EN-Episode 77: Look at Tencent Dad

Original audio (translated transcript below):

Hello everyone, I’m Kaycee.

I have exams this week, so I’ve been busy with revision and exams for a while now. I did record a show in the last edition, but I really didn’t have time to edit it, so I didn’t get around to uploading it, so I’ll just move the last edition to this one. Actually, just to keep everything short, I’ll share with you a rather interesting news report I read recently. It was published in the New York Times, so let me just read it to you.

It’s titled “China’s Public Enemy Number One in the Internet Industry to “Tencent’s Dad””. You guessed it, it’s an article about Tencent.

Okay, let’s start.

A few months after launching a Groupon-style e-commerce service called Meituan, Wang Xing discovered that Tencent, China’s biggest internet company, was doing something similar.

“Is there any business that Tencent doesn’t do?” he asked. He asked.

Wang Xing’s comment was placed at the top of a magazine article about Tencent in 2010, and the article’s expletive-laden title became so notorious that two senior editors were fired shortly after it appeared in print. The magazine cover featured Tencent’s mascot – a chubby penguin wearing a red scarf with several knives sticking out of his body and blood pouring out.

It may look exaggerated, but at the time, Tencent was considered public enemy number one by the Chinese technology industry. This was a company that would not hesitate to plagiarise the ideas of others and keep startups alive. The company’s executives were repeatedly confronted at industry conferences and in media interviews. Entrepreneurs called it the most brazen plagiarist in the industry.

More than a decade on, the Chinese government is finally starting to tighten the reins on the country’s most powerful tech companies – but that doesn’t include Tencent, at least not yet. The company is being fined a little, but the government’s attention is mainly on Tencent’s rival, Jack Ma’s Alibaba empire. The next target? Perhaps Tencent’s former rival Meituan.

Only China’s antitrust regulators know exactly why Tencent has not been the focus of their attention so far. Still, as China’s largest and most powerful tech company, it has too much say in the outcome and may eventually be targeted – and probably should be.

But perhaps one of the reasons is that the industry is no longer crying out to beat Tencent these days. In fact, Tencent has become in many ways the industry’s biggest and most financially powerful cheerleader. By pouring money into small businesses and buying up competitors rather than driving them into the ground, the company has changed its image.

No longer public enemy number one, Tencent is now the enlightened monarch of an ever-expanding technology empire. A significant part of China’s internet industry belongs to the so-called Tencent ecosystem. This includes hundreds of Tencent-invested companies, Wang Xing’s venture being one of them – Tencent is now the largest shareholder in Meituan, with a 21 percent stake. (Meituan did not respond to a request for comment.)

“When Tencent copied,” one hotly spun blog wrote of the Chinese tech company that didn’t fall down. “When Tencent handed over the cheque, they lost the will to resist and defected in droves.”

The rapport Tencent maintains with many industry players may have brought the company a number of benefits. But it still inhibits competition and ultimately hurts China’s one billion internet users.

“Both Ali and Tencent hold a lot of resources,” says Yinsheng, a Beijing-based technology consultant. “If they do evil the harm will be great for both.”

Tencent declined to comment for this column. The company has said it will invest in high-quality and innovative companies and embrace fair competition.
Rarely do technology investors and executives speak publicly about the two companies. But even in private conversations, as I put away my pen and notebook, I heard plenty of complaints about how Alibaba treats the companies it invests in and from merchants who use its platform – something Alibaba vehemently denies. In contrast, the same set of people often describe Tencent and its founder as decent, humble and well-mannered.

These friendliness are partly motivated by business necessity. The cordial relationship has helped cement Tencent’s influence in China.

Tencent is unique in the world. On many levels, it is a true monopoly. It wields influence in China that Facebook, Amazon, Apple and Google can only dream of.
Tencent is a major entertainment platform. It is the world’s largest online gaming company, with stakes in Riot Games and Epic Games. It also owns the largest online video, music and online literature businesses in China.

Tencent is a venture capitalist. In 2020, it trails only Silicon Valley investment firm Sequoia Capital in terms of the number of unicorns (startups valued at more than $1 billion) it has invested in, according to Shanghai-based research firm Hurun Report. By its own account, it has invested in more than 800 companies, including a 12 per cent stake in Snap and 5 per cent in Tesla. By comparison, GV, the most active corporate venture capital arm in the US and formerly known as Google Ventures, has invested in more than 500 companies.

Most importantly, Tencent is a platform operator. It runs WeChat, a mobile messaging app with social media and financial services capabilities. It is the WeChat business that allows this company to focus on befriending other companies.

WeChat needs other companies to keep its one billion users glued to the app. WeChat itself is like an operating system and an app shop that allows users to run small programs created and operated by other companies. These users can use WeChat’s payment system to make purchases. Tesla, Airbnb and Starbucks all have their own WeChat applets. So do most major Chinese websites – except for those banned by WeChat.

This is where Tencent’s good connections in the industry become important. Companies with friendly relationships develop small programs for WeChat. Tencent invests in Chinese online taxi and bike-sharing companies because their users pay frequently and Tencent wants them to use WeChat to pay.

Tencent’s chief executive Ma Huateng often says that half of Tencent’s life is in the hands of the companies and partners it invests in. “You grow up and we grow up, you fail and we fail as a platform,” he said on a TV talk show in 2016.

This belies the huge power imbalance between Tencent and many of the smaller companies it influences. Huang Zheng, founder of Pindo, hinted at this in a 2018 interview in which he complained about WeChat’s refusal to help review allegations against it for having counterfeit goods on its shopping platform.

“Because Tencent won’t die if I die,” he said, “Tencent has millions of sons.”

However decently or modestly Tencent behaves, it is a huge conglomerate, with profits of $24 billion last year, much of which went into investments. It decides the winners and losers, but the winners are not always the best in the industry, to the detriment of innovation and efficiency.

It restricts users’ access to other products and services. WeChat does not allow users to share links to products on Alibaba’s online marketplace Taobao, or short videos on TikTok’s Chinese sister company ShakeYin. ( Other platforms also block Tencent’s services.) When three social messaging apps launched in January 2019, they were immediately blocked on WeChat.

ByteDance, the parent company of Jitterbug, brought the possibility of a company that could stand on its own two feet. In the early days, ByteDance’s founder Zhang Yiming took a small investment from Tencent to stop its advances, but refused to forge closer ties. Responding to rumours that Tencent would invest in ByteDive in 2016, Zhang Yiming wrote that he did not start ByteDive to become a Tencent employee. He posted the lyrics of the song Go Big or Go Home.

ByteDance’s self-reliance has paid off. It is now worth almost $400 billion and has some extremely popular web content apps, including TikTok, the first Chinese internet product to become a global phenomenon.

It’s not just the industry that Tencent has ingratiated itself with. It has long tried to get close to the government as well. In contrast to the sometimes unruly Alibaba, Tencent has long publicly stressed its willingness to fully comply with regulations.
“Now I think we should learn more about what the government cares about, what society cares about, and be more compliant,” Tencent president Liu Keping said on an earnings call in January. Tencent executives used the word “compliance” six times during the call.

In April, the company said it would invest US$7.8 billion in President Xi Jinping’s favourite themes, including green energy, education and rural revitalisation. In the view of online commentator Hong Bo, Tencent is defending itself.
He said, “It’s that from a business security perspective you have to look like you’re taking more social responsibility.”

The New York Times “From public enemy number one in China’s internet industry to “Tencent’s dad”

Well, that’s the end of the article. If you look closely, there are some details in this article that are worth discussing in more depth.

All right then, see you next time.

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