Tencent: Building An Enduring Company

Tencent Headquarter in Shenzhen, China. Photo Credit: https://www.tencent.com

Founded in 1998 and headquartered in Shenzhen, Tencent Holdings, the biggest rival of Alibaba Group, is now the world’s largest gaming company and the fourth largest Internet company by revenue and market cap.

Tencent Holdings, in its early days, was an online portal (or another “Yahoo”), and was in a neck and neck competition with Sina (founded in 1998), Sohu (founded in 1996) and NetEase (founded in 1997). Tencent was previously best known for its highly popular instant messaging platform QQ, which had competed with Microsoft’s MSN for several years. By 2016, QQ has 877 million monthly active user accounts. However, the users of QQ are mainly from China.

Launched in 2011, WeChat, a mobile app from Tencent, has surpassed QQ to become China’s No.1 Mobile App, and it continues to grow in functionality and user base within China and abroad. Not limited to mobile devices, Wechat is also available on desktops.

In less than six years since its debut, WeChat, has transformed how people communicate with each other in the mobile age. Not exclusive to China; the transformation has gone beyond China’s borders to include Korean, Japanese, English and French speakers worldwide. Whether at home or at work, people communicate using Wechat between buildings, cities, provinces and across oceans. Yes, WeChat has become part of the lifestyle for hundreds of millions.

Wechat is often seen as Facebook, Twitter, WhatsApp, Instagram, LinkedIn and Dropbox, all combined into one. With a skyrocketing growth pace, WeChat now boasts over 800 million monthly active users – more than Instagram (500m) and Twitter (300m) combined, and eight times that of LinkedIn (100m). The ability to build a vast vital ecosystem – second to none in China – underpins the huge success behind Wechat.

So what’s actually WeChat? I see WeChat unfolds in three dimensions: 1) as a robust communication tool; 2) as a content platform for everyone; and 3) as a service and payment portal. These three dimensions are illustrated further based on my experience of using the app as well as my understanding of the values from WeChat’s founder, Zhang Xiaolong, SVP of Tencent and the creator of Foxmail in 1997.

WeChat as a “Communication” Tool. Apart from providing text messaging and audio call services – just like every other telecom carrier, Wechat also supports making video calls, sending and receiving audio messages, photos, and video clips – in the blink of an eye and for free. Further, you can transfer money to friends and families as conveniently as sending text messages. Among the rich features, “Group chat” is a very useful function – allowing you to share content with everyone in the same group.

WeChat as a “Content” Platform. WeChat aims to provide an “egalitarian” type of content platform where every author (or official account) is treated the same in terms of how often and how many they can post (news or blogs) each day, and the maximum number of subscribers they can have. WeChat also establishes rule and policies to avoid the “butterfly effect”- a common problem among social media platforms. Finally, the user has the right to unsubscribe from any account that they dislike.

WeChat as a “Service” Portal. WeChat offers a wide range of services both directly and indirectly by third party partners – under “WeChat Wallet”. These services include paying utility bills, making medical appointments, buying movie tickets, buying travel tickets – trains, flights, and buses, booking hotels & tours, ordering taxi, games, ecommerce, wealth management, and charity.

Between 1995-2000, it was the golden age of starting up an Internet company in China, as the labour cost was low and the Internet market was a blue ocean market. China’s three Internet giants, known as BAT, were all founded during that time – Baidu (2000), Alibaba (1999), and Tencent (1998). However, since the launch of the first iphone in 2007, internet users started to use mobile apps on their smartphones to access information rather than using browsers and websites on their PCs. The age of Mobile Internet has arrived. Xiaomi, founded in 2010, is now the world’s 4th largest smartphone maker. Who will be the next three pillars of China’s digital economy – Alibaba, Tencent, and Xiaomi (ATM)?

The explosive growth of WeChat currently contributes to half of Tencent’s market capitalisation, which is more than USD $230 Billion to date. Tencent, founded in 1998, is now China’s largest technology company by value – this disruption challenges the status quo of its counterpart “China Mobile” founded in 1997. As a state-owned company, China Mobile is on the top 50 list of Fortune 500 companies by revenue – boasting 835 million subscribers and a market cap of USD $220 billion.

A comparison of Tencent’s market cap with others to date, indicates that this company is bigger than telecom giants such as AT&T and Cisco; IT & hardware leaders such as Samsung, Intel, IBM, Qualcomm and HP; and Social Media companies such as LinkedIn and Twitter. Tencent’s rapid growth, market penetration and sheer presence make it a “titan” to be watched. And last but not least, it is “WeChat” – a mobile application – that revitalised Tencent (headquartered in Shenzhen) and changed the lifestyle of hundreds of millions in China and abroad.

However, Tencent does not sleep on its successes. In the past few years, Tencent has been reinventing and diversifying itself relentlessly by investing in various sectors from gaming, media, entertainment, e-commerce, to sports, electric cars, financial services, and to emerging technologies such as drones and artificial intelligence.

Leveraging McKinsey’s expertise in strategy and management, Tencent is on its way to become an international icon.

“Tencent’s mission is to become the most respected Internet enterprise.”

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