Tencent, China’s Most Valuable Tech Company

It is often said that most Internet and tech companies in China follow a single business model: C2C or “copy to China”. This involves taking a well-received web product in the West and bringing it to the mainland — making full use of the “benefits” of the Great Firewall which prevents local users from accessing social platforms and applications like Facebook, YouTube, and directly. This has provided fertile ground for the development of local Chinese alternatives: Weibo for Twitter, Youku for YouTube, Renren for Facebook, and the like.

The model, however, is quite deceptive in its simplicity. Simply copying will not reward a company with a loyal user following; this requires careful and deliberate market adaptation.

Tencent, which is now China’s most valuable tech company (with a market valuation of $255 billion), was started by a group of Shenzhen University graduates led by Ma Huateng (“Pony” Ma) in 1998, the company’s first product being a messenger application almost identical to ICQ — in both the technology used and the name — Tencent’s (initially desktop) application was first named OICQ and later renamed QQ.

QQ became an instant hit with young netizens eager for a way to communicate with each other. In 2014, Tencent reported 808 million active monthly users for the messenger. In the case of QQ, the number of users translated directly into income for Tencent. Having added online gaming to the messenger, the company was making money not only from advertising but also from small transactions from selling virtual goods: extras for games, emoticons, storage space, premium features, and even ringtones.

“Tencent is great at monetizing eyeballs,” says Jeff Walters, managing director of the Boston Consulting Group in an interview with Fast Company. “That’s their core competency. They are making tons of money by scraping together pennies, from tiny transactions.”

What really put Tencent in the lead was a transition to smartphone apps. As the country went mobile, so did the company. In 2011, Tencent introduced WeChat. However, the company continued to expand the application’s capabilities beyond simple messaging capabilities, bringing an abundance of China’s popular services only a screen tap away. Today, the application is a combination of various social media features from chatting, voice messaging and photo sharing to reading news and creating interest-based clubs. It is also a powerful e-commerce platform enabling users in China order anything from food to apparel, hail a cab, pick up a city bike, pay for utilities, and book plane tickets. For the Chinese New Year, the app even lets users exchange traditional “red envelopes”- the feature was used 40 million times the year it was released. With the addition of a dedicated payment system- WeChat Pay — that allows users to pay for real-life goods and services throughout the country (similar to Apple Pay) — Tencent hit the jackpot, making the digital tangible.

WeChat was successful from the very moment of its launch — acquiring 200 million users within the first 6 months — largely, due to the ready-made QQ user base and the continuous addition of new functionality. It now boasts over 768 million daily active users. Despite its leading position in the country, Tencent stays on its toes: constantly exploring new features — both through R&D and by keeping an eye on competitors and new product launches.

As the company’s CEO explained at a 2011 Beijing tech conference: “In America, when you bring an idea to market you usually have several months before competition pops up, allowing you to capture significant market share. In China, you can have hundreds of competitors within the first hours of going live. Ideas are not important in China–execution is.”

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