Not content with owning China’s most popular app, Tencent is on a mission to make global audiences fall in love with WeChat’s captivating entertainment ecosystem.
The internet giant, which was recently ranked the eighth most valuable brand in the world behind the likes of Google, Apple and Facebook, has built a solid ecosystem of social and entertainment properties that dominate their respective categories from gaming to music, online payments and
However, there is no denying that the jewel in Tencent’s crown is WeChat. WeChat is the most used app in China and boasts more than 938 million monthly active users globally – a third of which spend more than 4 hours a day on the app.
More than just a social messaging platform, WeChat’s ecosystem has become an unavoidable element of life in China. Users can message friends, watch content, pay bills, purchase movie tickets, buy train tickets, book restaurants - all without leaving the app.
WeChat has become an essential tool for brands, from luxury brands like Burberry, Chanel and Coach, sports brands such as Manchester City, the NBA, and Bundesliga, then there’s everyone else Pepsi, Starbucks, McDonalds, British Airways, Tourism New Zealand – you name it, the brand is on there and engaging with millions of fans.
Unsurprisingly Tencent is focused on improving and growing WeChat’s ecosystem by adding new features, such as WeChat news and search, as well as introducing new ad formats and cross-platform tools.
“Tencent is just getting better and better at making WeChat completely needed by everyone,” says Christian Solomon, head of digital at MediaCom China. “WeChat has been well and truly established as a necessary part of life, so it means Tencent have more freedom to introduce ad formats as people are not going to stop using it. It’s pretty established.”
“Tencent is coming up with more innovations across WeChat, especially for brands because that’s where a lot of marketing spend is focused. Agencies and marketers are still doing a lot across the Tencent ecosystem, but more and more the focus is just with WeChat.”
While there is no denying WeChat’s runaway success, there is more to Tencent than WeChat. Valued at $300bn, it lags just behind JP Morgan and sits ahead of Alibaba which is valued at $295bn. Tencent is considered one of the ten most valuable companies in the world, Tencent’s growth is being driven by a number of business divisions, notably entertainment, online gaming and mobile payment services.
Tencent recently reported its highest quarterly profit growth in two years, with revenues of RMB 49,552m ($7.182m) and net profit of RMB 14,548m ($2,109m).
The results figures exceeded market expectations and served as validation that the companies strategic focus was on track. At the centre of this strategy is gaming.
Tencent dominates the online gaming market in China and the business contributes close to half of the company’s overall revenues. In Q1 revenues from gaming grew 34% to RMB 22,811m.
Mindshare China’s chief digital officer Kenneth Tan, says, “Tencent is a beast with still multiple arrows and quivers that they haven’t even reached out to yet. The only threat to the entire kingdom is if gaming somehow falters and then goes into a decline, but short of a catastrophic disaster I struggle to see how that will play out.”
Tencent is China’s largest video game developer and publisher and it has invested heavily to get this title. Last year it spent $8.6 billion acquiring gamemaker Supercell Oy, which owns titles such as Clash of Clans and Hay Day. It has also invested in League of Legends developer Riot Games, social gaming company Glu Mobile, as well as China-based developer Seasun, which it acquired in April for $142.2 million.
Tencent’s dominance in gaming is bolstered by its social platforms, Wechat and QQ, which not only serve as distribution channels but also help to monetise the platforms. This is also where Tencent’s online finance company Tenpay, and specifically mobile payment system WeChatPay, comes into its own.
With nine out of ten Chinese mobile internet users (92%) choosing mobile payment apps such as WeChat Pay as their primary offline payment method, this represents a huge growth area for the company.
However, Tenpay has work to do if it wants to catch market leader, Alipay which has 54% market share over TenPay’s 37%. Alipay is also leading the way globally, with a rapid international expansion plan that Tenpay is struggling to follow.
“Tencent is still focused on Chinese speakers in overseas markets,” says Major Lin, managing partner and chief digital officer at OMD China. “I think the barrier for Tencent entering into other markets is not just the language barrier but also the mobile payment service.”
“TenPay is only available in China, Hong Kong and Taiwan, if they cannot find payment solutions in other markets, I think this will be a key issue for their globalisation. Alibaba is doing better because its ecommerce platform has already penetrated many markets. We when talk about globalisation Alibaba is ahead of Tencent at this stage.”
However, Tencent has plans to launch WeChat and WeChat Pay in the UK, France and Germany although its expansion plans stalled in May when Russia banned the app.
Much like Alibaba, Tencent has collected an extensive portfolio of investments. The company has invested in a host of businesses from India’s ecommerce company Flipkart, China’s bike sharing company Mobike, and it recently bought a 5% share in Tesla, fueling speculation that the company may look to get into the self-driving car market.
It’s also been a late arrival to the AI market, launching AI labs in Shenzhen and Seattle. The latter will be headed by Yu Dong, a former scientist at Microsoft Research Institute’s Speech and Dialog Group, and will focus on speech recognition and natural language processing.
Back home though Tencent remains focused on building its ecosystem, connecting and monetising it and becoming the number one entertainment company in China.
“If Alibaba is all about purchase, Tencent is Entertainment – in every single form that you can imagine. By virtue of the number of people who log onto WeChat, they have the largest music app in China in QQmusic, the biggest news app QQnews, same with video, and the list goes on and on,” says Tan.
Tencent is investing heavily in content, through its production company Tencent Pictures, as well as music, it recently signed a distribution deal with Universal Music and last year it took a majority stake in China Music Corp (CMC) giving it a dominant hold on China’s music streaming market.
Lin says, “In the future, Tencent might be the number one content producer and content provider in the China market. This is because WeChat is a very powerful platform to connect everything. You can buy products, concert tickets, train tickets and that is why I say they will be the number one content platform. Using WeChat and QQ you can connect the user with all the services and all the content from across the Tencent ecosystem.”
This article is part of a series about the BAT (Baidu, Alibaba and Tencent) Chinese tech giants. Other articles in the series include: