BAT Mobile Strategy Analysis 2 — Tencent

Tencent’s Mobile Product Strategy

Tencent is the largest internet company in China. Its business first started from a communication tool, QQ, then expands into gaming, publishing, e-commerce, search, event movie. In this article, we will analyze Tencent’s mobile strategy and see how it stack up against competition.

Overview of Tencent’s Business

Product Portfolios

Tencent organizes its business into 7 groups which contain all of Tencent’s products. However, the most important groups/ products are QQ and Wechat. All the other products are build around these two core product lines.

Tencent first adopted “Mobile First Strategy” among Chinese internet companies. Wechat, a 450m MAU product, is completely on mobile, QQ, a 830m MAU product, has 60% of users on mobile, and QZone, a 645m MAU product, has 75% of users on mobile.

On the revenue side, Tencent drew 56% of total revenue from online games and among that, 30% is from mobile games, which accounts for 17% of total revenue. Both Tecent’s hit mobile and PC games have around 50~70m MAU per game.

Tencent’s core products are QQ and Wechat, which have about 70% of market share and completely dominate the social networking segment in China.

This simple fact plus mobile trend can tell use that Tencent’s strategic focus could be on: mobile SNS, international operation, vertical segments(O2O) and ecosystem, online gaming to (1)maintain leading position in SNS(2)building mobile ecosystem for long term business(3)expand to other markets and (4) leverage existing business to expand to adjacent business

To achieve those goals, Tencent needs mobile products that connect large user base, mobile distribution channel to distribute content or other products, right business/service/product to monetize traffic, mobile payment system to close the loop. But in the end, a product or service that can reach to large user base would be the key for Tencent’s business. Looking at Tencent’s history and current competence, we believe this product/ service would still be in SNS catgory.

Challenges for Tencent’s Mobile Business

User Engagement: Tencent’s core products, QQ and Wechat, use freemium to attract users. Freemium lowers barrier for user acquisition but at the same time raises the bar for user retentino: the product must be very good to let the users stay on it. users have nothing to lose if they leave the products.

This engagement question can be challenging in mobile area. Will people continue user QQ, Wechat, and QZone? Will young generation still use them? As mobile product reaches deeper into industry verticals, is there possible some vertical social products? Other than messeing, texting, videing, any other features will gain traction in future? How do people see QQ/Wechat in 10 years? Or more fundamentally, what’s the communication or connection among people will look like in future?

Mobile Monetization: This monetization problem challenges every player in mobile space. In PC era, Tencent monetized its users based by selling items and publishing games. Those hardcore games, desgined to entertain players during a 45~50 mins session, works well when you sit in front of PC. In mobile, however, users use the app or servie on the go, in a very short session, how do you monetize users in this new situation? Other than games, any other business can be built to help monetization?

Game portfolio: With 56% of total revenue coming from online games, Tencent must get the game portfolio right, because(1) it is the biggest revenue stream(2) game is completely hit-driven business. That also means if Tencent screwed up on games, the company is in danger. Right now, Tencent’s PC games consist usually hardcore games while mobile games consist casual games. As technology advances and mobile games become more and more mid-to-hard core, Tencent faces the challenges of having multiple game genres to attract different users.

E-commerce / O2O ecosystem: e-commerce transaction only accounts for 7% of total revenue, which also means Tencent has yet tap the opportunity of its very large user base. How can Tencent build an ecosystem which connects service/product with large user base? How can Tencent make sure future e-commerce. local merchant, O2O activities happen within its user group not others? Apprantly, Tencent lag behind Alibaba and JD on e-commerce.

Mobile distribution: Distribution is still a challenge, not only for mobile games, but also for other service/content, such as video content, payment, finance, daily deal, etc. How can Tencent effectively distribution product and serive to its user group?

Tencent’s Mobile Product Strategies

Given the challenges and Tencent’s core competency, Tencent uses the following strategies for its mobile business:

Turn QQ and Wechat into mobile platforms: Tencent treats QQ and Wechat not as a product, but as a platform. The difference between a product and a platform is whether you product relies more on other products to succeed or the other way around. Tencent is building QQ and Wechat in such a way that they connect huge user base on let people to build their business upon them. Tencent opens API, integrates payment system, starts performance-based advertising business, making QQ and Wechat a gateway/ hub for other business to connect to millions of mobile users.

Strengthen its leadership in entertainment, especially gaming: Tencent is exploring multiple ways to create and deliver world-class content to it users. It invests in gaming, video, publishing, IP and event content creation. This is very much similar to Amazon’s content strategy: those content delight customers and then lock them in Tencent’s system, that in turn strengthen Tencent’s leadership and create more monetization opportunities. For mobile games, Tencent is look for more attractive geners and for high-DAU, large appeal games. As a reference, BAT invested in 11 game companies in 2014, and Tencent did 8 of 11.

Partner with other companies to build O2O ecosystem: Tencent has profoundly shifted its strategy from doing everything to doing a few things good and partnering with other people. To get deep into the mobile business, Tencent partne with many companies to build O2O ecosystem in serveral key verticals: e-commerce / local merchant, finance, sharing business. In 2014, Tencent invested in 44 companies, 5 in e-commerce and 16 in various verticals.

One missing piece: One thing that I think Tencent missed in its mobile strategies is consumer hardware products or smart devices. Smart devices could be the next big wave for mobile indutry as more and more devices get smarter and connect to the internet.They could be the next gateway to mobile world.

At high level, Baidu and Tencent’s mobile strategies look similar: focus on core product to build platform, partner with other companies to expand into other business and build mobile ecosystem. However, the core producst for the two companies are different, so their detailed strategies vary a lot.

Baidu focuses more on technoloyg-driven products, such as cloud, search, maps, big data, while Tencent focuses more on consumer internet products, especially SNS. Baidu is more active in smart devices business because those business provide a better fit for its current busines: search, cloud, etc. Tencent is more active in e-commer and gaming, because QQ and Wechat provide a more natural context to conduct those busienss than Baidu products do. Based on the analysis, I think Tencent gets some edge in mobile monetization in future and Baidu wins a little in mobile content distribution.

In the next part, we will examine Alibaba’s mobile strategy.

Reference

http://wisdom.chinaceot.com/news_detail-classid2-6-id43578.htm