What Can a Trip to China Teach Twitter's CEO?

The Short Answer: A Lot

By Published on .

WeChat's welcome screen.
WeChat's welcome screen.

Twitter's CEO Dick Costolo is visiting China this week to learn about the local tech scene. And there's a lot to study up on, since every day brings new partnerships, experiments and competition in the sector.

While investors worry about Twitter's lost momentum and Facebook's flagging appeal for younger teenagers, these are exciting times in China, which has 618 million internet users and potential for more. Less than half the country is online.

A few big Chinese players, especially the smartphone-savvy ones, have overcome their copycat roots and are pioneering innovations in payments, online finance and mobile commerce.

Just Wednesday, China's hot, all-purpose mobile app WeChat announced it had 355 million monthly active users in China and abroad at the close of 2013, up 6% from the previous quarter.

WeChat's parent company, Tencent, reported that net profit for the final quarter of 2013 hit $641 million, up 13% from the year-earlier period, while revenues for the same timeframe jumped 40% to $2.78 billion.

When Tencent launched the app three years ago it took inspiration from the WhatsApp mobile messaging service. (Facebook's WhatsApp is still bigger than WeChat, with 450 million monthly active users, though the Chinese app is closing in.)

WeChat has developed far beyond its initial offering, with games, an Instagram-like photo feed and a Facebook-like wall. It allows marketers to interact with users, but it's not chasing ad revenue. Called Weixin in Chinese, it's getting into banking as well as mobile commerce. (China is expected to overtake the U.S. in e-commerce revenues by 2015, according to eMarketer.)

So what's the takeaway for Twitter, which has 241 million monthly active users – far fewer than WeChat?

"Maybe one day Twitter will want to add a mobile messaging function" and boost its number of features, said Xiaofeng Wang, a Forrester Research analyst.

Twitter CEO Dick Costolo arrived Monday in Shanghai to meet with university students and local officials. Twitter, like Facebook and YouTube, is blocked in China by the government, and there was initial speculation Costolo might hope to change that.

But observers in China say that's unlikely. Even if Twitter were suddenly accessible in China, a local microblogging platform, Sina Weibo, has already filled its place.

Though Weibo is censored, and though a government crackdown on influential microbloggers has hurt it, it nonetheless has 129 million monthly active users and is preparing for an IPO in New York. (On its SEC filing, Weibo acknowledged that censorship might "adversely affect our user experience.")

Still, at this late stage, it would be hard for Twitter to compete. It's possible Mr. Costolo just wants to get a closer look at Tencent and rival Alibaba, the Chinese e-commerce giant preparing for a U.S. initial public offering, as they work to go global.

In Mr. Costolo's shoes, "I would be trying to figure out how these Chinese companies will try to partner (as they) expand overseas, and how Twitter may be able to compete, partner or emulate" them," said Jung Goh, head of strategy for web2asia, which helps companies do e-commerce in China.

The rivalry between Tencent and Alibaba is fueling the competition and innovation in China's tech scene. Mark Tanner, founder of marketing and research agency China Skinny, calls this year, the Year of the Horse, a "two-horse race." The founders of Tencent and Alibaba are both surnamed Ma – that's "horse" in Chinese, of course.

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