GROUP 6

Anubha AGARWAL

Sree

CHANDRAMOULI WANG H
(Allen)

CORPORATE STRATEGY
[Document subtitle]

(Missy)

Yang Ya-chieh

Table of Contents
1. Executive Summary.....................................................................................................4
2. Background .................................................................................................................5
3.2.1 Threat of new entrants .................................................................................10
3.2.2 Threat of substitute products or services .....................................................10
3.2.3 Bargaining power of customers ..................................................................11
3.2.4 Bargaining power of suppliers .....................................................................11
3.2.5 Intensity of competitive rivalry....................................................................11
3.3.1 Domestic Competitors..................................................................................12
3.3.2 Overseas Competitors...................................................................................16
4.2.1 Strength.........................................................................................................23
Large scale user base.............................................................................................23
Tencent QQ has more than 800 million active users and Wechat has more than
400 million active users. With large scale user base, Tencent can build a
comprehensive customer data to further analyze consumer behavior, strengthening
product developing. Besides, there is higher probability for current users switch to
its new products or services as users are familiar with the platform and brand that
reduce the barrier to download for trial. Tencent can also utilize its current
accesses to promote it new products or services.
...........................................23
Decent and growing financial performance...........................................................23
As shown in chart below, Tencents revenue has been upward growing with
average 40% growth from RMB$19646 million to RMB$78932 million for the
past five years. Its gross margin is evenly matched in strength with competitors

which is 61% of Tencent, 60% of Alibaba and 61% of Baidu in 2014. With strong
and growing financial performance, Tencent can attract more investor and
therefore keep expanding its business. .............................................................23
RMB in millions....................................................................................................23
Well diversified business portfolio and patents ....................................................24
Tencents leading Internet platforms in China have brought together China's
largest Internet community, including QQ (QQ Instant Messenger), WeChat,
QQ.com, QQ Games, Qzone, 3g.QQ.com, SoSo, PaiPai and Tenpay. These meet
the various needs of Internet users of communication, information, entertainment,
e-commerce that add values to users while at the same time increase the stickiness
of users. Tencent has obtained patents relating to the technologies in various
areas: instant messaging, e-commerce, online payment services, search engine,
information security, gaming, and many more that established its power and
advantage in the industry. .....................................................................................24
1.1.2. Weakness...................................................................................................24
4.2.3 Opportunity...................................................................................................25
Government policy and regulations.......................................................................25

1. Executive Summary
Objective of the report

2. Background
2.1 Company
Tencent Holdings Limited, founded in 1998, is one of the largest internet service
providers in China. In 2004, Tencent holdings limited was listed on the HongKong stock
exchange and in 2014, Tencents total revenue touched $12.9 billion and total profits
reached $3.9 billion. In Q4 of 2014, Online gaming contributed to $2.76 billion in
revenue and social network to $832.1 million in revenues. In line with Tencents strategy
of providing a one-stop online lifestyle services, Tencent has launched some popular
products such as WeChat (the instant messaging platform provider), QQ.com (online
media platform), QQ zone, QQ gaming platform to mention a few.
2.2 Products and Services
Tencents products and services can be broadly classified into three main categories
VAS (value added services), online advertising and e-commerce transactions.
2.2.1 VAS (Value added services)

VAS comprises a whole range of products such as instant messaging services, value
added services provided through both wired and wireless internet platform and interactive
entertainment services which mainly constitute the gaming platform.
Instant Messaging Services
Tencent QQ provides a comprehensive package for Internet-based instant messaging
platform, which includes basic online communication functions, such as text messaging,
video, voice chat and file transmission. In addition to QQ, Tencent has developed WeChat
which released in 2011. It is the fastest growing social app in the world, creating new
ways to connect, communicate and share. The platform integrates messaging, social
communication and games all together within a single easy-to-use app.
Internet Value-Added Services
Internet value added services include club membership, avatar, personal spaces and
communities, online music and dating services etc. Leveraging the social networks of the
IM users, the Internet value added services provide environments for users to have fun, to
communicate and interact with their friends and families as well as to make new friends.
Such services consequently enable Tencent to provide users with personalization services
involving the purchase of virtual commodities. The value added services have also made
our active user base an attractive market to advertisers to promote their products on this
active community platform, creating and leading the development of new interactive
marketing models of China's Internet.
Wireless Internet Value-Added Services
Tencent has covered the whole wireless services ranging from SMS, Multimedia
Messaging Service (MMS), Interactive Voice Response (IVR) services, WAP, mobile IM
service to mobile games. Tencent's 3G.QQ.COM, Mobile QQ, Super QQ and QQ Game
are staying at the forefront of the industry. 3G.QQ.COM, Tencent's mobile phone portal
website, is designed to provide users with all kinds of mobile Internet services. Mobile
QQ is a mobile IM software, it satisfies users' desire to make free chat anywhere at any
time. Super QQ is a VIP service which Tencent provides to mobile phone users with
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various functions and privileges, including upgrade to the most fashionable chat style;
listen to music, play games and make friends online with access to all kinds of privileges;
enjoy discount and latest information. QQ games platform provides diversified contents
at the mobile game center, which cover PC and mobile online games.
Interactive Entertainment Services
Tencent Games is a world-class online game developer and operator, recognized as the
largest online game community in China. Tencent Games is dedicated to the sustainable
development of long term game-related products that are both healthy and competitive,
catering to users' fundamental needs and ensuring ease of application. With an open
attitude, Tencent Games has set benchmarks in multi-segment online game markets and
achieved great results by implementing a combination of in-house development and
diverse cooperation with other companies.

Online advertisement services

Online Media
QQ.com is China's largest portal in Chinese integrating news, interactive communities,
entertainment products and widely-used basic services. The website serves Chinese users
around the world and through its broad real-time news coverage and full range of
information and entertainment services.

E-commerce transactions
As the largest online services platform in China, Tencent provides a wide range of
services which covers instant messaging, information portal, online games and ebusiness. With its great reach, high interactivity and targeting ability, Tencent has been
partnering with many multinational and local companies, providing them the most

effective online marketing solutions. Tencents advertising revenue is growing rapidly

from RMB 54.8 million in 2004 to RMB 962.2million in 2009.

bile and telecom services and online advertising under the strategic goal of providing
users with "one-stop online lifestyle services". Following the strategic, Tencent has
stablished seven main business lines, including Instant Messaging, Online Media,
Wireless Internet Value-Added Services, Interactive Entertainment Services, Internet
Value-Added Services, E-commerce and Online Advertising Services. These services
have brought together China's largest Internet firm, meeting the various needs of Internet
users.
2.3 Corporate Culture
Tencent highlights its value in five aspects: Integrity, treat morality, justice, honesty, and
trustworthiness as guiding principles in all of our actions; Proactive, proactively assume
responsibilities and embrace new tasks and challenges; Collaboration, collaborate and coprosper with industry partners by promoting a win-win mentality; Innovation, the
objective of innovation is to create new sources of value for the customer. Its vision is to
be the most respected Internet company by listening, satisfying and exceeding
consumers needs and expectations as well as promoting the healthy development of the
Internet industry and win-win collaboration with partners.
3. Industry Analysis
3.1 Revolution of Internet Industry
3.1.1 Desktop Internet (1982 ~ 2007)
In 1982, the term Internet was used for the first time. In the mid-80s, corporations
started to use the Internet to communicate with each other and with their customers for
business purpose. In the late-90s, private connections to the Internet became popular.

From late 1990s to late 2000s, the internet was mostly desktop-based. There were three
major categories in terms of business models in desktop internet industry: Online
advertising, Online-entertainment (Online Gaming) and Online Shopping (e-commerce) .
In 1995, Amazon and eBay was founded. E-commerce is their major business model.
Later on in 1996, ICQ, the pioneer of Instant Messaging, was created by the Israel-based
company Mirabilis which was acquired by AOL two years later. Social networking is the
core of ICQ which is the same as Facebook. In 1998, Google was founded when the
worldwide internet users broke 1 million. Most of googles revenue was generated from
online advertising.
That was a brief history of US internet industry. Similar exciting things happened in
Chinese Internet industry. In 1998, Tencent, the pioneer of Instant Messaging in China,
was founded by Huateng Ma. In 1999, Alibaba, the pioneer of e-commerce, was founded
by Jack Ma. In 2000, Baidu, the pioneer of search engine, was launched by Robin Li.
Nowadays these Big 3 internet companies in China -Baidu, Alibaba and Tencent - was
called BAT. In 1999, one year after Tencent was founded, OICQ was released by
Tencent. In 2001, OICQ was renamed to QQ which is well known by almost every single
Chinese. In that year, the users reached 50 million. In 2003, Tencent launched QQ Game,
which became its major business model.
3.1.2 Mobile Internet (2007~)
In2007, Apple released its first iPhone, bringing smartphones mainstream. The three
business models, online advertising, online-entertainment and online Shopping, are
challenged by the mobile phone.
For the advertising business, the larger of the screen as the larger the revenue is. Online
advertising on the desktop is still fine. It is still represented a large percentage at the total
of the one advertising market. But when it comes to mobile phone, the screen is much
smaller. It is very hard to put in a lot of ads among the content.
For the online gaming, thats similar. Tencent makes most of money from online games.
But the games are mostly client-side game or the so-called of RPG. Users need to

download a large package of software to the desktop before playing. So today, games are
removable, handset, much smaller business than the desktop based games.
For the e-commerce, e-commerce companies make most of their money or transactions
from the desktop computers. Its very small percentage of total of e-commerce
transaction. Although its very hard to find a right way to monetize the mobile internet, a
lot of people are optimistic about the future of the mobile internet.
Rapid advances in mobile technologies now allow consumers to interact, create, and
share content on the internet regardless of their physical location. This kind of access to
the internet through a mobile device is known as mobile internet. A diagram below shows
the total number of mobile phone users worldwide from 2012 to 2018. It is estimated to
have 5.47 billion mobile phone users in 2018. The global mobile internet industry is
expected to have sturdy growth over the next few years and reach an estimated $402.8
USD billion in 2018. Growth in third-generation (3G) penetration, upswings in mobile
broadband subscribers base with affordable devices enabled 3G and 4G network, and
rising online distribution of music, films, TV shows, books, newspapers, and video games
are expected to be the major drivers of the industry.

Global Mobile vs. Desktop Internet User Projection 2007 2015

Source: Morgan Stanley Research
3.2 Five Force Analysis

3.2.1 Threat of new entrants

China has developed from desktop internet to mobile internet for more than ten years and
has successfully cultivated three main companies: Tencent, Alibaba and Baidu. The
industry is highly competitive that is difficult for new entrants to compete. In addition, as
company like Tencent has accumulated hundreds of thousands members and data base, it
has the advantage to utilize its original members and platforms to expand mobile-related
business. For users, switch to a similar platform with the same account is easier and
preferred. Therefore, the threat of new entrants is weak.
3.2.2 Threat of substitute products or services
The threat of substitute products or services is weak. Mobile internet is in fact a strong
substitute of desktop internet that nowadays people are highly rely on smartphones and
can hardly find a product to replace with it in the near future. Even like Smart TV, which
could be the threat of substitute products of Smartphone that people can chat, play online
games and even shopping through larger screen smart TV, is not a threat for mobile
internet industry as the size of screen is so large that nobody will bring a TV with them
when go outside. On the contrary, Smart TV industry may grow together with mobile
Internet and support each other.

3.2.3 Bargaining power of customers

The bargaining power of customer is strong as there are many similar services and
products in the market. For example, Tencent has QQ music, Baidu has TTPlayer.
Tencent has Tencent Weibo, a social media, while Sina has Sina Weibo. Customers can
easily choose different platforms. Besides, many services such as instant message and
mobile games are provided with free download and free use. It is more difficult for the
company to charge from customers.
3.2.4 Bargaining power of suppliers
The bargaining power of suppliers is weak. In mobile internet industry, the technique and
idea of engineers are most important so that the costs are mainly from human resource.
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The equipment for the company in mobile internet industry are basically servers,
computer terminals and related hardware and software. There are many suppliers in the
market as these equipment are in a mature industry under high competition.
3.2.5 Intensity of competitive rivalry
The intensity of competitive rivalry is medium because Chinese market are dominated by
large Chinese internet companies, including Tencent, Baidu, SINA and Alibaba. Each
firm has its focus services and products, for example, Baidu focus on searching and map
and Alibaba focus on e-commerce. Tencent dominants the market of online gaming and
instant messaging in China that competitors can hardly compete with Tencent. Besides,
overseas companies such as Google and Facebook are blocked in China due to
government regulation that decrease the intensity of competition.
In terms of overseas market, the intensity of competitive rivalry is relatively strong as
different countries have their leading brands and business models. For example, in ecommerce, there are Amazon from the U.S, Rakuten from Japan, Alibaba from China; in
instant messaging product, there are WhatsApp, Wechat, Line and Kakao Talk. It is more
difficult to penetrate into overseas as each leading brand has cumulated huge amount of
loyal membership and hard for users to change their usage habits.
Five force model can be summarized as below:

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3.3 Competitor Analysis

3.3.1 Domestic Competitors
In the domestic market, we have two major competitors, Baidu and Alibaba.
Baidu- Focus on search and map and create new revenue model in long term
Established in 2000 and Started as a search engine, Baidu has strong competitive
advantage of Information and knowledge. Baidu offers many services, including
a Chinese language-search engine for websites, mobile search, audio files and images. It
offers 57 search and community services which include Baidu Baike (an online,
collaboratively-built encyclopedia) and a searchable, keyword-based discussion forum.
Baidu Search had a market share of 79.45% by the end of 2014 and its mobile search
accounts for 72% of total mobile query volume due to its easier access to high speed
mobile internet. Baidu even integrated its search bar with most android phone
manufacturers in China. Most recently, Baidu announced agreement with Intel to fully
integrate its service with Intel chips on mobile platforms.
In addition to search engine, Baidu also concentrates on developing location based
services, which is mobile map. To strengthen its location based services, Baidu acquired
Nuomi, one of the top group buying sites in China, for an estimated $283 million. By
acquiring, Baidu can link the virtual with the actual, creating synergy between Nuomi and
Baidu maps on mobile devices.

China Top Online Advertising Operators market share by Revenue in Q2 2014

Source: enfoDesk

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Although Baidu dominates the Online Searching market and the revenue for online
advertisement was about US$ 25billion and is still growing in China because of the
increase of mobile penetration, Baidu is aware of the need to find alternative sources of
revenue generating. In the long run strategy, Baidu aims to balance its exposure to the
volatile advertising industry with other profitable activities, such as online streaming
memberships, web analytics, and game fees. Baidu is also interested in wealth
management and online payments service to use excess funds in their accounts to invest
online.
Alibaba Group-Focus on e-commerce and aggressively expand into overseas market
Started as an e-commerce company in 1999, Alibaba has strong competitive advantage in
Online Shopping aspect. It also provides electronic payment services, shopping search
engine and data-centric cloud computing

services. Alibaba's C2C(consumerto-

consumer) portal Taobao, similar to eBay and Amazon, features nearly a billion products
and is one of the 20 most-visited websites globally. Taobao accounted 57.6% online
shopping market share in Q3 2014. However, there was a strong competitor emerged in
12

China: Jing Dong. Jing Dong snapped 49.20% market share by Mobile Phone Sales Value

in Q3 2014 while Taobao only accounted 20.40%. Its a pontifical risk for Alibaba.
China Top B2C websites market share by Total Transactions in Q2 2014 Source:
iResearch.

Alibaba also launched Instant Messaging product LaiWang, which is similar to

Wechat. Lai Wang so far only has 10 million. Alibabas attempt to penetrate mobile social
networking was not so successful.
Although the e-commerce market is still growing in China, competition also became
intensive. For the high expectation of company performance, Alibaba has been expanding
aggressively into overseas markets. Recently, Alibaba teamed with Lending Club to help
U.S. companies more easily buy from China-based suppliers. U.S. firms can apply for

13

short-term credit of up to $300,000 with low interest rate to purchase items from Chinese
manufacturers that occupy Alibabas online platforms.

3.3.2 Overseas Competitors

In the overseas market, we divide competitors by different field of business.
E-commerce Amazon.com
Amazon.com is an American e-commerce company established in 1999 with
headquarters in Seattle. It is the largest Internet-based retailer in the United States.
Started as an online bookstore, Amazon soon rode on the trade to diversify its product
lines, including DVDs, software, video games, electronics, apparel, furniture, food, toys,
and jewelry. Amazon also produces consumer electronicsnotably, Amazon Kindle ebook readers, Fire tablets, Fire TV and Fire Phone.
Amazons strategy is focus on competitive pricing. Internet Retailer Magazine reported in
mid-2013 that Amazon changed prices on about 40 million products many times during a
single day since they want to provide customers with the lowest prices and best value
across their vast selection. On holiday season, Amazon also use pricing strategy to
stimulate buying. For example, during the Black Friday week in 2013, Amazon had 2,840
price changes but with relatively low margin, products includes electronics, toys and
housewares while Walmart had 922 changes, Target 354, Best Buy 336, and Toys R Us
only 64.
Although Amazons revenue has been growing at 22%, its low pricing strategy causes the
margin decreasing which is the main issue Amazon is facing now.
Social Media & Instant Messaging- Facebook, WhatsApp, Line
Facebook is an online social networking service headquartered in California. Built in
2004, Facebook is now over 1.44 billion active users. It has completed the acquisition of
mobile messaging service WhatsApp for up to $22 billion in the firms biggest ever
acquisition.

14

In the future strategy, Mark Zuckerberg, CEO of Facebook, plans to have multiple
Facebook products WhatsApp, Messenger, Search, Video, NewsFeed, Oculus and
Instagram each connect 1 billion users. Once those have reached mass scale, then he
will start to aggressively monetize them. He also wants to improve the advertising
experience for brands, particularly on mobile. Facebook will be investing in ways to
better target and measure campaigns through data. It wants to help brands measure online
to offline sales conversions.
WhatsApp- Keep it simple
WhatsApp is

an instant

messaging app

for smartphones that

operates

under

a subscription business model. The function contains sending text messages, images,
video, user location and audio media messages online. WhatsApp is the global leader in
the market with 800 million active users in April 2015. The use of WhatsApp is very
simple that once you add a new number, you can find your friend on the list right away.
The core idea of WhatsApp is keep it simple. It does not have any other fancy
functions or stickers nor the advertisement that user can purely enjoy the simple interface
and the purpose of sending instant message.
LINE- Fun experience
LINE is an instant messaging app developed by Line Corporation, a spinoff company
headquartered in Japan, which still remains a subsidiary of Naver. Line is Japans largest
social work and has 181 million active users. Line can be used by smartphones and PC at
the same and its function includes not only sending text message, images and video but
also video calls, stickers and receiving latest news and special coupon from brand official
accounts. Line features on its fun experience that you can download the stickers to
express a wider range of emotions, you can even play LINE games to compete with your
friends. LINE invested more on its marketing activities both domestically and globally,
such as TV commercial, product placement in drama, pop-up store with promoting its
own characters. In addition to Japan, LINE also has large user base in Taiwan, Thailand
and Korea.
4. Tencent Strategy Analysis

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4.1 Tencent Strategy

Tencent chose the most attractive industry in China and came up with a product
differentiation strategy.

First of all, Tencent focuses on their core products development to ensure large scale
users base and pay attention to the industry trends carefully. Secondly, Tencent
always try to diversify its business models through penetrating into online
advertisement and online shopping.

Desktop Internet to Mobile Internet - QQ to QQ Mobile &Wechat

To face the threat of industrial transformational, Tencent launched QQ mobile in 2003
when people were still using PC in the focus. The function of QQ 2003 was very basic:
online communication. During 2005 to 2007, Tencent gradually developed the functions
of QQ mobile. The penetration rate was very limited because of the operation system of
the mobile phone before 2007. After Apple launched iPhone, the mobile internet industry
grew dramatically afterwards. Tencent successfully implemented majority functions of
Desktop QQ to Mobile QQ.

Even named as QQ mobile, QQ mobile is not designed base on mobile system, Instead it
is just a transformation from desktop internet to Mobile internet. Wechat is different with
QQ mobile.
Product Positions are different: target users are different. Wechats main users are
adults while QQ mobiles are teenagers.
Design solutions are different: wechat dropped the idea of high integration, instead
they designed a lighter and more open platform. Its fast, clean and swift. It more adapts
mobile users habits.
LiveApp are different: Wechat creates a business-oriented scenario on the platform
while QQ creates an entertainment-oriented scenario in the zones.

16

By developing wechat, Tencent secured users base through social networking in the
mobile internet industry first, and well prepared for future business growth afterwards.

Vertical expansion through building alliance with e-commerce and online advertising
rising stars

E-commerce alliance: strategic partnership with Jing Dong through Equity alliance
Tencent launched their own e-commerce business as earlier as 2005. It was not successful
due to no competitive advantage compare to Alibabas Taobao. In Mar, 2014, Tencent
built strategic partnership with Jing Dong by acquiring 18% shares with US$ 214 million

and its own e-commerce department. Tencent supported Jing Dong by connecting QQ,
QQ mobile and Wechat users to Jing Dong. Compare to Taobao, Jing Dong performs
better in terms of mobile online shopping.

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Jing Dong ranks 2nd in terms of B2C revenues in China. Jing Dongs logistics system
which is essential for e-commerce is the best among all the major e-commerces giants in
China. Tencent has the best Technology Development ability among the major internet
companies in China. In addition, Marking and Sales ability of Tencent is decent due to
large scale users. Through the alliance, Jing Dong obtained larger scale users through
linking to Tencents platform, while Tencent benefits through holding 18% of Jing
Dongd shares.

Online Advertisement alliance: strategic partnership with Sougou through Equity

alliance
Tencent launched its own search engine SOSO in Mar 2006. After seven years
struggling, Tencent gave up their own Online Search business in 2013. Tencent built
alliance with Sougou. SOSO department was merged into Sougou company and Tencent
spent extra US$ 448million. As an exchange, Tencent got 40% of Sougous shares.
Sougou is the 3rd largest search engine in Chinese Market after Baidu and Google China
in 2014. Sougou has one major advantage comparing to Baidu:

multiple links to

advertisements. Tencents huge mobile business system provides Sougou search lots of
searching entrances. It is of a great significant for Sougou to expand mobile search
business. Since Wechat informations couldnt be searched, the synergy potential between
Wechat and Sougou was huge.
Sougou maintain its existing management team. Tencent wont be involved in the
Sougous management. Instead Tencent put more focus on supporting Sougou in terms of
linking opportunities to Wechat platform. They build one business model that Baidu
could achieve in the mobile internet indurstry.

By the end of 2014 which was one year later after alliance, Sougou ranked number 2 in
terms of mobile internet search with a18% market share. Sougous revenue increased
70% in Q4 2014 and profit increased to US$18 million after alliance. The valuation of
Sougou was increased from US$1.2 billion to US$3 billion. Tencent not only got capital

18

reward in a short period, but also successfully penetrate into online advertisement
business indirectly.

Wechat monetization and globalization

After wechat acquiring a large scale user base, the next main issue is how to monazite it.
In the past, Tencent generate revenue and profit mainly from online gaming. However, it
is quite difficult to meet the companys growth target in the long term if only focusing on
mobile online gaming. Given O2O (online to offline) industrys amazing growth trend,
Tencent penetrated into many industries through Wechat.
Tencent built wechat as a platform. It is a platform to allow all kinds of organization to
open their business on the platform. Wechat official users stand for business while
ordinary users stand for customers .

-In terms of transportation, Customers can book taxi and pay taxi fee through wechat.
-In terms of online shopping, customers can purchase products on Jing Dong e-Malls
through wechat.

-In terms of lifestyle and leisure activities, customers may book restaurant, hotels, all
kinds of entailment tickets or travel tickets through wechat.

-In terms of finical business, customers may conduct investment by purchasing financial
products through wechat..

-Almost every offline industry can be connected online official accounts through
Wechats platform. As long as it is an ecosystem for the whole society, Tencent can
generate sustainable revenue from official accounts. In addition, all the transactions
are made through Wechat Payment. Wechat payment itself will be an independent
financial service business which has huge potential.

Globaliztion is another long term strategy of Tencent corporation. With Chinese

governments support and trends of globalisation, Tencent started to penetrate overseas
19

market through its core product wechat. In the overseas market, Tencents key strategy is
to gain users share in the overseas market as step1. Its not easy to complete with Whats
app, Line and other competitors in every single market. Tencent chose targeted markets
carefully. In Asia, because of Line dominates Japan Market and Kakao Talk Dominates
Korean market, Tencent focuses on Thailand, Malaysia, Singapore, India, Indonesia and
Philippine. In the Europe, Tencent focuses on Italy,

Spain and Turkey. In South

American, Tencent chose Argentina, Brazil as targeted markets. English version product
development plus overseas marketing spending are the key factors for overseas

expansion.

4.2 SWOT Analysis

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4.2.1 Strength
Large scale user base
Tencent QQ has more than 800 million active users and Wechat has more than
400 million active users. With large scale user base, Tencent can build a
comprehensive

customer

data

to

further

analyze

consumer

behavior,

strengthening product developing. Besides, there is higher probability for current

users switch to its new products or services as users are familiar with the
platform and brand that reduce the barrier to download for trial. Tencent can also
utilize its current accesses to promote it new products or services.
Decent and growing financial performance
As shown in chart below, Tencents revenue has been upward growing with
average 40% growth from RMB$19646 million to RMB$78932 million for the past
five years. Its gross margin is evenly matched in strength with competitors which
is 61% of Tencent, 60% of Alibaba and 61% of Baidu in 2014. With strong and
growing financial performance, Tencent can attract more investor and therefore
keep expanding its business.
RMB in millions
100000

87.50%

80000

70.00%

60000

52.50%
Revenue

40000

Gross margin

35.00%

20000

17.50%

0.00%
2010

2011

2012

Well diversified business portfolio and patents

21

2013

2014

Tencents leading Internet platforms in China have brought together China's

largest Internet community, including QQ (QQ Instant Messenger), WeChat,
QQ.com, QQ Games, Qzone, 3g.QQ.com, SoSo, PaiPai and Tenpay. These
meet the various needs of Internet users of communication, information,
entertainment, e-commerce that add values to users while at the same time
increase the stickiness of users. Tencent has obtained patents relating to the
technologies in various areas: instant messaging, e-commerce, online payment
services, search engine, information security, gaming, and many more that
established its power and advantage in the industry.
Excellent R&D facility
Tencent has more than 50% employees focus on R&D. It features on its fast product
design and develop capability. In 2007, Tencent invested more than RMB100 million in
setting up the Tencent Research Institute, China's first Internet research institute, with
campuses in Beijing, Shanghai, and Shenzhen. The institute focuses on the selfdevelopment of core Internet technologies, in pursuing its development and innovation
for the industry.
1.1.2. Weakness
Rely on Chinese market lack of overseas visibility
Tencent is the leading firm in the Chinese market. However, Tencent relies too much on
Chinese market which . Its overseas market performance is too lagged. Besides, English
version products development is too slow. If the economic conditions of China will not
grow as it was, Tencents future growth potential will be question marked.
Bad reputation of copying
Companys culture and reputation is challenged. Copying competitors services is
actually an essential part of Tencents ruthless business tactics its CEO, Ma Huateng,
also known as Pony Ma, famously stated that copy is not evil.
Products cannibalization
Tencents products of QQ mobile and Wechat are facing the cannibalization. Both of the
two products are serving as communication tool primarily. Users wont spend time on
22

two products simultaneously normally. It may bring conflict between two departments in
Tencent companies.
Lack of advantage in shopping and information field
Tencent has no competitive advantage in shopping and information gathering services.
The growth of Online shopping and Online Advertisement is very fast, however, Tencent
cannot easily penetrate into these markets.
4.2.3 Opportunity
Government policy and regulations
In 2015, China's premier Li Keqiang has introduced a new Internet Plus policy for
China that will see the nation focus on domestic technology adoption in order to boost
domestic growth while also giving Chinese technology firms a chance do better overseas.
The goal of New Internet+ (Internet Plus) is to integrate mobile Internet, cloud
computing, big data and the Internet of Things with modern manufacturing to encourage
the healthy development of e-commerce.
The external environment gives Tencent a huge potential and advantage to grow and
expand in both domestic and overseas. Besides, followed by the ban of using Google and
Facebook, Chinese authorities issued new rules in 2014 for messaging applications,
adding that a move to ban popular foreign-messaging services like KakaoTalk and LINE
was in the interest of national security and to block the unsavory aspects of cyberspace. It
decreases the competition among rivalry in Chinese market, bringing benefit for Tencent.
Blue ocean opportunities
Tencent currently shows better performance in communication(QQ and Wechat) and
entertainment(QQ game) fields, while its competitors Alibaba and Baidu are stronger in
shopping an information fields. That is, there are still many opportunities for Tencent to
approach under Internet Plus concept, for example, finance, health care, transportation
and housing and real state aspects.
4.2.4 Threats
Tencent also faces many threats both in domestic and overseas markets.

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Competitors

In the domestics market, Alibaba and Baidu are very strong competitors.
In Apr 2013, Alibaba and Sina built strategic partnership. Alibaba acquired 18% of Sina
Weibo Mini blog by US$586 million. Alibaba and Sina also are building an open
Internet eco-system and exploring new business models on the platform. Weibo is
Chinese twitter which is a more open social networking. Sina Weibo has a similar
scale user base as Wechat. Good news to Tencent that Weibo is not as easy as wechat to
embedded systems as a platform.
In terms of Baidu, Baidu aims to build a mobile, open platform to connect people and
service. It starts to penetrate into education, healthcare, Finance, transportation tourism
and etc. Baidus technology is the best among BAT especially regarding to Big Data
and Artificial Intelligence. It is foreseen that the completion among BAT will be very
fierce.

Governments protection of copy right

Copying is not evil , Said by Huateng Ma. However, copying becomes a more and
more serious trouble for a firm in China. Copy right protection policies from government
is well implemented gradually. Tencents copyculture has to be changed in the future.

Whats app, line step into china market

Since China is the largest mobile internet market, Whats app and Line always eager to
step into Chinese market. However, Whats app and Line have two obvious shorts:
Chinese language, Chinese governments protection. The threat from Whats app and
Line is relatively small.

Desktop game is declining desktop internet to mobile internet

Desktop-based online gaming is still the largest revenue and profit contributor in Tencent.
However, this industry is declining. Tencent has to speed up the diversified businesses.

5. Solutions and Recommendations

Focus on Wechat
Blue Ocean strategy
Build Ecosystem through Alliance and M&A

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Appendix
Year

History

1998 Established
1999 Launched instant messaging software OICQ, which means opening I seek you
2001 Renamed OICQ to QQ which reached 50 million users.
2003 Launched QQ game, which was a major Valued Added Service of QQ. within 5
years, QQ game gained largest share of Chinese online gaming market.
2004 Listed in Hong Kong and QQ reached 100 million users.
2008 The number of QQ users changed to 430 million. On top of the core product QQ,
Tencent built an internet empire through continues investment, merger and
acquisition. Its finical report was extremely well and the stock performed
extremely well simultaneously.
2010 Launched QQ mobile.
2011 Launched new product - Wechat, mobile Instant Messaging program.
Wechat quickly dominated Chinese mobile social networking market.
2014 Wechat reached 600 million users all over the world including 500 millions in
China and 100 million overseas.

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List of references

Statista

http://www.statista.com/statistics/274774/forecast-of-mobile-phone-users-worldwide/

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