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Riku Tanaka
in
Marketing
January 17 17:14

Virtual red packets from China: why do tech giants pour billions in them?

Internet firms in China are intent on pumping millions of dollars (or billions of yuan) into virtual red envelopes for the fast approaching Lunar New Year as they try to snatch a greater portion of the increased web traffic over the holiday period
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Internet firms in China are intent on pumping millions of dollars (or billions of yuan) into virtual red envelopes for the fast approaching Lunar New Year as they try to snatch a greater portion of the increased web traffic over the holiday period.

For example, short-form video application Douyin, commenced its red-envelope promotion with users ready to partake in 2 billion yuan (US$290 million) worth of gifts, while internet search goliath Baidu propelled its own promotional event the next day with 500 million yuan (US$72.7 million) of gifts for the occasion.
Douyin's competitor, Kuaishou, will burn through 1 billion yuan (US$145.4 million) on its holiday promotion as the official red envelope partner for the China Central Television (CCTV) Spring Festival Gala, an event that drew in over one billion viewers last year.
Alibaba's Alipay and Tencent's WeChat originally unveiled their virtual red envelopes in 2015, igniting a scramble for customers who flocked to their phones to grab as many freebies as they could. From that point forward, China's traditional Lunar New Year has moved to digital payments.
This year, Alibaba Group has set aside 500 million yuan in monetary presents on its digipay platform Alipay and 2 billion more yuan in gifts throughout the entire holiday season for its online shopping platform Taobao, which is the official online shopping partner for the CCTV gala.
Market specialists say that handing out money and incentives during this timeframe is a financially savvy tactic that helps rapidly grow user metrics.
The customary act of gifting money in red paper envelopes – a color that is considered lucky in Chinese culture – has progressively moved to cashless form due to the versatility and ease-of-use of online payment platforms. The Chinese Lunar New Year offers immense traffic potentiality for internet companies, so numerous organizations in China consistently hold red envelope marketing events and give away prizes or rebates that users can "grab" through the use of their mobile applications.
“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.