Explainer | How Tencent missed its chance to join the trillion-dollar club: a brief history
- Tencent’s share price has dropped more than 37 per cent since the beginning of the year
- China’s Big Tech have been almost continually battered this year by an ongoing crackdown with no end in sight
Starting in July, the Shenzhen-based company has seen a merger deal blocked, been ordered to end its exclusive music licencing deals with global record labels, and suspended new user registrations on its super app, WeChat.
Since the beginning of the year, its share price has gone from a high of HK$767 (US$98.70) in January to HK$446 by market close on August 3, a drop of almost 42 per cent, after a now-deleted article from state-owned media condemned video games as “spiritual opium”.
Here is a fresh look at how Tencent got to where it is today and the challenges it faces.
How did Tencent begin?
It all began in 1998 in a small office in Huaqiangbei, a district in China’s southern tech hub of Shenzhen known for its sprawling electronics markets.
The country’s internet industry was just starting to take off. The number of web users had ballooned to more than 2 million from a paltry 1,600 just four years earlier.
Pony Ma Huateng, a 27-year-old software engineer, spotted an opportunity in the booming space. He quit his job at China Motion Telecom and founded Tencent with a group of fellow alumni from Shenzhen University.
The start-up’s first product was OICQ, one of several Chinese instant messaging programmes similar to Israel’s then-popular ICQ.
After a legal complaint from AOL, which had acquired ICQ the previous year, Tencent renamed its programme QQ in 2000. It quickly gained popularity among the country’s early internet adopters who were looking for a reliable way to connect and communicate.
Building on its reputation as a relatively stable service, QQ drew a million users within nine months, according to Tencent’s authorised biography published in 2017.
The fast-growing user base enabled Tencent to explore new revenue streams.
One early attempt was a virtual currency called QQ Coin. Introduced in 2000, it allowed users to pay for features such as QQ Show, which lets them customise their avatars and account names.
These paid services later morphed into a multi-tiered membership system that gave users different levels of privilege according to how much money they were willing to shell out.
Besides being an early digital currency laboratory, QQ was also where Tencent laid the first brick of its gaming empire. In 2004, the year the company went public in Hong Kong, Tencent launched QQ Games and gave some of the messenger’s 200 million users their first taste of online games.
When did WeChat come into the picture?
By the mid-2000s, QQ had already propelled Tencent into a leading social messaging giant, but the company had no time to rest on its laurels. China was starting to witness another seismic shift on the internet: smartphones.
More people were going online using mobile devices rather than personal computers, which made it clear that Tencent had to evolve.
The first version of WeChat in 2011 was simple: the app allowed users to exchange text messages and photos. Later on, it added voice messages – short audio clips that essentially allowed users to turn their smartphones into walkie-talkies – which was especially popular among older users who found typing out Chinese characters too cumbersome.
Today, WeChat has become a lot more than that. It has turned into a super app.
Users can read the news, play games, share photos and music, order food, hail a taxi and pay bills – all within the universe of WeChat.
It is no exaggeration to say that over a decade, WeChat has profoundly influenced how Chinese people interact with each other in the online world.
The app, which celebrated its 10th anniversary year, currently counts more than 1.2 billion monthly active users, most of them in mainland China.
How else does Tencent make money?
While Tencent has its roots in social media, the video games business is its primary source of revenue and supports the company‘s global expansion.
Its players spent US$277 million in that month alone, with 96 per cent of the revenue coming from China.
Outside its home market, Tencent is an investor in a string of gaming titans. It owns California-based Riot Games, the developer behind the wildly popular League of Legends, and holds a majority stake in Finland’s Supercell, the creator of Clash of Clans.
It also has stakes in Activision Blizzard, Ubisoft, Epic Games and Bluehole, the developer of PlayerUnknown‘s Battlegrounds.
Although gaming is a key part of its operations, Tencent has expanded its business interests through the years. Its portfolio now covers more than 800 firms at home and abroad as of last January.
The company’s investments include artificial intelligence, retail, education, financial technology and corporate services. It has stakes in familiar Western names including Tesla, Snapchat, Spotify and Universal Music Group.
At home, Tencent is also a heavyweight in streaming video and music services. Tencent Video is one of China’s top video-streaming sites, along with Baidu-backed iQiyi.
Tencent Music, which was spun off and went public in New York in 2018, runs China’s three most popular music-streaming apps.
Moving beyond consumer businesses, Tencent has recently marched into the enterprise market. It has made a big push into cloud computing and the industrial Internet of Things, as China pursues the digital transformation of traditional industries.
What is the outlook for Tencent amid challenges at home and US-China tensions?
Alibaba Group Holding, the owner of the South China Morning Post, was fined 18.2 billion yuan (US$2.8 billion) in April for monopolistic practices including “picking one from two”, which forced online merchants to choose just one distribution channel.
In July, regulators ordered Tencent to relinquish its exclusive music licencing deals with global record labels and that same month blocked a long-awaited merger deal that would have combined the country’s two largest video game live-streaming platforms.
In March, Alibaba attempted to launch its bargain e-commerce platform Taobao Deals as a mini program on WeChat.
Outside China, Tencent can breathe a little easier.