bold attempts have been the most notable feature of micro-
innovation organizations; thus, micro-innovation could never
be accomplished in a research center or on a factory assembly
line. Successful micro-innovation requires implementation by
a capable and vigorous small team.
S0218927516500152.indd 411 16-01-17 3:35:08 PM

412 ACRJ
When developing WeChat, Zhang Xiaolong did his

best to keep the development team small. If the team
became too big, he divided it into several autonomous
small groups. At the same time, cooperation among team
members was kept simple to maintain members’ initiatives
and enthusiasm.
Similarly, micro-innovation is not performed in a rigid
step-by-step manner. The iteration of micro-innovation was
so frequent that it was impossible to know how a new
version might look in the next two months. As a result, all
past experience could become obsolete for future develop-
ment. Any procedures based on past experience could make

development teams neglect current changes surrounding their
product and constrain cognitive learning ability.
In fact, the process of micro-innovation was con-
tradictory to that of standard manufacturing. While large
companies tend to react slowly, small companies can respond
quickly to any uncertainties. Thus, small teams that operated
in a large organization could avoid streamlined and rigid
steps that could hamper innovation activities.
Dynamic management
Competition in the mobile Internet industry has always

been intense and any competitive advantage and market
monopoly that resulted from micro-innovation could be
temporary. Great ideas might emerge at any time and
consumers expected to see new products or features fre-
quently. To sustain a competitive advantage, companies must
establish yet continuously modify their goals to overcome
dynamic market changes.
In the process of micro-innovation, companies should
always consider external factors such as market demands,
competitors, regulations, and newcomers. However, such
factors are always changing. Customer preferences might
shift, new competitors might appear, technology might
change, and existing resources might become obsolete.
S0218927516500152.indd 412 16-01-17 3:35:08 PM

STRATEGY
Innovation through Micro-innovation
Tencent has had a long tradition in innovation strategy.

During the development process of WeChat, the company
adopted a strategy called micro-innovation, a term that
Google’s former Vice President, Kai-fu Lee, brought up in
an interview. Micro-innovation has three unique character-
istics that make it different from incremental innovation.
First, micro-innovation is subtle and adaptive. Products are
developed based on previous versions or other similar prod-

ucts and thus, degrees of innovation are incremental rather

than radical. Second, the cycle of micro-innovation is short
and the process is repetitive. Firms are required to cease-
lessly iterate each step to produce the best outcomes and
each new version must be short in order to obtain feedback
from users and improve products almost instantly. Third,
micro-innovation requires a significant amount of interaction
between a product and its users.
WeChat has gone through multiple stages of micro-
innovation to come to this point.
Stage 1: Creating product features to establish a user base

On January 21, 2011, the Tencent R&D Center in Guang-
zhou launched WeChat 1.0 for iPhone and a few days later,
for the Android and Aymbian platforms. The core feature
of WeChat 1.0 enabled users to send free messages with
photos, which was considered an important feature that users
would highly appreciate. Although it was released with high
hopes, WeChat 1.0 did not meet the company’s expectations.
However, several users provided exceptional feedback and
input that was valuable in improving the product. Less than
four months later, WeChat 2.0 was launched on May 10, 2011.
WeChat 2.0 was upgraded with a specific new feature, hold-
to-talk voice messaging, which was built on voice messenger
technology that was researched and developed indepen-
dently. This new function helped WeChat take off, drawing
many new users in a short period of time. For most users,
hold-to-talk remained WeChat’s core function — until now.
S0218927516500152.indd 413 16-01-17 3:35:08 PM

414 ACRJ
Tencent continued to secure and further enlarge

WeChat’s user base by paying attention to details. Through
observing and understanding user habits, the company added
a new feature (i.e., “distance sensor”) that could trigger
receivers’ hold-to-talk function when the phone was put close
to the ear. The sensor would then automatically turn off the
phone speakers when the receiver was held from the ear at a
certain distance, thus removing the concern of the user’s voice
messages being broadcast to the public.
Additionally, although WeChat’s features were similar
to Millet’s, its major competitor in China, WeChat’s overall
download time was shorter. Further, since many WeChat

users were also QQ users, they could find their friends in QQ
and receive QQ offline messages and emails simply through
their WeChat accounts.
In sum, Tencent has always kept users in mind in the
process of micro-innovation. The small but detailed features
that WeChat added enabled the product to quickly establish a
foothold in the market.
Stage 2: Expanding relationship chains
Existing instant messaging apps have a shortcoming — they

only allow users to look for their friends. On August 3, 2011,
WeChat 2.5 was the first instant messaging app that enabled
users to “Look Around.” “Look Around” is a function that
allows users to look for strangers around them who also use
the same function. WeChat 2.5 also had another new feature
called “Drift Bottle,” which was originated from QQ. “Drift
Bottle” allows a user (sender) to “throw a bottle” into “the
sea” with a text or voice message and then wait for someone
(receiver) from anywhere in the world to pick it up.21 The
identities of the sender and receiver are anonymous unless
they decide to become friends after the drift bottle. In this
stage of micro-innovation, WeChat successfully combines
voice service with location-based services (LBS), using geo-
location technology, to support social interactions and thus
21 WeChatwebsite, retrieved on December 1, 2014 at

http://www.wechat.com/en/features.html.
S0218927516500152.indd 414 16-01-17 3:35:08 PM

penetrate a niche market of users that were strangers to each

another.
In fact, Tencent was not the first company to use LBS
technology and neighborhood social application function, nor
was it the first to combine mobile phone voice messenger
with LBS. However, Tencent was the first to integrate what it
had learned from earlier versions of WeChat through users.
For example, WeChat developers discovered that although
people might not know each other, they had similar needs
(e.g., the need for carpooling). Based on an understanding of
people’s day-to-day lives, WeChat created a new feature that
enabled users to look at the profiles of people around them

(e.g., their nicknames, distances from the user). This partic-
ular function allows users to establish new ties with strangers
rather than with existing friends, and the opportunity to
increase their network size and strength-of-ties to different
groups. The launch of “Look Around” and “Drift Bottle” set
an important milestone for WeChat, and the number of newly
registered users of WeChat began to increase exponentially,
surpassing the number of QQ users.
Stage 3: Bypass the competitors and internationalization
On October 1, 2011, WeChat 3.0 introduced a new func-

tion called “Shake.” “Shake” is a function that could be acti-
vated by simply shaking a mobile phone, which would
then activate WeChat to look for other users who were also
shaking their devices at the same time and match them up.
It was an alternative way to meet strangers and make new
friends. In addition, at the end of 2011, WeChat 3.5 intro-
duced a function called “QR Code.” This feature enabled
smartphone users to scan two-dimensional barcodes and
create their own QR codes as their identity codes to share
with friends.22 Although “Shake” and “QR Code” were first
developed by competitors and launched in other countries,
WeChat advanced the existing technology through continuous
updates.
22 See footnote 21.
S0218927516500152.indd 415 16-01-17 3:35:08 PM

416 ACRJ
WeChat’s intensive micro-innovation in the first three

stages had a huge influence on Millet, its biggest domestic
competitor. Founded by the famous Internet entrepreneur, Lei
Jun, Millet had been in the spotlight since it first appeared.
Many people believed that Millet could replace QQ to be the
most popular mobile messaging app and make Millet the
largest Internet company in China. However, after several
rounds of micro-innovation, WeChat surpassed Millet in
terms of user experience and the number of users. Millet lost
its audience and leading market position to WeChat. By the
end of 2012, the Millet app stopped development as an inde-
pendent app and simply became a voice messenger module

in Millet’s mobile phones.
After conquering China, WeChat continued its success.
Although the first three versions of WeChat were all in
Chinese, Tencent was determined to pursue an interna-
tionalization strategy, extending the apps’ latest version to
19 languages. In 2012, WeChat ranked as the No.1 App in
iPhone stores in 15 international markets such as Singapore,
Malaysia, Thailand, Hong Kong, Taiwan, and other Latin
America and Middle Eastern countries. With more than
40 million overseas users, WeChat ranked as the one of the
top four largest mobile instant messaging tools along with
WhatsApp, Kakao Talk, and Line.23
Micro-innovation of the international version was
another critical milestone in WeChat’s internationalization
journey. Ma Huateng once commented that WeChat was one
of the few internationalization strategic achievements that he
had witnessed in his career at Tencent.
Stage 4: From tool to platform
In May 2012, WeChat 4.0 was released. It arrived with a new

feature called “Friends Circle,” which allowed users to release
words, pictures, music, and videos to create a personal,
intimate relationship chain.
23Sidharth,October 8, 2012, WeChat App — A free mobile messaging and social net-
working application. Retrieved on December 1, 2014 at
http://blogote.com/features/wechat-app-review/26049/.
S0218927516500152.indd 416 16-01-17 3:35:08 PM

WeChat was not the originator of “Friends Circle.”

Zhang Xiaolong said: “Our competitors think of WeChat 4.0
as a copycat of Instagram or Path. However, none of them
realizes the fineness of WeChat’s “Friends Circle” and the
risk we took to attempt to build social network services on
the network of QQ users. They also don’t see how hard we
are trying to avoid such a risk, which may impair user experi-
ence and structural changes after we introduced third party
content publicly. When our competitors use copycats as an
excuse for their lack of innovation, they have already lost the
game.”24
The key function of “Friends Circle” enables users to

share photos and any other content such as videos, music,
and words. “Friends Circle” had been developed quickly.
Through “Friends Circle,” a lot of relatively private informa-
tion could flow between users. In order for a user to deal
with the subtle experience of a relationship chain, WeChat
team handled the relationship among different users carefully
so that friends within strong relationships could only see and
evaluate simultaneously while content in different relation-
ship chains was separate and later connected at certain points.
In addition, WeChat 4.0 was compatible with any
content available on any mobile phone. Good content could
be transmitted efficiently through WeChat relationship chain.
Meanwhile, WeChat could also enhance and optimize a
social relationship chain through transmission. The advent
of “Friends Circle” turned WeChat from a mobile communi-
cation tool into a mobile communication platform. As Zhang
Xiaolong said, “WeChat will be a management platform for
social relations and mobile communication.”
“Friends Circle” also posed a big threat to competitors
such as Millet and Sina Microblog. In 2012, activities on Sina
Microblog fell by at least 30%, while activities on “Friends
Circle” rose by more than 60%. Since 2012, many users of
Sina who read and shared interesting content on microblogs
24 Do News, March 23, 2012, Zhang Xiaolong denies that WeChat 4.0 copied
Path, which is supported by Ma Huateng, retrieved on December 1, 2014 at

http://www.donews.com/original/201204/1175957.shtm (微信张小龙否认4.0新版抄袭
path 获马化腾公开支持, DoNews, 2012年4月23日).
S0218927516500152.indd 417 16-01-17 3:35:08 PM

418 ACRJ
found that WeChat’s “Friends Circle” provided a better plat-

form with better services.25
In versions 4.0 and version 4.5, WeChat introduced
additional new features such as voice/video call, WeChat
web version, and an enterprise public account attention/
information subscription. These new features were free
and more important, users did not have to pay for extra 3G
service for video calls. The introduction of these features
helped Tencent penetrate into a totally different market
segment. During the Spring Festival in 2012, mobile phone
text messages were replaced by WeChat messages with
colorful texts, pictures, and even animations. The advent of

WeChat had a disruptive impact on telecom operators.26
Stage 5: Business model for profit
In August 2013, WeChat 5.0 was released. Different from the

previous versions, WeChat 5.0 was designed to make sustain-
able profits from its new features, which included multiple
new features such as WeChat Payment, Express Store, Game
Center, QR Code Scanning Quotation, and Scanning English
Translation, among others.
With version 5.0, head-to-head competition between
Alibaba and Tencent’s WeChat began. In October 2013,
Jack Ma, Executive Chairman of Alibaba Group, felt more
intensely pressured than he’d ever felt. He saw that WeChat
had caused the demise of Millet, Sina Microblog, China
mobile SMS, and MMS, and sensed the threat of this product.
But Jack Ma never expected how quickly Tencent’s WeChat
would challenge Taobao marketplace, operated by Alibaba
Group.
The largest online marketplace in China, Taobao, was
similar to eBay and Amazon. Taobao provided a platform
for small businesses and entrepreneurs to open online stores
that sold a wide variety of products to consumers mainly in
China, Hong Kong, and Macau. After the launch of WeChat
25 Yixieshi, July 29, 2013, The active users of Sina microblog is keeping decreasing.
Retrieved on December 1, 2014 at http://www.yixieshi.com/it/14039.html.

26 See footnote 21.
S0218927516500152.indd 418 16-01-17 3:35:08 PM

5.0, almost every store on Taobao opened a WeChat public

account for promotion. Once store owners were approved to
connect their bank accounts to WeChat public accounts, they
could start doing businesses through scanning QR codes for
transactions and payments (i.e., WeChat Payment). Since
Tencent had set up QR codes of WeChat Payment in millions
of online and offline stores, buyers and sellers who met at
Taobao Marketplace did not need to complete their transac-
tions via Taobao’s online payment platform and could close
the transactions by simply scanning QR codes. The transac-
tions would be completed through WeChat Payment.
WeChat Payment, an eye-catching feature of WeChat

5.0, emphasizes a one-click payment. A user needs to
connect his or her bank account and set up a payment
password, which is then entered when the user want to make
a payment. This feature challenged Taobao’s Alipay that
dominated China’s online payment market.
In response to WeChat 5.0, Jack Ma of Alibaba Group
made a series of counterattack measures: First, using secu-
rity and privacy as a concern, any accesses or transactions on
Taobao stores through WeChat were blocked. Second, Alibaba
launched its own payment solutions named “Laiwang” at full
speed. Third, “Alipay Wallet” was launched as a complement
to Alipay, the Chinese version of PayPal. Alipay Wallet was
an app with O2O mode in which users could scan QR codes
to synthesize Alipay’s online and offline functions.
Despite Alibaba’s effort, the number of WeChat users
reached 10 million within three months after its launch,
with a growth rate of 100,000 new users every day. Although
Alipay Wallet users reached 100 million, their usage fre-
quency was far less than WeChat Payment users.
Additionally, the public account of WeChat 5.0 was
further divided into subscription accounts and business
accounts. Through WeChat public account, more and more
stores attempted to activate users and enrich their experi-
ence. For example, China CITIC Bank co-paid five yuan for
each payment made through WeChat Payment. Youbao, a
vending machine company, held a “purchase with one yuan”
activity for WeChat Payment users. Dianping, the operator of
a Yelp-like website in China, offered a “5 yuan discount for
S0218927516500152.indd 419 16-01-17 3:35:08 PM

420 ACRJ
every 38 yuan spent” to WeChat Payment users. WeChat also

provided users with other approaches to online stores. For
example, a new function called “Premier goods” was added
under “My bank card,” and provided users with another way
of online shopping.
Innovation Strategy
By 2013, WeChat had released 45 versions and turned from

“free message with photos” in its early versions to “the most
popular mobile phone communication software” in its latest

versions. From 2012 to 2013, the number of released ver-
sions of WeChat had declined, however, each version evolved
from micro-innovation to structure innovation and caused
disruptive result.
Snapshots of WeChat:
— January 21, 2011, WeChat 1.0 was released.
— March 29, 2012, the number of WeChat users reached 100
million.
— September 17, 2012, the number of users reached 200
million.
— January 2013, the number of users reached 300 million.
— April 2013, the number of users reached 400 million.
— July 25, 2013, the number of users reached 500 million.27
How could WeChat develop at such a striking speed?
Some innovation strategies of WeChat deserve a closer look.
Minimum viable products (MVP) approach
An interesting phenomenon in WeChat’s development was

that the technologies of the most important functions were
simple, unoriginal, and made full use of the structured
modules of a smart phone platform. For example, the walky-
talky function was based on a microphone and a speaker
module; “Look Around” was based on a GPS positioning
27 Tencent website, retrieved on December 1, 2014 at
http://www.tencent.com/en-us/at/roadmap.shtml.
S0218927516500152.indd 420 16-01-17 3:35:08 PM

module; and “Shake” was based on a gravity induction

module. However, all of the innovative applications of these
features originated from a recombination of existing tech-
nologies and function modules, and were based on user
experiences. Although the features and their applications
were easy to imitate and the technologies were available,
no competitor could match WeChat in its ability to speedily
update its product features, understand user needs, and
handle each step so precisely.
When asked about the design principles of WeChat,
Zhang Xiaolong replied, “It is really hard for us to success-
fully design a function when nobody else had ever done it.
A rule of thumb is to be simple. In the case of ‘Shake,’ there
is no button, no menu, and no entrance. Instead, there is
only a picture that indicates for users to shake their mobile
phones. As simple as this is, the motion is the most enlight-
ening one in human beings’ history.” Such an innovative
human-oriented design principle set WeChat apart from its
competitors.
Reverse micro-innovation by subtraction
As of today, WeChat no longer includes many functions pre-

viously suggested by users. “The fewer the better,” is the
motto, which supports the logic of reverse micro-innovation
in product innovation. Innovation does not always mean
adding new features. By removing redundant features or fea-
tures that were no longer desirable to users, WeChat became
even more user friendly.
Reverse micro-innovation by subtracting emphasized
the need for simplicity. For example, WeChat developers
noticed that iPhone users did not like iMessage, a feature that
allowed users to see the status of their messages being sent
or received. Imagine if you read a message sent from your
supervisor after work and you did not reply to the supervisor
immediately. You worried that you would be in big trouble
because the supervisor knew that you had read the message.
Noting it, WeChat developers decided not to include such a
feature.
S0218927516500152.indd 421 16-01-17 3:35:08 PM

422 ACRJ
Further, as products took on more and more functions,

reverse micro-innovation became necessary. Importantly, the
WeChat developers realized that users should decide whether
a product feature was useful or redundant. Following
this rule, the developers looked for features that were too
complicated for users and simply removed them.
Strategic alliances in internationalization
One of the main competitors of WeChat in the overseas

market was Line. By promoting heavily in Southeast Asia,
WeChat quickly surpassed Line in the number of users and

the app-store ranking in Malaysia and Singapore. In Hong
Kong, WeChat collaborated closely with McDonald’s, KFC,
and Domino’s and introduced electronic credit vouchers
to attract new users. In Europe, WeChat took the lead in
entering countries such as Italy and Turkey.
After almost a year and half of trial and error, WeChat
created an efficient market entry model. First, it started with
small-scale promotion. Second, it used mass media for adver-
tising and popular local celebrities for endorsement. Third,
it coordinated with local operators and phone companies to
install WeChat on mobile phones in advance. Fourth, WeChat
continued to advertise heavily through different channels,
and finally, WeChat targeted stores and offered them more
value-added services for fees.
According to GlobalWebIndex, a market research insti-
tute, WeChat had a market share of 27%, ranked fifth glob-
ally on the list of mobile apps released in the second quarter
of 2013. By October 2013, Tencent invested over USD 2 billion
overseas where the number of users reached 100 million.
CHALLENGES
Ma Huateng commented that, “The intelligence terminal

is the extension of a human being’s sense organ … mobile
Internet is the real Internet.” The explosive development of
WeChat revealed the incredible speed of product innovation
S0218927516500152.indd 422 16-01-17 3:35:08 PM

in China. Meanwhile, WeChat was confronting a huge chal-

lenge. Domestic Internet giants such as Alibaba and 360Buy
saw WeChat as their biggest competitor and tried to force
it out of the market. Overseas, Facebook’s acquisition of
WhatsApp was the biggest obstacle to WeChat’s interna-
tionalization journey. The competition, which had once been
between WeChat and WhatsApp, was now between WeChat
and Facebook in the global arena. To succeed in the future
and effectively win the mobile Internet market and beyond,
Tencent realized that it had to find new ways of continuously
improving WeChat to outperform its competitors. In essence,
the challenge of Tencent was to push the envelope without

developing marketing strategies that could be too easily
copied by competitors or creating innovations that were irrel-
evant to the customers. This required Tencent to constantly
question itself and remain open to even trivial customer
requests. The future of WeChat also represented China’s next
generation mobile Internet-based innovation.
S0218927516500152.indd 423 16-01-17 3:35:08 PM

424 ACRJ
Exhibit 1
The Growth Rate of China Mobile Market
China’s total and mobile Internet users

800 100%
Million
600 80%
60%
400
40%
200 20%
0 0%
2010 2011 2012E 2013E 2014E 2015E
Total internet user (LHS) Mobile internet user (LHS)

% of total internet user (RHS)
Data source: CNNIC, Credit Suisse.
Exhibit 2
Time Spent on Apps on Smartphone

(Tencent has a historical advantage in social network and games)
Source: Global data, Goldman Sachs investment report 2013.
S0218927516500152.indd 424 19-01-17 10:07:05 AM

Exhibit 3
Usage of Social Apps

Source: GlobalWebIndex Q4 2013 /// Base: Global internet users with a mobile phone
and/or tablet, aged 16–64, excluding China.
S0218927516500152.indd 425 19-01-17 10:07:06 AM

426 ACRJ
Exhibit 4
The Three Big Profits of WeChat 5.0

Include Games, Expression Store and Payment
Exhibit 5
The Growth of Users
Sources: Tencent; BNP Parlbas.
S0218927516500152.indd 426 16-01-17 3:35:09 PM

Exhibit 6
Percentage of Global Smartphone Users Who Have Used the App in Q2 2013)
Source: GlobalWebIndex.
S0218927516500152.indd 427 16-01-17 3:35:09 PM

We Chat

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

We Chat

Uploaded by

Copyright:

Available Formats

ASIAN CASE RESEARCH JOURNAL, VOL.

20, ISSUE 2, 401–427 (2016)

Omaha, USA, Dr. Sunny

Li Sun of University of INTRODUCTION

© 2016 by World Scientific Publishing Co. DOI: 10.1142/S0218927516500152

S0218927516500152.indd 401 16-01-17 3:35:07 PM

users in the future. Such a success is only a small milestone in

Tencent was founded in November 1998. With a mission

2 Tencent website, retrieved on November 30, 2014 at

S0218927516500152.indd 402 16-01-17 3:35:07 PM

Internet users to show off when online and Tencent became

Internet companies in China, Alibaba — essentially Amazon,

S0218927516500152.indd 403 16-01-17 3:35:07 PM

In 2011, with the aim of satisfying increasingly diversi-

open platforms would provide other resources. For example,

5 Tencent website, retrieved on November 30, 2014 at

media, retrieved on December 1, 2014 at

S0218927516500152.indd 404 16-01-17 3:35:07 PM

invested more than RMB 100 million (USD 16 million)

China’s Mobile Internet Market

China has 618 million Internet users, which account for

8 Tencent website, retrieved on December 1, 2014 at

33rd statistical report on internet development in China, retrieved on December 1,

S0218927516500152.indd 405 16-01-17 3:35:08 PM

(USD 374), while in 2013 this number dropped to RMB 1,773

The rapid surge in the access of mobile Internet has served as

messaging, blogs, social networking sites, and microblogs. The

social media landscape in China is highly fragmented. Four

11 Leanne Wang, April 2014. China’s mobile-internet industry is booming.

Here’s a simple infographic showing their US-based equivalents, retrieved on

S0218927516500152.indd 406 16-01-17 3:35:08 PM

The second type of social media includes blogs, micro-

total transaction value of mobile shopping reached a total

Key Players in the Instant Messaging War

In the mobile messaging app market, multiple apps were

S0218927516500152.indd 407 16-01-17 3:35:08 PM

Overseas, there were four major players.

that included text messaging, sharing of images videos, voice

萍, 2012年2月6日. 微信是如何腾飞的, 南方周报).

November 14, 2011.

S0218927516500152.indd 408 16-01-17 3:35:08 PM

In China, Gexin and Millet were two key players prior

THE INTRODUCTION OF WECHAT

WeChat, developed by Tencent, was a mobile text and voice

S0218927516500152.indd 409 16-01-17 3:35:08 PM

the mobile devices market share of QQ to become Tencent’s

quarters. The department put together a team to develop a

To facilitate the firm’s innovation activities, Tencent adapted

million users. Retrieved on December 3, 2014 at www.techinasia.com/sina-weibo-

20, 2013. Retrieved March 4, 2014 at http://www.tencent.com/en-us/content/

S0218927516500152.indd 410 16-01-17 3:35:08 PM

First, because most ideas in regard to micro-innovation origi-

tion. As the cash cows of Tencent, the wireless system depart-

ment and the interactive entertainment-system department

Breaking norms and established procedures and making

S0218927516500152.indd 411 16-01-17 3:35:08 PM

When developing WeChat, Zhang Xiaolong did his

ment. Any procedures based on past experience could make

Competition in the mobile Internet industry has always

S0218927516500152.indd 412 16-01-17 3:35:08 PM

Innovation through Micro-innovation

Tencent has had a long tradition in innovation strategy.

developed based on previous versions or other similar prod-