Tencent, the Chinese Internet juggernaut was rumoured to undergo a major overhaul of its businesses through which the company would be reorganized into six groups, local portal site Sohu reported citing sources.
The six groups include: TEG (Technical Engineering Group, consisted of Tencent Research and operating divisions), SNG (Social Networking Group, consisted by its Internet business lines and some divisions from Tencent Research), CDG (Corp. Development Group, formed by Tencent Guangdong R&D centre and its corporate development arm), IEG (Interactive Entertainment Group, original Interactive Entertainment service), MIG (Mobile Internet Group, consisted of wireless services and some divisions from Tencent Research), and OMG (Online Media Group, namely its portal business).
Local media once cited sources claiming that Tencent has categorized all its services and operations into four business lines which take care of everything ranging from corporate functions, services, security, architectures to operations whilst Line B, or the Line of operations will again be subcategorized into five arms include corporate development, wireless services, Internet services, interactive entertainment and online media.
In a nutshell, Tencent is making efforts to streamline and probably lose some weight.
The most profitable Chinese Internet company which uses a penguin with the red scarf as the mascot, has been growing into a stout beast with its toes stepped into a disparate set of territories to compete with Chinese Internet companies on many fronts like portal business (rival with Sina, Sohu and NetEase), online games (compete with Sohu, NetEase and Shanda), social networking service (with Sina, Renren), software and anti-virus services (with Qihoo 360), online video (with Qiyi, Sohu Video), ecommerce (with Taobao), travel booking (with Ctrip), online payment (with Alipay) and search (with Baidu and Sogou), just to name a few.
In the firm’s freshly released Q1 2012 financial results, it munched in a profit of US$ 470.6 million on revenue of 1.53 billion, up 2.8% from a year earlier.
screenshot of Tencent’s portal business QQ.com
All its major offerings are still seeing big growth, for example, its instant messaging system QQ now boasts 751.9 million accounts, up 11.5% yoy, QZone and Pengyou.com, both are Tencent’s approach to social networking to date claims 576.7 million and 214.5 million users respectively, up 9.7% and a stunning 30.2% yoy. And the Shenzhen-based company’s profit-making businesses including QQ Game Open Platform, Internet value-added service, wireless Internet value-added service as well as online advertising business all pulled off decent growth in the past quarter.
However, there’s always more than meets the eye.
Firstly, Tencent’s investment spree in last year hasn’t brought on too much revenue, for example, it still lags behind Alibaba/Taobao on ecommerce front in spite of a flurry of stake shopping, probably one of the major causes why Tencent strived to restructure and streamline its online selling effort lately.
Starting last year, Tencent invested into a bunch of ecommerce services such as Gaopeng the JV with Groupon, China’s Zappos OKBuy.com, the Chinese OTA elong.com, diamond etailer, kela.cn, 3C etailer 51buy.com and so forth while eLong is the only one which is making money.
Secondly, Sina Weibo the sensational successful Chinese social media has posed some sort of material threat to Tencent. Just like Tencent built its empire on QQ, Sina has been working relentlessly on Weibo to reinvent itself from the traditional online media company to the leading social media outlet by adding a swath of innovations to the platform like Weibo Open Platform, Enterprise Weibo, Weibo gaming centre and so on. For Tencent Weibo? Try ramping up the daily active users before thinking of anything else.
At the same time, Tencent’s search effort Soso was long-rumoured to be facing serious downsizing, underscoring that someone as strong as Tencent still has its achilles’ heel. Soso never made any breakthrough since its inception from six years ago. It currently accounts for 1.5% of China’s search market in the first quarter of this year, according a report by Beijing-based market researcher iResearch.
Tencent had, and still has its glories, but the rise of its peers and the change in the market raised some unanswered questions for it, a organizational restructure might help it be more responsive to market change and be nimble in execution.