6. Tencent Holdings Ltd.
Revenues 2018: RMB 312.694 billion (€ 40.050 billion)
Operator of WeChat, the “super-app” and mobile super-tool that has “inspired Silicon Valley,” Tencent Holdings is a multinational technology conglomerate based in Shenzhen. Tencent provides a wide array of internet services, including the WeChat platform and its comprehensive suite of related services (including online gaming and shopping) linked with an online payment system. At present, it is hardly an overstatement to say that without WeChat it is “nearly impossible to get by” in China. The app has even become the most popular means of exchanging personal and business contacts when meeting face-to-face. Tencent is one of the three Chinese internet giants referred to inside China as "BAT" (Baidu, Alibaba, Tencent). It is also currently the world’s largest video and online gaming company by revenue. Tencent was listed 9th on Forbe's 2019 list of the world's largest tech companies, and the company's founder and CEO, Pony Ma (Ma Huateng), was China’s richest individual as of January 2020.
Tencent Binhai Towers
No. 33 Haitian 2nd Road
Telephone: 0086 755 8601 3388
Branches of trade: Online Games, Social Media, E-Commerce
Legal type: Corporation (investment holding company)
Financial year: 01.01. - 31.12.
|Revenue (RMB m)||312,694||237,760||151,938|
|Net income (RMB m)||142,120||116,925||84,499|
|Share price (US$, year end)||40.62||51.92||24.22|
Executives and Directors
- Ma Huateng (Pony Ma), Co-Founder, Chairman of the Board & Chief Executive Officer
- Lau Chi Ping, Executive Director and President
- Xu Chenye, Co-Founder, Chief Information Officer
- Ren Yuxin (Mark Ren), Chief Operating Officer, President of Interactive Entertainment Group, President of Platform & Content Group
- Zhang Xiaolong (Allen Zhang), Senior Executive Vice President, President of Weixin Group
- James Mitchell, Chief Strategy Officer, Senior Executive Vice President
- Tong Taosang (Dowson Tong), Senior Executive Vice President, President of Cloud and Smart Industries Group, Chairman of Tencent Music Entertainment Group
- Lu Shan, Senior Executive Vice President, President of Technology and Engeneering Group
- Lau Sengyee (Sy Lau), Senior Executive Vice President, Chairman of Group Marketing and Global Branding
- David Wallerstein, Chief Exploration Officer, Senior Executive Vice President
- Ma Xiaoyi (Steven Ma), Senior Vice President
- John Lo, Chief Financial Officer, Senior Vice President
- Guo Kaitian (Leon Guo), Senior Vice President
- Xi Dan, Senior Vice President
- Yeung Kwok On (Arthur Yeong), Senior Management Adviser
- Zhang Zhidong (Tony Zhang), Co-Founder
- Chen Yidan (Charles Chen), Co-Founder
- Zeng Liqing (Jason Zeng), Co-Founder
Today Tencent and its celebrity founder, Ma Huateng (Pony Ma), are synonymous with China’s innovation and leadership in the internet sector. When the company was founded in Shenzhen in November 1998, however, its internet services were derivative and uninspiring in a crowded field of major operators of “internet service portals” launched between 1996 and 1998, including Sina, Sohu and Netease. These portals, prohibited by regulations from maintaining their own newsgathering operations, were not regarded as “media,” but seen largely as entertainment sites that aggregated content, including news from licensed traditional outlets. They managed, however, to find creative ways beyond news aggregation to provide additional content offerings in a bid to “attract eyeballs” and draw ever larger audiences to promise advertisers.
Tencent’s desktop-based instant messaging product, OICQ, launched in February 1999, was a virtual carbon copy of ICQ, a service created two years earlier by the Israeli company Mirabilis. A trademark infringement case brought by ICQ owner AOL later that year forced Tencent to rename its service “QQ.” But the QQ messaging service soon distinguished Tencent services from those of its competitors. The service was free to use, and its popularity grew quickly among young internet users, particularly university students.
In 2001, at a time when Tencent was still, according to one industry analyst, "unprofitable and not well known," South African publishing group Naspers acquired a 46.5 percent stake in the company for 32 million dollars through a subsidiary, MIH Holdings. The attraction was Tencent's growing user base and popular messaging service. “Tencent was identified reasonably early on due to the number of users they were starting to attract and the ‘stickiness’ of their instant messaging service," a Naspers executive later told the South China Morning Post. Naspers had a track record of unprofitable media investments in China and had considered exiting the market altogether. But the Tencent investment would pay off big time.
By the end of 2001, QQ had already reported more than 90 million registered users. By 2003, Tencent was the clear leader in instant messaging, followed by Netease, with Sina struggling to compete. Users of QQ were predominantly in the 15-29 age group, and online often referred to themselves as the “Q generation,” showing a high degree of self-identification with the service. It was this “stickiness” that attracted Naspers and other investors. The service’s mascot, a cuddly, egg-shaped Penguin, became iconic in China. By the time Bloomberg profiled Tencent in 2011, it could report that the company’s QQ messaging service has “twice as many users as the U.S. has people.”
On June 16, 2004, Tencent listed on the Hong Kong Stock Exchange, joining a wave of Chinese internet companies seeking public listings. Its instant messaging service still dominated discussion, Shanghai’s iResearch noting ahead of the listing that nearly three-quarters of Chinese respondents in its survey of messenger services reported using Tencent’s QQ, handily beating out competitors such as Microsoft's Messenger, Popo (Netease), and Yahoo! Messenger. But Tencent’s next area of expansion was already in the works. The company had launched a subsidiary, Tencent Games, in 2003, with plans to move strongly in this direction. In 2004, Tencent launched its first suite of online games, “QQ Tang,” which came free with downloads of QQ software and were monetized with for-purchase game accessories and fee-based subscriptions. Beyond these casual games, Tencent began licensing hardcore games, beginning with the massive multiplayer online game (MMOG) “Sephiroth” from South Korean developer Imazic. Tencent continued push into online gaming through 2007 and 2008, licensing games like Dungeon & Fighter from South Korea’s Neople, and capitalizing on its online community base of nearly 300 million active users. At the same time it began exploring development of its own games and acquisition of key developers. Tencent’s focus was on games as a service (GaaS) – also known as “live-service games” – offering video game content on a continued revenue model that allowed them to be monetized after their initial sale or free download with the purchase of new content.
In 2011, Tencent paid 400 million dollars for a 93 percent stake in Riot Games, creator of the hit game League of Legends, becoming its largest shareholder. By 2015, when Tencent would buy the remaining stake in the company, League of Legends was "exploding as an esport around the world." In 2012, Tencent invested 330 million dollars in Epic Games, the creator of hit games like Fortnite and Paragon. The marriage of Tencent and Epic Games marked an important turn for the industry as a whole, allowing a major developer to make the shift from console to live-service games on the basis of Tencent’s huge user community and reach in China. In 2018, Tencent was part of a group of investors in the French game developer Ubisoft that helped it fend off a hostile takeover from the French mass media conglomerate Vivendi. Tencent's share acquisition also marked the start of a strategic partnership with Tencent to publish Ubisoft games in the Chinese market.
Tencent’s bold moves in the online game industry have made it the world’s largest video game company today. The gaming business was the company's chief money maker in 2019, accounting for 18 billion in annual sales, about 40 percent of Tencent’s total revenue.
But the boon of online gaming has also come with challenges and controversies. Video game content has come under stronger government scrutiny in China in recent years, with regulators even introducing curbs on the licensing of new games. The pressure to censor games that are now global in reach to satisfy domestic political needs has prompted sharp criticism internationally. In November 2018, for example, Ubisoft announced that it would remove bloody scenes and references to sex and gambling to its popular Rainbow Six Siege game to prepare for the Chinese and other Asian markets. This drew a backlash from fans of the game across the world, who accused the company of bowing to Chinese censorship. Given the huge revenue potential of games, other Chinese companies, including traditional rivals like Netease and upstarts like ByteDance, have also increased competitive pressures on Tencent.
On January 21, 2011, Tencent launched a new messaging app called Weixin, literally “micro letters,” that within a few short years would revolutionize the communication and social landscape in China. At the time of launch, the free-to-download and use app for iPhone was compared to Canada’s Kik and other services – but the wide range of functions and platforms under the “Weixin” umbrella would soon distinguish it from other global social media platforms, such as Facebook. In April 2012, shortly after the launch of its Android version, “Weixin” was rebranded overseas as “WeChat,” also adding a range of features. By August 2012, the service had 100 million users. On the back of this immense user base, major international brands such as Nike began flocking to the platform, which marked a broad transition to mobile as mobile users in China overtook PC users. "Nike’s focus on WeChat is significant for a number of reasons. Not only is WeChat itself becoming an increasingly influential service but mobile has emerged as a key medium to reach consumers, beyond even PCs,” analyst Jon Russel noted. WeChat’s global expansion shifted into high gear, with a serious push especially into Asian markets such as Indonesia.
While analysts and other commentators around 2012 and 2013 could not resist comparisons of WeChat to other foreign platforms such as WhatsApp (launched in 2009), it increasingly became clear that WeChat was becoming a user universe unto itself, what some referred to as a “super-app” or “super-platform.” "The most phenomenal thing about the app,” wrote Shanghai-based digital marketing specialist Ben Lamb, “is that users use it for so many services and are thus constantly interacting with it." From this point on, it was impossible for brands and businesses to avoid a strong presence on WeChat. By then end of 2012, the platform had more than 200 million users.
While there was no denying the strength of the WeChat platform as an interactive and commercial tool, its success depended at least in part to the growing political problems facing Sina’s hugely popular Weibo social media platform, a public service that – comparisons being unavoidable – resembled Twitter, which had been banned in China since July 2009. Within just a year of its pilot launch in August 2009, Weibo had become a social and political force, an open platform through which tens of millions of Chinese, including influential journalists and intellectuals who could have fan bases dwarfing major newspapers, could discuss breaking news and other issues. By 2012, it was clear to China’s leadership that even with automated and other controls in place, Weibo was detrimental to the Chinese Communist Party’s dominance of the message. In 2013 and 2014, the leadership moved aggressively to silence in particular the more influential “Big V’s,” celebrity users who had the potential to drive public opinion. As Weibo became an increasingly less vibrant space, users migrated to WeChat, which offered a more varied user experience – with Moments timelines (similar to Facebook timelines), so-called “public accounts” that could act like personal blogs or even professional magazines, and private chat groups (similar to WhatsApp). If Weibo was like a huge banquet hall, where everyone could be seen and heard, WeChat was like a honeycomb of private dining rooms.
Initially, at least, the more compartmentalized nature of WeChat was also more palatable to media control officials as it was much harder for discussions, for example over breaking news, to gather mass attention instantly. But the immense popularity of WeChat still made it a key priority for the leadership in terms of information control. Since 2013, the platform has frequently faced criticism for censoring the activity of users outside China through the blocking of sensitive keywords.
The incorporation of payment services (in 2013) has turned WeChat into a true super-platform, and while competitors like Alibaba have also been successful in the mobile e-commerce space, the “ubiquitous nature of WeChat” has proven a distinct advantage. The platform reported more than one billion monthly active users by the end of 2019, and WeChat Payments can be used for the purchase of products both online and in-store.
Without a doubt, Tencent founder and CEO Pony Ma (born 1971) remains the heart and soul of the conglomerate, the face of its immense success over the past decade. Aside from being a visible and respected figure on the Chinese and global tech scene, Ma is essential to the Chinese Communist Party’s own narrative of innovation, development and legitimacy. Demonstrating the close relationship between executives of top Chinese companies and the political leadership, Ma serves as a delegate to the National People’s Congress, the country’s largely rubber-stamp national legislature.
But the question of future leadership and Ma’s succession already hangs over the company. In January 2020, Ma sold 260 million dollars in Tencent shares, citing personal financial reasons. The move, which corresponded with Ma's resignation as chairman of fintech division Tenpay Micro Loan, and followed his resignation from Tencent Credit in September 2019, prompted some speculation that he might be pulling back from direct involvement in non-core businesses to prepare for a possible successor.
The current president of Tencent Holdings is Martin Lau (Lau Chi Ping), who joined the group as chief strategy and investment officer in 2005 after leaving Goldman Sachs. Born in Beijing, Lau was raised in Hong Kong and educated in the United States. Lau has led a number of Tencent's major acquisitions, including the 10.2 billion dollar purchase in 2016 of the Finnish mobile gaming developer Supercell.
The group’s chief information officer is Chen Yexu (Daniel Xu), one of Tencent’s original founders, who is in charge of strategic planning and development for the website properties and communities, including WeChat. He has a background in software system design and network administration as well as sales management.
Communication and Social:
Weixin (known outside China as WeChat) remains the heart of Tencent's social media business, with a massive user base of 1.13 billion monthly active users (MAU) reported for the second quarter of 2019. Tencent's QQ messaging platform for mobile recorded 707 million MAU for the second quarter of 2019. The WeChat social media ecosystem offers users a wide array of tools and services for uploading and sharing multimedia content. WeChat has been much more focused in the past year on monetization of content, particularly as one of its chief competitors, Bytedance, is getting a larger share of the digital advertising market.
Tencent's online game business, centered at Tencent Games, remains the group's top revenue generator, drawing on the massive user base available from its social media ecosystem. The group's revenues from smartphone games rose 26 percent year-on-year in the second quarter of 2019, reaching 22 billion RMB.
Tencent's digital content business focusses on Tencent Video, Tencent Music and Tencent Sports. Tencent has struck up distribution deals with several international music companies in the past six years, including Warner Music Group, YG Entertainment and Sony. In 2017, Tencent inked a deal with Universal Music to stream its music in China. This was followed in January 2020 with the purchase of a 10 percent stake in Universal Music from Paris-based Vivendi SA. Tencent currently holds just over 9 percent of Spotify. Launched in 2011, offering streaming and video on demand services for mobile, Tencent Video had 96.9 million subscriptions by June 2019. In July 2019, Tencent made a 1.5 billion dollar deal with the NBA to be the US leagues digital partner in China for five years, extending a deal reach back in 2015. Tencent reports that for the 2018-2019 NBA season, 490 million internet users in China tuned in to watch at least one NBA match, a tripling of its business over a four-year period. Tencent announced deepened cooperation with the NBA in 2019 for the development of smartphone games and eSports events.
FinTech and Business Services:
Tencent has a rapidly growing fintech business, with fintech and business services accounting for 26 per cent of Tencent's revenue in the second quarter of 2019. There has been talk of Tencent spinning off its fintech business into a separate unit to compete with Alibaba's Ant Financial Services Group. Tencent has pushed over the past year to expand its cloud computing business for corporate clients.
Commitment in Europe
In December 2019, Tencent announced plans to invest 10 billion dollars in Europe in 2020, about a third of this in Germany. One key focus of expansion for the company in Europe has been its cloud service, as traditional European manufacturers look to digitalize operations. Li Shiwei, the European chairman of the Tencent Cloud division, said Tencent had plans to create 2,000 to 3,000 jobs in Europe in the coming three years. In light of its ambitions for expansion of cloud services in Europe, Tencent has been actively exploring viable locations for related data centers. In late 2019, the company met with government officials in Serbia to plan for a possible cloud service data center in the country, which expects to join the European Union in 2025. On the cloud service front, however, Tencent may face some skepticism in Europe in light of general concerns in some member states over national security, technology theft and data privacy.
Tencent, which has rapidly expanded its mobile wallet service in recent years, has also identified Europe as the “next key market” for cross-border development for the WeChat Pay service. The expansion of WeChat Pay option in Europe comes on the back of rapid growth in Chinese tourist flows, and allows Chinese traveling in Europe to pay for goods and services in Chinese RMB using their mobile devices – potentially drawing key market share from Chinese card companies. “Together with our global partners, we hope to extend the convenient experience of WeChat Pay overseas,” said Tencent’s Dave Fan in May 2019, “so that global businesses can share the dividends of China's growing outbound travel market."
Tencent has made continued investments in Europe in a range of areas over the past few years, including video games, music and entertainment, and fintech. In January 2020, Tencent made a 138 million dollar bid to acquire the Norwegian game developer Funcom. The same month it made a 104 million dollar investment in Qonto – the largest funding round to date for a French fintech company. In an interesting twist for European investment markets, the South African media firm Naspers, which owns 31 percent of Tencent, created “Europe’s biggest consumer internet company” with the Euronext listing in September 2019 of its Prosus unit. By spinning off the Prosus unit, which includes the Tencent investment, Naspers said it hope to “draw in a more diverse crowd of shareholders than it currently has,” and establish Prosus as “a tech giant in its own right.”
Beyond its business presence in Europe, it is important to note that the WeChat platform remains indispensable terrain for European brands looking to access Chinese consumers.
Tencent’s WeChat platform remains "sewn into the lives of Chinese people,” as the Financial Times observed. But like all major Chinese tech and media companies, its success comes at the cost of ever greater government vigilance – and it must maintain a close and cooperative relationship with the Chinese state which can at the same time be perceived from the outside as having inherent risk. On the domestic side, Chinese authorities have placed strong censorship demands on WeChat and a number of other Tencent products, notably games. Since 2018, Chinese regulators have suspended or issued outright bans on a number of popular games – including one of Tencent's most successful games, Honor of Kings – on the grounds that they foster online gaming addiction among youth. Cooperating with censors and regulators is both a drag on business development, and a constant condition for continued survival. As Steve Weber, a political scientist at Berkeley, summed up the dilemma, the position of the Chinese government with regard to Tencent and other Chinese tech giants remains: "If we want to shut off the money taps, we can shut off the money taps." Censorship on WeChat has become pervasive, with even neutral references to the government from state media often coming being flagged and removed. This level of censorship recalls that experienced by Weibo in 2013-2014, which contributed to the rise in popularity of WeChat.
On the international side, the general fear of the threat to data and even national security in the expansion of Chinese tech firms across the globe is a Sword of Damocles dangling over the heads of firms like Tencent. In May 2019, following the release by the Trump administration of a trade blacklist order against Huawei and the telecoms equipment manufacturer ZTE, Tencent CEO Pony Ma warned against the possibility of a prolonged “tech war” between the U.S. and China. In light of these tensions, Ma also expressed concern that China, whose internet development has relied largely on the development of application-based products versus more high-end development, may not be prepared for deeper competition. The era of what Ma called "borrowism" was now over for Chinese firms, he said: “If we do not take painstaking efforts in developing our own infrastructure and core technology, the so-called ‘digital economy’ [in China] is hard to sustain.”
Tencent’s advertising business has been challenged on two fronts: by the general slowdown of the Chinese economy since 2018, and by fierce domestic competition from both upstarts like ByteDance, and from traditional rivals like Baidu and Alibaba. Alibaba is currently Tencent’s toughest domestic competitor for its cloud and fintech units.