Chapter 77 Tencent's prosperity and dangers

In 2008, the stock markets in China and Hong Kong were hovering in the shadow of decline.For the head of the Internet company, it seems that he has also fallen into the situation of ice and fire for a while. With the scar memory of the dot-com bubble in 2000, the capital market is even more cautious about investing in internet companies.When the financial crisis ravaged Wall Street, Alibaba CEO Jack Ma advised the company's employees to "start preparing for the winter."When the whole industry was considering how to tide over the difficulties, an Internet company listed in Hong Kong was included in the Hong Kong Hang Seng Index constituent stocks on May 9, 2008. At the same time, it was also actively favored by top international investment banks such as Citibank, Credit Suisse, and Goldman Sachs. .This is Tencent, the "penguin" familiar to Chinese netizens. The financial report for the first quarter of 2009 showed that its net profit was RMB 1.035 billion, an increase of 19% over the previous quarter and an increase of 93.8% over the same period last year.Tencent has once again become the most profitable company on the Internet in China.

QQ is a very popular communication tool, but Tencent’s commercial success is due to the new vitality outside of QQ, which has transformed Tencent from a communication tool into a business empire with unlimited potential.In Ma Huateng's mind, the future Tencent will become a symbol of Chinese people's online life. As long as QQ and Tencent are mentioned, they will be associated with online life.In Tencent's future "online life" planning, IM and Tencent Portal become the two basic platforms that run through the entire group's business vertically and horizontally. These two platforms are divided into key businesses (Internet business, games, advertising, Wireless) and future-driven businesses (Paipai, Tenpay, Search, QQLIVE).

Like Sohu, Netease, Baidu and other companies, Tencent also started from the replication of technology and business models.However, QQ, Tencent's Chinese instant messaging tool developed based on ICQ technology, did not find a clear business profit model at first. "At that time, there was no profit model based on instant messaging at home and abroad. In fact, instant messaging is indeed a basic tool like email, and it does not have a complete profit model. It is just a tool to attract users." Ma Huateng said . The characteristic of Tencent's business model is rapid imitation, connecting cutting-edge technologies in domestic and foreign markets with the QQ platform, and quickly making profits.This model has allowed Tencent to gradually get rid of its dependence on IM (instant messaging) itself in a few years, and grow new vitality such as QQ show, Qzone and QQ pet on the IM platform. 2008 is the 10th year since the birth of QQ. It has grown from a simple instant messaging software to an Internet giant covering seven major businesses including instant messaging, online games, portals, and wireless value-added services.Among them, the portal qq.com now ranks first in traffic, Paipai.com ranks second in the industry, SP ranks in the top three, casual games ranks first in the industry, and online games ranks in the top five.Although not all individual businesses are number one, the overall strength is second to none.

So what risks does this sprawling penguin empire face in the future? In the field of online advertising, Tencent.com presents a posture of catching up. With the first-mover advantages of portal sites such as Sina and Sohu, although the traffic has already reached the first place, in the field of online advertising, it still has a relatively large gap with Sina and Sohu. The gap is also smaller than the latter. Tencent's financial report for the first quarter of 2009 showed that its net profit increased by 94% over the same period last year.However, the advertising revenue is only 5.9% of the total revenue, which is far from Ma Huateng's expectations for advertising revenue. In 2006, Ma Huateng publicly stated in an interview with the media that it is expected that within 1-2 years, online advertising business will replace SP business as the second largest income pillar. In the next 5-10 years, the proportion of online advertising business revenue in the company's total revenue will increase More than 50%.Now, looking to the future, Ma Huateng is not so optimistic.However, with the first-mover advantages of the three major portals such as Sina, Sohu and Netease, it is not easy for Ma Huateng to get a share of the pie.Data show that Tencent's online advertising revenue in the first quarter of 2009 fell by 30.1% compared with the previous quarter, and only increased by 1.4% compared with the same period last year.From 2004 to 2008, the average annual growth rate of Tencent advertising reached 99%.In 2008, this growth rate began to slow down, when online advertising increased by 67.5% compared with 2007, which was about half of Sina's advertising revenue during the same period.

Regarding the downward trend of advertising, Ma Huateng explained that due to the impact of the economic crisis, advertisers implemented strict budget control, and Tencent's online advertising business was negatively affected.Analysts believe that the decline in the growth rate of Tencent's online advertising is not only due to the deterioration of the economic environment.Li Zhi, an analyst at Analysys International, believes, "The reason is, first, in terms of brand promotion, it still stays in the indoctrination of advertisers and lacks the education of netizens. Tencent is trying to convey such a message to advertisers, Tencent 'IM+ Portal + community' is an effective platform for precision marketing. However, netizens' perception of Tencent is still at the level of QQ and entertainment, and has not promoted its brand to an Internet platform that is indispensable for information acquisition and communication. In other words, in its own In terms of user structure, there is still room for improvement. Second, although Tencent is determined to develop online advertising, most of its energy is spent on games and value-added services, distracting qq.com’s energy, and only relying on IM customers How many advertising positions can there be on the end? Third, the user’s habit of going directly to qq.com after logging in to QQ chat software on qq.com has not yet been cultivated. From the perspective of advertisers, this traffic is not user It was caused by taking the initiative to go up, but it was transferred up through the QQ client."

Tencent's C2C online trading platform "Tencent Paipai", although its number of users is comparable to that of Taobao, it only accounts for less than 5% of the trading market share; while "Tencent Soso" invaded the search field, the competition it faced The opponent is also very strong.In this regard, Ma Huateng also pointed out that Tencent's competitive pressure mainly comes from comprehensive Internet companies that are expanding their business scope and various specialized companies in Tencent's specific industries. "21 Business Review" analysis pointed out: After all, Tencent's huge user base is only a resource, not a capability.The difference between resources and capabilities is that the former is dissipative, transferable and substitutable, while the latter is productive, non-transferable and renewable.Taking the IM user group as an example, MSN has the potential to transfer QQ users (and this phenomenon is already happening).What should we do when QQ users “understand it after 30” and “think about it in retrospect” and turn to MSN or the potentially lethal Google Talk? How to manage user loyalty is a strategic issue for Tencent.Tencent's mediocre performance in pushing TM (this is an "MSN-like" QQ, intended to prevent QQ users from "victorious escape" after adulthood), makes people worry about Tencent.

Tencent is also facing the problem of converting user loyalty into customer loyalty, and while defending its market share, it also has to fight the tough battle of a single user's "wallet share".Just because you have direct access to customers doesn't mean you can sell something to them.The customer's banknotes are placed in the same wallet, but the correlation and closeness between the banknotes may not be as strong as it seems-maybe this piece of money is destined to be paid to many different merchants. The most important thing is whether Tencent can gradually transform its advantages based on core resources into advantages based on core capabilities when life is going well (with good resources).Without this, it will be difficult for the Penguin Empire to achieve long-term stability.When the number of business fields increases suddenly, how to achieve "shape is scattered but spirit is not scattered" in various businesses, and whether there is core competence is particularly important.At this point, Google is showing itself quite dramatically. Google's strong core capabilities in the search field enable it to be able to gather together while developing multiple new businesses.Whether Tencent can become China's Google is not important, what matters is whether Tencent can have the core capabilities to allow itself to retract freely like Google.

Despite the ups and downs, in Ma Huateng's view, the final comparison between companies is to see who can integrate various businesses first and win high-quality users.However, at present, Tencent’s various businesses are far from connected. According to Ma Huateng’s own words, “There is nothing that can be connected, except for an account.” At the same time, “We still have many shortcomings, such as high-end users. Insufficient, brand recognition is not enough."When Ma Huateng faced the media, he never concealed his anxiety. In 2008, Ma Huateng reduced his shareholding four times, and cashed out a total of 60.69 million Hong Kong dollars four times.Lau Chiping, President and Executive Director of Tencent, cashed out more than 22 million Hong Kong dollars.Zhang Zhidong, CTO and executive director of Tencent, cashed out more than 100 million Hong Kong dollars.Industry insiders believe that the reduction of holdings by executives generally indicates that the stock price is close to a high point.When Pony Ma Huateng announced his financial report at the end of 2007, he pointed out that as an emerging industry, the Internet not only has business opportunities everywhere, but also faces various challenges.

The hulking penguin seems to have other problems, too, with what its shareholders say is a lack of innovation.Ma Huateng admits that the effect of innovation is lower than expected, but will actively improve; whether Tencent's huge user base is suspected of monopoly is also a concern for shareholders.According to the quarterly report released by Tencent on May 13, 2009, the total number of instant messaging registered accounts reached 934.9 million, an increase of 4.8% over the previous quarter, while the number of active accounts reached 410.8 million, an increase of 9.1% over the previous quarter.Tencent Chief Administrative Officer Chen Yidan pointed out that the criterion for judging monopoly is not market share, but whether market share is used to seek illegitimate interests.Therefore, Tencent does not have the problem of suspected monopoly.

From this point of view, Ma Huateng and his entrepreneurial partners are still on the road.