March of the Penguin: Tencent Takes on the World
One of the companies I regret not spending a lot of time with in China is Tencent. Though it is probably the most well known and well covered of all China’s Internet companies, when it comes to the Western media, it still doesn’t get anywhere near the attention it deserves. Consider, for example, the amount of coverage that Yahoo gets. Fair enough, Yahoo is big and important and holds strong symbolic value as one of the world’s first big Internet companies. But its market capitalization sits at around $20 billion, and the most newsworthy thing it is has done of late – at least on the positive side of the ledger – is hire someone away from a company that supplanted it.
Tencent, on the other hand, a company that has built itself around instant messaging and games, commands a market cap of $67 billion, making it far more valuable than Yahoo, and a good $20 billion more valuable than Facebook at its current market cap. It touches nearly all of China’s 700 million-ish Internet users, and runs the gamut from social networking to ecommerce to mobile messaging. And yet, how many cover stories in the West are given to its founder, Pony Ma? How often do you read about the killer Penguin on US tech blogs?
In the coming years, you can expect that coverage to increase dramatically. Having conquered China, Tencent is now determinedly looking abroad. A series of big-time investments in recent months has established Tencent as an international player, and, with bold moves not only in emerging markets but also in the US, it is shaping up to be a true global force.
In an interview last month, Pony Ma announced Tencent’s intentions to expand its reach beyond China’s borders. In the interview, he acknowledged that leading foreign Internet companies often have difficulties succeeding in new markets because of cultural barriers, and that Tencent itself has failed in its initial attempts to enter new markets, even when working with local teams. So, Ma said, the company has changed its strategy. Instead, Tencent is investing in foreign companies and letting the local teams retain control. Those teams understand the culture and the founders retain equity and therefore have an incentive for long-term success. “I think this is a good direction, and mutually beneficial,” Ma told the interviewer.
That’s exactly the approach Tencent has taken with its most prominent US investment to date: its majority-stake investment in Riot Games, makers of "League of Legends", for close to $400 million. Tencent is apparently hoping to take on "World Of Warcraft" by introducing its micropayments model into the hardcore gaming sector. At its Palo Alto office, only a handful executives are Chinese, but the bulk of the team is American.
Within the last two weeks, it has signalled just how serious its global ambitions are by hiring the executive director of the International Game Developers Association, Gordon Bellamy, as director of business development and industry relations.
That big score follows Tencent’s June minority-stake investment in Epic Games, makers of Xbox franchise "Gears of War", for an undisclosed sum. According to Chinese tech blog TechNode, there have even been rumors that Tencent has its eyes on gaming kingpin Activision Blizzard.
Tencent certainly has money to burn. In March 2011, it announced the creation of a $760 million venture fund, which later in the year it doubled to $1.5 billion. Back in 2010, it made news by paying $300 million for a 10 percent stake in Russia’s Digital Sky Technologies, and in May it poured $63 million into South Korea’s leading mobile messaging app KakaoTalk for a 13.54 percent stake. But not all of its investments have been big-money bets. It is also backing several small Silicon Valley startups, some of which have come out of Y Combinator, including Everyme, and it has an under-reported partnership with Austin-based online gaming company GameSalad.
When all those investments are lined up alongside each other, it seems clear that Tencent is ready to take on the world. But it also has another vehicle with which to enter other markets: mobile messaging app WeChat. The Chinese version of WeChat, Weixin, accrued more than 100 million users in under a year. It’s a powerful combination of instant messaging, voice messaging, photo sharing, and social networking features. And it could be Tencent’s ticket to a global footprint. On a basic functionality level, it's certainly better than any competing Western product.
As well as being available in English and hooked up to Facebook Connect, WeChat is also available in Russian, Vietnamese, Thai, Indonesian, and Portuguese – which should give you a pretty good idea of the markets Tencent is targeting. Recently, WeChat also launched in India, with a partnership with Indian gaming site Ibibo, of which Tencent owns a 20 percent stake.
So, yes, today Pony Ma and Tencent still get less chatter in the West than do Yahoo and Facebook. But don’t expect it to stay like that forever. This is a company that – like China itself – is only beginning to unlock its international power.