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Our reporter Li Jing reports from Beijing

Mini programs, mini games, and video accounts are the highlight "new sprout" businesses in Tencent's financial reports in recent years.

On August 14, Tencent Holdings (00700.HK) released its second quarter 2024 financial report, showing that Tencent achieved revenue of 161.117 billion yuan, gross profit of 85.895 billion yuan, and operating profit (Non-IFRS) of 58.443 billion yuan in the quarter. Tencent said that multiple "new bud" businesses such as video accounts, mini programs, AI big models, and SaaS have thrived, continuously injecting new high-quality revenue into the three main businesses.

It should be noted that the commercialization of mini games and video accounts are facing some challenges or adjustments. In addition, Apple was recently exposed to have forced WeChat to plug payment loopholes, which mainly targeted the "Apple tax" problem of WeChat mini games. Tencent management responded in the earnings call that Tencent and Apple are still negotiating on the revenue of WeChat mini games.

The development of video account e-commerce has been the focus of industry attention recently. Recently, video accounts have made a number of organizational structure adjustments and introduced new business rules. The most obvious adjustment is that video account stores will be upgraded to WeChat stores.

Tencent management said in a earnings call that it has repositioned its live streaming business and hopes to build a complete e-commerce ecosystem within WeChat to achieve better collaboration. An industry insider interviewed by a reporter from China Business News said: "Video accounts have been developed for four or five years, and the development of video account e-commerce has not met expectations. After this adjustment, we are optimistic about the long-term development of video account e-commerce."

The new journey of video account e-commerce

The development of video accounts has always attracted much attention. In the second quarter of 2024, Tencent's online advertising revenue was 29.9 billion yuan, a year-on-year increase of 19%. Tencent said that online advertising revenue continued to grow, mainly driven by the growth of video accounts and long videos.

However, some industry insiders believe that the progress of the video account e-commerce business has not met everyone's expectations, and that "an e-commerce company that only produces video account content is a bit small."

Tencent management also responded in the earnings call: "Compared with competitors, our e-commerce transaction volume is small and there is still huge room for growth." However, Tencent management also said that in terms of e-commerce business in the WeChat ecosystem, in addition to mini-program e-commerce, the growth of live e-commerce this quarter is still very stable. Compared with other short video platforms, there has been no slowdown in the growth of total merchandise transaction volume.

Just before the release of the financial report, the Video Account Store also announced that it will be upgraded to a WeChat Store, which will 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.

Tencent management said that it has recently repositioned its live streaming e-commerce business to make it closer to WeChat e-commerce. "That is to say, the ecosystem we want to build is not just based on video accounts and live streaming channels, but to build an e-commerce ecosystem within WeChat and connect it to the entire WeChat ecosystem. It will still gain a lot of power from official accounts, video accounts and live streaming channels. But at the same time, it will be connected to all elements of the WeChat ecosystem, such as official accounts, mini programs, WeChat for Business, and all social and group activities conducted within WeChat."

"If we can build an e-commerce ecosystem within WeChat in a systematic way and make full use of all the sources of power within WeChat, we can create an e-commerce ecosystem that is larger, more meaningful, and has a higher ceiling." Tencent management said that the way WeChat stores are built is similar to the way WeChat makes mini-programs. It seems that it has not yet generated a lot of revenue, but when it really releases its energy, a large number of users will participate, creating huge value for online and offline merchants and content providers. Just like WeChat mini-games, it will become an important source of income for Tencent in the future.

People close to Tencent also told reporters that Tencent does not have specific goals for the development of video account e-commerce/WeChat stores, but is committed to improving the logic of the product.

Some video account service providers expressed optimism about the development of WeChat Stores in interviews with reporters. While upgrading WeChat Stores, video account stores also relaxed the entry threshold for merchants and products, which is a loosening on the supply side of products.

But this will also put some pressure on the governance of video account e-commerce. "Some bad products and illegal gameplay may cause some pressure on video accounts," said Xia Heng, founder of First Time, a leading video account service provider.

Tencent responds to the "Apple tax" issue

Tencent's second quarter 2024 financial report shows that the user time of WeChat Mini Programs increased by more than 20% year-on-year, and the transaction volume facilitated by the Mini Programs also achieved double-digit year-on-year growth. Among them, the monthly active users of mini games reached 500 million, the user usage time continued to grow, and the total turnover of mini games increased by more than 30% year-on-year. The mini game platform has served more than 400,000 developers, of which more than 240 games had a quarterly turnover of more than 10 million yuan.

Previously, Apple was exposed to have forced WeChat to plug a payment loophole that allowed developers to charge users without paying Apple a commission. Apple's request was aimed at WeChat mini-games, which have grown rapidly in recent years.

"Apple tax" refers to the channel share of the Apple App Store, that is, the mobile app store obtains profits from game users' recharges through commission. The share ratio of the Apple App Store is about 30%.

“There is a natural tension between the gaming industry or digital content industry and the app stores, and the fundamental reason is that the app stores charge up to 30% for games and similar forms of digital content,” a Tencent executive said in an earnings call. “The gaming industry sees this as a very heavy burden.”

Tencent management said that app stores will claim that they provide an ecosystem that is conducive to the development of digital content, but the gaming industry has questioned why only digital content providers have to bear this fee while other service providers do not have to bear it. "We believe that over time, whether due to regulatory promotion or the need for business development, the commission rate of app stores will show a gradual downward trend."

"There are some misunderstandings in the market. Currently, WeChat does not realize revenue from iOS mini-games through in-app purchases." Tencent management said that if this revenue model can be realized under reasonable conditions, it will not only benefit both Tencent and Apple, but more importantly, it will also be more in line with the interests of game developers and users. "If the discussion does not make progress, the status quo will continue; if the discussion makes progress, this will bring additional revenue to Tencent, game developers, and even Apple, and will undoubtedly enhance the experience of Apple users."

The reporter learned that Tencent and Apple are still negotiating on the revenue of WeChat mini-games and hope to reach a positive result.

(Editor: Zhang Jingchao, Reviewer: Li Zhenghao, Proofreader: Yan Jingning)