Why China’s tech companies are investing billions in virtual red packets

Chinese tech companies are planning to spend billions of yuan in virtual red packets for the upcoming Lunar New Year as they seek to grab a bigger share of internet traffic over the national holiday.

Short-video app Douyin, owned by Beijing-based Bytedance, kicked off its red packet campaign on Tuesday with users able to share in 2 billion yuan (US$290 million) worth of cash handouts, while search engine giant Baidu launched its campaign on Wednesday with 500 million yuan (US$72.7 million) of handouts for the holiday.

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Douyin’s rival, Kuaishou, will spend 1 billion yuan (US$145.4 million) on its campaign for Lunar New Year as the exclusive red packet partner for the Spring Festival Gala of China Central Television (CCTV).

Alibaba Group has allocated 500 million yuan in cash handouts on its digital payment platform Alipay and a further 2 billion yuan in allowances during the entire Lunar New Year holiday on its ecommerce platform Taobao, which is the exclusive ecommerce partner for the CCTV gala. Alibaba is the parent company of the South China Morning Post.

The traditional practice of giving out cash in red paper envelopes – considered an auspicious color for the Chinese – has increasingly moved online with the ease of smartphone-based mobile payments. Many companies in China routinely hold red packet promotions, giving out cash or rebates that consumers can “snatch” through mobile apps.

The Chinese Lunar New Year holiday offers huge traffic potential for internet companies. Last year, CCTV’s Spring Festival Gala attracted more than 1.1 billion viewers, the most watched national network TV broadcast.

Tech companies like Bytedance and Baidu are making the most of the virtual red packet campaigns to boost traffic in their respective internet ecosystems. Eight apps owned by Bytedance, including popular news site Jinri Toutiao, will be involved in the red packet campaign hosted by Douyin.

Analysts say giving away money during the holiday period is a cost-effective strategy to quickly boost user numbers.

“There can be a big jump in user growth over a short period of time,” said Dingding Zhang, former head of Beijing-based research firm Sootoo Institute and now an independent internet industry commentator.

“But they can’t simply give away money […] they need to have strategies to keep users on the platform,” he added.

Alibaba’s Alipay and Tencent’s WeChat first introduced virtual red packets in 2015, sparking a battle for consumers who scrambled to capture as much of the free money they could using their smartphones. Since then, China’s traditional Lunar New Year has become cashless. Now, online apps like WeChat have become the battlefield for Chinese people trying to collect the most amount of money.

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