Tencent is the Chinese internet giant to rival Silicon Valley’s titans. It not only owns China’s most-used internet portal, but is the fifth biggest publicly traded internet company in the world on a revenue basis, behind only Amazon, Google, eBay and Facebook.
Its most well known property in the West is probably WeChat, which is the most-used mobile app in China and has more than 468 million users worldwide. The company’s ascendancy since it first listed on the Hong Kong Stock Exchange in 2004 has also been driven by a diverse mix of other products, services and subsidiaries such as games portal QQ Games, search engine SOSO, microblogging service Tencent Weibo and the TenPay online payment system.
Despite its gargantuan proportions, Tencent usually receives only moderate press coverage in the West. But the company is increasingly forging ties with Western brands — such as Burberry, Nike and the BBC — as Tencent looks to international shores to fuel its growth outside its native China.
Business Insider got the chance to throw some questions at SY Lau, the senior executive vice president of Tencent and president of its online media group, about what 2015 will look like for the company and what founding beliefs have set Tencent up for success.
Business Insider: Tencent is a huge, huge company, yet most people in the West couldn’t tell you what it does or who it competes with. Is this an issue?
SY Lau: I think there is an awareness of Tencent, but not the understanding outside those that we work with. The number of Western brands that choose to partner with us around their international marketing and business expansions in China is great — companies like Burberry, Nike and Intel have chosen Tencent as their partner for social and mobile marketing.
Where we see more opportunity is due to the growth of mobile internet access across China. Tencent provides a portal for companies to reach and interact with their audiences. The biggest challenge in China has always been the size of the country, and traditional marketing approaches were beyond the reach of those businesses that are in rural locations. Today, companies can take advantage of online and mobile services to market themselves in smarter ways.
This is not just marketing itself. I presented recently on how tea-producing companies in the Fujian region are now able to sell what they produce on a national or a global level, rather than just local. The impact of this was huge — the per capita income for the region went up. According to figures from the National Bureau of Statistics in China, one village took its per capita income up to 13,800 RMB. Compared to the national average of 8,896, this is a big increase. It puts the village alongside more affluent urban areas.
This is the kind of market development that we make possible. As more people find out about this kind of story, they will be more interested in how Tencent makes this possible.
BI: Are there plans for Tencent to conquer the West? Or is this not a priority given the scale of your home market? If so, which of your products and service do you think are most appealing to the Western market?
SY Lau: Tencent is an international company today. We see opportunity around the world, whether this is for our own apps like WeChat or for partnership and investment in Western businesses. I think WeChat is possibly the most recognisable brand for those in the US or UK.
Tencent supports other famous brands around the world in markets like gaming and social. Companies like Epic Games and Riot Games are owned by Tencent, while we have our own gaming IP that is successful in China.
BI: Alibaba executive chairman Jack Ma once apparently said the problem of Tencent is that there’s “no innovation”, alleging that all the things it produces are copies. Does it matter that Tencent has a reputation as a copier?
SY Lau:Tencent’s business approach is built on the philosophy of Sun Tzu, the great strategist and writer of “The Art of War”: Those who succeed always understand, and make the best use, of any situation.
Disruption is inevitable and as such cannot be resisted. Rather it should be embraced and adaptation must follow. You can have the best idea in the world, but if the market is not ready then your innovation will fail.
Look at the iPhone — when it was released in 2007, it was hailed as innovative. IBM released a commercially viable handheld, touchscreen cellular phone and PDA combination in 1994. The Simon was a great idea, but it was too far ahead of its time — the screen was not sensitive enough, it was expensive, and the battery life was too short. However, what was more important was the user acceptance — people wanted a phone that acted like a phone, they wanted buttons!
For Tencent as a company, we place trust in the judgment of our customers and adapt to them. To use an idiom, businesses must learn to roll with the punches. We always try to observe and understand the changes in digital and technological development first, and based on what we have learned, we adjust our direction to flow with it.
It is our firm belief that this is the only possible way to keep winning despite the storms of disruptions. It is much better to make small and swift innovations, instead of allocating large amounts of time and resources to big and long-time projects that may not have the desired impact.
BI: You presented a talk recently on the growth of a new sort of “internet thinking” emerging in China. What is internet thinking? And how does that differ from our Western start-up tech cultures?
SY Lau: I think there is a common thread to entrepreneurialism across the world, but how it establishes itself locally leads to differences in approach, particularly as things start to grow in popularity. “Internet thinking” refers to a way of doing business that has developed in China in response to the wider availability of online services.
What has surprised me is how fast what you might call traditional businesses have adapted to online. Internet thinking refers to how companies adapt their business models to take advantage of the new mobile, social and online services that are at their disposal. Companies are shifting over to new ways of running their business operations, making use of internet services to be competitive.
The biggest shift here is how companies take advantage of the internet to equalise supply and demand. Previously, companies would not have access to customers without spending heavily to market themselves. Similarly, customers might find it difficult to get information on what the new trends are that are taking place in the major cities. Now, both sides of the buyer-seller relationship can find it easier to find each other. This makes it easier for sellers to find customers, while buyers can get more information and make better decisions on how they spend.
Now, using the internet is not magic — you have to have better products and user experience than what came before — but it can help companies streamline their approaches and be more successful. Internet thinking has led to companies like restaurants leading with their internet presence first, and then look at how they then bring people to their physical locations. Other traditional businesses have done similar things as well, using mobile apps for services like laundry or house-keeping. This “online to offline” shift is fascinating to watch, and we see WeChat as sitting at the heart of all these transactions.
BI: Elsewhere, I understand Tencent plans to invest heavily in video in 2015. What do you think you have to offer the countless other internet companies that say they are doing the same this year?
SY Lau: Online video is proving to be incredibly popular. The ubiquity of mobile internet means that people are using mobile video services as well as streaming when they are in their homes. What Tencent offers is access to some of the best national and international content.
We signed a partnership with BBC Worldwide two years ago to bring famous British brands like Sherlock to China. Now we have more US and UK-based productions companies added to our networks. We are investing in more of our own local content as well. Tencent is the exclusive online partner for a range of local TV brands in China, as well as creating our own programmes.
BI: You also recently formed a partnership with HBO to build a platform for American TV dramas. Which ones will be available? And what are the most popular American TV dramas across China?
SY Lau: The range of programs that HBO produces is extensive, and we are looking at bringing over as many of them as possible to the Chinese audience. Series like Game of Thrones already have some awareness here in China, and we are keen to bring over more series that can attract audiences.
BI: Do you consider Tencent Video a competitor to the major TV networks in China? (Google has often been positioning YouTube as a rival to TV in recent months.)
SY Lau: Not really — online video fills a different need to the TV services that people have. Online video can be accessed where there is internet service, and people can find what they want when they want it. At the same time, we have seen that the audience for online video is more varied.
Around the World Cup earlier this year, there was a huge range of content required. There was the traditional soccer fan who wanted to see every game and watch discussions of what took place in detail; there were those who wanted to see more about their soccer heroes and their preparations for the tournament; there were those who just wanted highlights and comedy around what took place. Catering for all those different audiences is something that online video can do very well. This provided more opportunities for brands to use sponsorship and get more brand awareness during the World Cup.
BI: Is Tencent also creating its own bespoke content in this area?
SY Lau: Yes — this is an area where we see great opportunity. It took 40 years for the traditional Chinese television series “My Fair Princess” to be taken up by an international broadcaster for development. This took place in 1998. Tencent Video launched in April 2011. Since that launch, we have invested in original programming as well as building up relationships with content production companies and brands.
Soon after we started, FOX TV in the US took up the option of producing a US version of Tencent Video’s series “BigShot.” It will be in 14 countries around the world. This is hopefully the first of many Chinese series that we can export internationally. The speed at which we have been able to go from a starting start to international deals like this is testament to the quality of the programming team we have put together.
BI: Speaking of future Chinese exports, the Chinese government is increasing its investment in electric vehicle production in 2015. What kind of impact will this have on Tencent’s business? Are you already investing in content creation and marketing technologies for the electric car market?
SY Lau: We see a huge potential for the electric car market. In Q3 this year, 40,000 electric and hybrid vehicles were sold. The aim for the Ministry of Commerce in China is to drive this up to 500,000 vehicles by the end of 2015. By the end of the decade, the ambition is for there to be 5 million vehicles that are powered by new-energy systems. As part of the Chinese government’s plans for the new-energy vehicle market, public sector organisations will be mandated that 30% of their new vehicles should be electric or hybrid.
The market for these vehicles needs education on how the technology is developing, what different companies are doing to meet customer requirements, and brands will need to get in front of buyers for their cars or buses too. This represents a great opportunity for us to lead how the market is covered in terms of entertaining and illuminating content, where it is for end-users or more commercial organisations.
For the international brands that are active in the automotive space, China is the world’s biggest market by volume of cars sold, now ahead of the US. The impact of a successful market for electric vehicles here in China could be significant for the rest of the world too.
BI: Online gaming is one of Tencent’s core revenue drivers. What interesting trends are you seeing in this market? And how do you keep a mobile gaming leadership position? How often do you release new games, for example?
SY Lau: Gaming is an important market for Tencent, it provides huge opportunity for us internationally, as well as being a core market in China.
However, there are opportunities for gaming to drive take-up of other products too. Tencent released a game called Pencil Pilot — now if you look at this game in isolation, it looks like a title taken from the home console market from years ago. However, it was tremendously successful for us.
It drove a significant number of downloads for the Android version of WeChat and helped to establish Tencent as the biggest gaming company in China. The rise of mobile gaming suits us very well as a company — games fit into our portfolio of services and entertainment products. Combining mobile, internet and commerce together into a package that provides a strong customer experience as well as entertainment is what makes us successful. This approach will continue into the future too.
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