Tencent gets message to open up QQ platform

With 80pc of China's online instant traffic, small players battle to survive

Tencent, the largest internet company in China by market capitalisation, will have to decide this year whether it allows other instant messaging providers to connect to its hugely popular QQ platform.

QQ accounted for 81.67 per cent of the total active instant messaging service accounts in China last year, according to Beijing-based market research firm Analysys.

This means eight out of every 10 internet users in China are using QQ to communicate with their friends, classmates, colleagues and families online on a regular basis.

Without interoperability, it is difficult for new and smaller instant messaging operators to expand their business, as few users care to go through the nuisance of setting up new software on their machines, as well as asking each of their friends or colleagues to join the new service. A QQ user commonly has 100 people on their contact list.

For Tencent, led by chairman and chief executive Pony Ma Huateng, there is little to gain from connecting with a smaller player. At risk is the huge revenue it is getting from the platform.

The basic service is free, while the company makes increasing amounts of money from selling virtual items such as avatars, icons representing a user's identity, and virtual pets to its teenager subscribers online.

In the third quarter, revenue from virtual items and online games rose 140 per cent from a year earlier to 490 million yuan, out of total revenue of 736.9 million yuan.

Tencent has shown itself reluctant to respond to the question of interoperability while Microsoft's MSN and Yahoo made their services more accessible to each other last year.

'It is not a simple answer of yes or no,' said a Tencent executive who asked not to be identified. 'Many issues have to be considered to allow other operators to connect to our QQ platform - for example, security and privacy, virus protection and so forth.

'Also, besides the exchange of text messages, QQ has other services such as avatars and QQ show. Other operators are offering similar services. How do we ensure interoperability on those?

'Lastly, there are costs and revenues related to some services. How to share those?'

Some companies have tried to connect their service by technical means without Tencent's prior agreement. To deter this, Tencent has resorted to legal action.

Last June the company sued Beijing startup MMIM's Pica service for allowing its users to log on to QQ's servers to use the Mobile QQ service without paying service fees to Tencent. The suit filed at a Beijing court claimed compensation of five million yuan.

MMIM counter-sued Shenzhen-based Tencent last month claiming unfair competition and monopoly and alleging Tencent made interoperability difficult. This suit sought compensation of two million yuan. Both cases are pending.

Meanwhile, Tencent continues to be ambiguous about its altitude about interoperability.

It stated in court on January 9 that it would allow any instant messaging service to connect to its QQ service if the operators applied to the company. It said no instant messaging operators had thus far applied for interoperability.

On the other hand, China Mobile recently showed that if you have enough muscle, you can wrestle the instant messaging king into granting concessions.

China Mobile, the country's biggest mobile operator, last summer introduced its own instant messaging service, Femoo. At the same time, it said that after December 31, 2006, it would not renew its contract with Tencent to carry Mobile QQ which allows QQ users to send or receive instant messages over the phone.

Mobile QQ contributes up to 10 per cent of Tencent's revenue, president Martin Lau Chi-ping said.

Negotiations between the two parties went on for almost six months, without a result.

Three days before the deadline, on December 28, the two finally came to an agreement that Tencent would allow Femoo to connect to its QQ platform and the existing service of Mobile QQ would gradually be replaced by Femoo.

Femoo charges a flat monthly service fee of five yuan, and Tencent will split that with China Mobile.

Open sesame

Eight out of every 10 internet users in China are using QQ

Online sales rose to 490 million yuan in third quarter

Tencent says security concerns an issue in opening up platform