From video account e-commerce to WeChat e-commerce, what is Tencent thinking?

Tencent has achieved significant growth in advertising through its video account platform, which has become an important driver of its revenue growth. The article delves into how video accounts use e-commerce and advertising to drive revenue, and analyzes the latest developments and strategy adjustments in video account e-commerce. By closing certain categories and opening others, Video Account is continuously optimizing its platform to adapt to market and user needs. At the same time, the launch of WeChat Stores heralds new developments in the WeChat e-commerce ecosystem.

Thanks to its video account, Tencent joined the camp with advertising revenue of hundreds of billions last year. Continue to make efforts this year.

In Q2 2024, Tencent's total revenue was 161.17 billion yuan, an increase of 8% year-on-year; net profit increased by 82% year-on-year to 47.63 billion yuan - Tencent's revenue has increased rapidly for seven consecutive quarters. Among them, online advertising increased by 19% year-on-year to 29.9 billion yuan, becoming one of the contributors to Tencent's revenue growth.

According to LatePost, Tencent's Chief Strategy Officer James Mitchell said that video account advertising revenue increased by more than 80% year-on-year, and major customers such as games, e-commerce and education increased their advertising spending in the quarter.

Last year, the total e-commerce transaction volume (GMV) of WeChat Video Account was around 100 billion yuan, and the total transaction volume of goods facilitated by mini programs in the second quarter increased by double digits year-on-year.

In the past two years, the outside world has become accustomed to discovering the highlights of Tencent’s financial reports through video accounts. This is not only an important growth in Tencent’s advertising revenue, but also an important foundation for the emergence of new buds on Tencent’s base. Another important factor driving the growth of video account advertising is transactions, commonly known as e-commerce.

Just a few days before the release of the financial report, Video Account E-commerce made two adjustments that attracted outside attention: one was to significantly adjust the categories of live streaming sales on Video Account; the other was to adjust the transaction outlet again, and the Video Account store was upgraded to a "WeChat store."

Li Hao, founder of Kas Consulting, who has always been optimistic about video accounts, wrote in his WeChat Moments: "As I have judged, video account e-commerce will never become an independent business line like Douyin e-commerce, but will be fully integrated into the WeChat ecosystem."

From video account e-commerce to WeChat e-commerce, are there any essential changes behind it? Has Tencent really figured out how to layout the video account transaction ecosystem?

1. Behind Closing and Opening

On August 8, the official website of Video Account released the "Announcement on the Upgrade of Some Categories of Video Account Showcase", pointing out that in order to better meet the shopping needs of consumers and the business operations of merchants, 26 first-level categories will be adjusted, the rules will be optimized and they will be reasonably opened, and it will take effect on August 22.

Specific adjustments are divided into three categories: open, targeted access, and temporarily closed/category closure.

Temporarily not opening/closing a category means that no new merchants or products in this category will be accepted, and related products and merchants will be gradually cleared and removed from the shelves.

According to the "List of Open Categories in Video Account Showcase", a total of 451 specific categories were closed, of which the first-level category "second-hand" accounted for 315.

[Picture] Video account e-commerce closed categories

Despite the changes in the overall environment and consumption concepts such as sharing and environmental protection, second-hand e-commerce has attracted many consumers who value cost-effectiveness, especially young user groups.

However, the second-hand e-commerce industry is mixed. The Economic Observer once pointed out that unlike new product transactions, second-hand item transactions have problems such as high transaction costs and non-standardization. Moreover, once disputes arise, the types are complex and diverse and difficult to judge.

Also closed was the education and training track, which involved 19 specific categories, including local training for children's talents, financial management, emotional, fitness and health classes, as well as academic and professional skills training.

In fact, it’s not just the video account. Douyin also recently issued an announcement to clear out general knowledge categories such as children’s growth-parent education, skills training-Internet products and operations/e-commerce, etc.

Knowledge payment is a sexy business, but it is also the business that is most likely to be criticized by users for "cheating leeks". Once it infringes on the legitimate rights and interests of consumers, it can easily have a negative impact on the platform ecology. According to outside analysis, Video Account’s caution towards the education and training category is similar to its attitude towards the “second-hand” business.

We also noticed that Video Account has opened up 391 categories that were originally not open/targeted to access, such as outdoor sports equipment, maternal and child care, fresh fruits and vegetables, household appliances, etc., which means that Video Account e-commerce has been further liberalized.

【Image】 Categories of video account e-commerce open to the public

According to LatePost, the GMV of Video Account e-commerce in 2023 will be around 100 billion yuan. Although there is a gap with the 2 trillion GMV of Douyin e-commerce, the potential of Video Account e-commerce is beginning to emerge in terms of scale growth and conversion efficiency.

According to Xinbang statistics, live streaming of clothing and jewelry has become the main force of video account e-commerce, especially women's clothing - this is consistent with official WeChat data. In 2023, women accounted for 78% of video account purchasing users, and clothing orders accounted for 38%, ranking first in the industry.

Based on these, LatePost reported that after seeing the growth in the number of user-level developers in the WeChat ecosystem such as Video Account and Mini Programs in the first half of the year, Tencent took the initiative to expand the commercialization opportunities of these business formats. Such as live streaming e-commerce, which also drove the growth of advertising business in the second quarter.

It now appears that Tencent is still continuing to advance commercialization.

According to Ebang Power, the main task of Video Account in 2024 is to introduce merchants and GMV. In the first half of the year, Video Account, WeChat Pay and Tencent Advertising will continue to improve the underlying infrastructure, and commercialization will be launched in the second half of 2024.

The adjustment and partial liberalization of the e-commerce categories of Video Account are precisely to meet the needs of different consumers. When the number of Video Account users increases and DAU, user attributes, etc. begin to converge with the WeChat market, it is necessary to increase the quantity and quality of Video Account e-commerce inventory to promote the development of e-commerce.

2. Why the trading system keeps changing

Four days after WeChat officially adjusted the e-commerce category of Video Account, Video Account issued an announcement: starting from August 25, Video Account stores will be upgraded to WeChat stores.

This means that the transaction system of video accounts has changed again.

WeChat Store is the latest store system of Video Account e-commerce, providing merchants with product information display, transaction and other functions, and making the entry process and upgrading brand certification simpler.

The key is that it will connect WeChat's internal official accounts to support the circulation of store and product information in multiple WeChat scenarios such as official accounts (subscription accounts, service accounts), video accounts (live broadcasts, short videos), mini-programs, and search engines - a WeChat store is applicable to all WeChat traffic entrances.

Subsequently, the official Video Account also released the "WeChat Store 0 Deposit Trial Operation Management Rules" to encourage merchants to open WeChat stores.

In fact, this is not the first change in the WeChat e-commerce store system.

In 2014, WeChat official accounts became popular and attracted a large amount of traffic and advertisers. WeChat then set up the "WeChat Store" widget under the official accounts to solve the problem of opening stores on WeChat.

Now it is 2020, and the battle between Douyin and Kuaishou for live streaming e-commerce has already begun. WeChat has begun testing "WeChat Mini Stores" in its own "connecting everything" position - mini-programs, providing the functions of e-commerce stores.

For example, it provides merchants with e-commerce business scenarios such as product information release, transactions, and mini-program live broadcasts, fully supports merchants to open stores and operate independently, and also supports marketing functions such as live streaming and coupons.

Up to this point, WeChat’s store system was mostly passive or intended to meet users’ basic commercial needs, and was considered a basic functional component.

The change occurred in July 2022, when the "Video Account Store" was born.

Third-party SaaS such as WeMall and Youzan, which have been accompanying WeChat for several generations of store systems, have been kicked out, and their own "WeChat Mini Stores" have also been replaced. All users' order data are deposited in the "Video Account Store", which is convenient for enriching tags and optimizing algorithm distribution, thereby improving the efficiency of Video Account e-commerce.

The video account store is also seen as a signal that the video account is truly engaged in e-commerce.

So why launch a “WeChat Store” this year?

From the perspective of functional features, WeChat Store, based on the "unified exit" of Video Account Store, has completely connected the public domain of Video Account and the private domains of various parts of WeChat.

Tencent President Martin Lau explained in the 2024Q2 earnings call: "Tencent wants to build an e-commerce ecosystem within WeChat, connecting with all elements of WeChat's official accounts, mini-programs, enterprise WeChat, and gaining strength from them."

Looking at the overall WeChat traffic, we can find that except for the "Video Account", WeChat group chats, official accounts, Moments, etc. are all private domain traffic. These private domain traffic will supplement the quantity and diversity of WeChat e-commerce traffic.

Li Hao once shared in a podcast: "Only when video account e-commerce is deeply integrated with the WeChat ecosystem can it have broad space and vitality."

There are three reasons. First of all, relying on WeChat’s huge user base and high usage frequency, Video Account has more opportunities to intercept users.

Secondly, unlike Douyin’s extreme algorithm distribution mechanism, users are easily trapped in information cocoons and it is difficult for businesses to escape the Matthew effect. The "algorithm + social" combination mechanism of the video account can take into account the richness of content and matching efficiency when users watch videos, attracting more users and more attention, and making the merchant ecology more balanced.

The huge traffic and balanced ecology are destined to attract more businesses to join the video account. This is also in line with Zhang Xiaolong’s platform ecology concept - WeChat first builds a connection tool, and then allows all people who create value to be seen, that is, "even the smallest individual has its own brand."

3. How to improve the trading ecosystem?

How do video accounts empower e-commerce through WeChat stores?

As we all know, private domain traffic is the strength of video account e-commerce, so white-label, non-standard products, and high unit price products do very well in video accounts.

According to WeChat Open Class, private domain traffic of live e-commerce accounted for 50% in 2021 and 30% in 2022. Private domain transaction links naturally have trust attributes and premiums. This is also one of the reasons why the average customer spending on Video Account e-commerce is much higher than that on Douyin and Kuaishou - in 2023, the average price of a Video Account pen reached 205 yuan, much higher than Douyin's 130 yuan and Kuaishou's 88 yuan. ‌

If the private domain is imported into the public domain, will the merchant lose private domain traffic? Suppose merchant A is engaged in aromatherapy, and his private domain users are imported into the public domain through the video account. What if they are attracted by other aromatherapy brands?

The essence of WeChat's connection between the public and private domains is to expand the entire traffic pie, putting together the private and public traffic of all aromatherapy merchants. Merchants can then rely on their strength to operate to attract target users and achieve more conversions.

This is also illustrated by the new shop sharer function added to Video Account in May this year. With this function, merchants can forward their store products or content to any private domain within WeChat through sharers. After successful conversion, both merchants and sharers can receive incentives, promoting social fission distribution.

In essence, WeChat still wants to promote e-commerce conversion by connecting all traffic within the domain.

In the past few years, when Douyin and Kuaishou divided the short video world, Video Account, backed by WeChat's huge user base, supplemented recommendation algorithms and enhanced content, has bucked the trend and become the third largest video platform. It is the only short video platform that maintains rapid growth.

According to a research report by Guohai Securities, last year the MAU of Video Account was 900 million and the DAU was 450 million, approaching Douyin and exceeding Kuaishou. During the same period, Douyin's MAU was 1.1 billion and DAU was 760 million; Kuaishou's MAU was 700 million and DAU was 374 million.

In terms of average daily usage time per person, Video Account increased from 29.9 minutes two years ago to 54 minutes last year. In comparison, the data for Douyin and Kuaishou are declining.

In the Internet age, wherever there is traffic, there is business. The most basic business is advertising.

However, there is a ceiling for platform traffic, and under the current economic situation, merchants have limited investment amounts and willingness in product promotion advertising, so product promotion advertising is only a part of the platform traffic.

More business lies in the marketing chain of "product and sales integration". Compared with the separation of promotional and transaction channels ten years ago, merchants now not only advertise on short videos, but also generate transactions here - content e-commerce came into being.

This has given rise to a huge internal circulation advertising market - only when the platform can help merchants complete more transactions can it obtain more advertising revenue.

One piece of data to support this is that among the top ten Internet listed companies in terms of advertising revenue in 2023, more than half are e-commerce platforms.

For Tencent, transactions are an important part of the user experience closed loop, and perhaps an indispensable part of achieving advertising growth. But so far, it has not shown a mature form and is always changing.

It is foreseeable that this will be a key compulsory course for Tencent in the future.

Written by | Button Editor | Zhai Wenting This article is by the author of Operation Party [Xinmei daybreak], WeChat public account: [Xinmei daybreak], original/authorized to be published on Operation Party, any reproduction without permission is prohibited.

The title image is from Unsplash, based on the CC0 protocol.