Tencent: Inside China’s ‘Killer App’ Factory(1) (腾旭：中国“杀手级应用”制造大厂（一）)
Xu Ye is a thoroughly modern metropolitan millennial.She reads science and cultural articles on the way into work, takes and dispatchesorders from her boss, lunches on organic produce in an NGO-run community gardenand picks up artisanal bread on the way home.
By Chinese standards, she says, her life inshanghai is “peculiar”. But in one key respect it is utterly typical: like hundredsof millions of her compatriots, she carries out much of her daily life over Weixin,a wildly popular messaging app, on her smartphone.
Her connected lifestyle is largely thanksto Tencent, a $225bn internet company whose social platforms have become a partof the very fabric of Chinese lives. For people like Ms. Xu, Tencent’s myriad appsand services offer a way to work, play and pay.
It is, says one banker,”a social enterprisepowerhouse”: under one roof, it has amassed China’s answer to Facebook,WhatsApp, Spotify, Kindle and ApplePay. Chi Tsang, internet analyst at HSBC, saysTencent has “the most killer apps in the world”. Weixin, along with the WeChatapp outside China, has 846m active monthly subscribers.
Tencent also has a huge multibillion investmentportfolio, ranging form stakes in Didi Chuxing, China’s biggest ride-sharing company,through to start-ups. It dabbles in artificial intelligence, electric cars andbike sharing. Its posse of champion hackers managed to gain remote control of Tesla’sModel S, forcing the US carmaker to roll out a security patch.
“They started with distribution and now they can,” says Scott Likens, a partner in the emerging tech practice at PwC. “It is the opposite of the traditional business where you’ve got the product and say,‘Now let’s find the customers’.”
Fittingly, it is based in Shenzhen, a fishingbackwater turned bustling metropolis across the border from Hong Kong. Today itis China’s answer to Silicon Valley.
The company employs 30,000 workers, more thanhalf of whom are in research and development. While its home market is by farand away the largest, Tencent has an overseas presence in many sectors – its WeChatpayments app can even be used at Caesars Palace in Las Vegas.
“They are everywhere, the US, Europe –especiallyamong Chinese speakers because if you want to contact business or family in chinathere is only one way to contact them, and that’s WeChat,” says Elinor Leung, aresearch analyst at CLSA.
Alongside Baidu and Alibaba, it is one ofChina’s three largest internet groups (they are collectively known as BAT). Butits Hong Kong listing, in June 2004, differentiates Tencent from its rivals,which headed to the US capital markets.
That decision alone won it accolades. “Tencenthas better corporate governance than Google or Facebook,” says Richard Windsor,founder of independent research company Radio Free Mobile, pointing to itsspurning of the dual-class shareholding allowed in the US but banned in Hong Kong.
Strategically, however, it has evolvedalong similar lines to its silicon Valley peers, says one banker. “Tencent hashad a typical US-style upbringing: for the first three to four years {after itsinitial public offering} it did noting; {management} just delivered on whatthey said they would.”
That steady push up the ranks is typical ofits founder, Pony Ma (his name is a pun: Ma means horse in Chinese). Unlike hisnamesake Jack Ma at Alibaba, Tencent’s Mr. Ma shuns the limelight and favours a low-key sartorial style thatcolleagues and acquaintances say is emblematic of his nerdy persona.
An engineer by training, the 45-year-old islisted as the world’s 46thrichest man by Forbes, with a net worthof $21. 9bn. But he prefers philanthropy over a splashy lifestyle, with theonly conspicuous display of his wealth being a palatial home in Hong Kong.
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Mr. Ma started Tencent in 1998 as themessaging service QQ – not in a garage, Silicon Valley-style, but in a high-techpark in Shenzhen, jammed between hustlers selling pirated phones and PC repairs.Online gaming was added in 2004 and is now the group’s major revenue driver,accounting for Rmb18. 2bn ($2.6bn), or almost half of its third-quarter sales.Unlike NetEase, its Chinese rival, Tencent has largely licensed rather thanproduced its own games.
This year, however, it doubled down on itsbet by paying $8.6bn for a majority stake in Clash of Clans developer Supercell,passing on some of the cost to a consortium of investors and keeping theFinnish developer’s management in place.
“They have a long-term view on gaming,” saysone banker, who reckons half of all deals they look at on a daily basis fallwithin the sector. “They are definitely looking outbound.”
