Elon Musk Can’t Make an American WeChat – DNyuz

Elon Musk Can’t Make an American WeChat

Last week, Elon Musk rebranded Twitter as “X.” New CEO Linda Yaccarino tweeted that X would be “centered in audio, video, messaging, payments/banking,” a step toward Musk’s vision of creating the “everything app” for the Western world. Musk has been focused on this vision for Twitter since before he even bought it, repeatedly praising the Chinese app WeChat in a June 2022 town hall at Twitter. WeChat is known for doing virtually anything an app can do—messaging, audio/video, meetings, translation, social networking, shopping, payments, ride sharing, food delivery, and more. It’s an indispensable app in China, and Musk wants to build X into that app in the United States.

Musk has been laser-focused on his vision of the everything app for longer than most realize. He’s also long been obsessed with the letter X—he named his original online bank X.com, founded SpaceX, and even named his son “X Æ A-12.” His X-ray vision, if you’ll forgive the pun, dates back to his founding of the original X.com. Musk described that firm, which would eventually merge with Confinity to form PayPal, as a “global financial nexus” that could handle bank accounts, mortgages, credit, insurance, stocks—anything and everything financial.

On the face of it, none of this seems unreasonable. Such an app would be one of the most valuable companies in the world if it succeeded. It’s a tall task, but Musk has been involved in the founding of three separate multibillion-dollar companies. WeChat (along with competitors such as AliPay) has proven that such apps can reach scale and be wildly successful. And WeChat was initially built on the back of parent company Tencent’s popular social network, QQ. If it can be done, why not Musk? And why not start with Twitter?

Unfortunately for Musk, his vision of creating a Western WeChat is doomed to failure. Companies like Meta and Alphabet have made attempts before. These companies have every advantage—more cash available than Musk, larger pools of technical talent, better public reputation, and more successful lines of business in the app ecosystem. Nevertheless, none have succeeded in building an everything app. WeChat exists in a very specific Chinese context, and attempts to brute force it in a very different context will crash and burn.

The most important function of an aspiring everything app is payments, which unlock enormous value for the app and convenience for the user. But mobile payments in China are an outlier—87 percent of Chinese people used mobile payments in 2021, almost double the next highest nation. And that outlier status comes from the unique way that China’s payment economy developed.

China’s explosive economic growth over the 2000s saw the country transition from being a mostly unbanked, cash-based economy to a phone-based, app-payment economy without ever having a middle phase of adopting credit cards. As China’s new middle class grew, credit cards were available to a limited upper class—but never became a commonplace part of national financial infrastructure.

What China did have was a lot of cheap smartphones. By the early 2010s, most people there still didn’t have a PC, but they had a mobile phone, and increasingly they were switching to cheap smartphones. But those smartphones were mostly low-end products, with limited processing power and storage space. A high number of bloated apps wasn’t going to cut it for an average user, so many basic functionalities began to cluster inside a small number of super-apps. With the public hungry to abandon cash, apps like WeChat were the natural and widespread solution. Most vendors didn’t have existing relationships with payment companies. But they were happy to jump all the way to taking mobile payments—especially since all they needed to do so was a cheap smartphone, not an expensive terminal. China essentially leapfrogged credit cards all the way to mobile payment.

The United States in 2023 is not in that same position. Americans, for the most part, are not newly middle class and unbanked. Americans love credit cards, have deep experience with them, and use them regularly. And the country is filled with an enormous number of financial firms competing at every level—banking services, credit services, payment apps, stock brokerages, and more. Musk’s X will be entering a far more crowded and competitive market for customers who are already using far better and more developed alternatives.

Competitive is the key word there, because there are many Western companies that would have loved to compete with apps such as WeChat. But China’s government long ago banned nearly every non-Chinese alternative to native Chinese apps in areas including social media, video sharing, messaging, news, search, finance, and more. The list of apps banned in China is so extensive that it’s likely faster to point out the few that aren’t banned.

With so much of the competition absent, it was much easier for Chinese apps to dominate many fields at once as Chinese internet adoption skyrocketed. The Chinese government mostly didn’t pick favorites domestically at first—but it kept out foreign competition and let domestic products thrive. Twitter/X doesn’t live in that same world. The U.S. government won’t protect Musk from competition.

One of the ironies in all this is that the window to develop an everything app may be over in China as well, as the Chinese government’s approach to the tech sector has changed. During China’s boom years, the state often took a laissez-faire approach to tech regulation. The Hu Jintao government and even the early Xi Jinping years saw a booming economy, where tech companies were allowed to grow rapidly and dominate markets as long as they cooperated with censorship, handed over information to the government, and paid off the right people. Analyst XiaoFeng Wang explicitly links this flexible environment with WeChat’s growth, saying, “The more flexible regulatory environment in China at the time gave internet companies like Tencent and Alibaba more room to extend to a wide range of businesses. WeChat benefited from that and grew into a super-app.”

But the Chinese government has grown deeply worried about the power of the super-apps, for both good and bad reasons. Any power that does not reside directly in the party’s hands is distrusted at a time when Xi has demanded total party leadership of everything—and the influence and reach of tech companies has been sharply curtailed in the last few years, wiping billions off their value. Chinese regulators were also genuinely worried about the sheer degree of anti-competitive practices. It had become common, for instance, for firms to block links to their competitors’ products. Breaking down those “walled gardens” has become a major part of regulation since 2021.

Building a super-app would be hard in China today—and even harder in the United States or Europe, with their anti-monopoly legislation and political skepticism toward powerful tech companies. Even if Musk’s X could theoretically succeed, it probably wouldn’t be allowed to do so legally.

Yet paradoxically, while regulators raised eyebrows, elements of the Chinese government also welcomed the opportunities that WeChat and other ubiquitous apps offered. Chinese firms exist at the pleasure of the state and are always subordinate partners to it. WeChat’s parent company, Tencent, is well known for collaboration with the Chinese Communist Party in areas large and small, producing sycophantic patriotic games and engaging in widespread censorship and espionage. Foreign Policy has reported that Tencent was even partially funded by the Ministry of State Security in its early days.

These incidents highlight why an app such asWeChat would be permitted to thrive—because it’s useful to the party. In the James C. Scott sense, WeChat increases the legibility of Chinese society. You can’t control what you can’t see, so make sure you can easily see everything. If all of Chinese daily life is funneled through a single portal, it’s that much easier for the party to observe and control lives. Monitoring a single WeChat account could allow police to see an individual’s travel patterns, spending, and social contacts, which is why many dissidents or activists avoid using the app when possible.

Chinese consumers have become more privacy-conscious about the data they hand over to companies—but are hopeless or unaware of the amount of information the government can get from them. Western companies hoping to emulate WeChat not only don’t have the government on their side, but also face a much tougher and more skeptical audience. And in Musk’s case, who—apart from the most ardent of fans—is going to trust him with their money at this point?

WeChat and its counterparts in China grew up in unique, nonrepeatable circumstances. They faced a massive middle class with plenty of cheap smartphones but no traditional banking or credit cards. They were protected from Western competition by the Chinese government. That same government applied a very light regulatory touch as the companies grew, and also encouraged centralization as a way to maintain greater control.

None of those factors exist in the United States today, and Musk’s dream of building the X app for everything is essentially impossible without them. American consumers already have dozens of easy payment choices through credit cards, debit cards, and existing mobile apps. Musk won’t be protected from competition by the government. Instead, he’ll be treated in a more hostile manner by regulators concerned about privacy, monopoly power, and his general history with flouting the law.

Larger and more important tech firms than Twitter—or, as Musk now insists, X—have tried and failed in this area. Meta owns several social networks and several messaging apps, and has tried expanding into areas like marketplaces, video, payments and more. But most of these experiments have failed to reach any sort of scale, and Meta’s successes have come from disaggregating and breaking things apart rather than bundling them together. Google’s Alphabet parent company has succeeded in a wide variety of areas such as search, video, email, payments, and more. But its attempts to build a social network flamed out spectacularly, and like Meta, their biggest successes have come from separated apps and brands, not a singular everything app.

For all its cultural importance and for all that the chattering class is addicted to it, Twitter’s just never been that large. Meta has nearly 4 billion monthly active users across its family of apps. Twitter/X, even if you believe Musk’s suspiciously cropped data, is a bit more than a 10th of that. Meta and Alphabet are orders of magnitude larger and more important than Twitter/X. If they’ve tried and failed to create the everything app, there’s no reason to believe that Musk can succeed.

Musk’s vision for the original X.com impressed Silicon Valley. By 2000, X.com had merged with Confinity, and Musk took over as CEO of the new company. He focused his vision on the global financial nexus, the proto-everything app, despite investor and board skepticism. He pursued that idea maniacally, to the detriment of PayPal/X’s core product of payment by email. He also insisted on branding the company as “X,” despite PayPal’s strong existing brand.

And in less than a year, he was coup’d out of the company and replaced as CEO by Peter Thiel. PayPal was saved as a company because its board ejected Musk. This time around there’s no board that matters except Elon, and there’s no one to save him from himself.

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