Equity Report

Introduction

Tencent is one of the China’s largest internet community whose platforms such as QQ, WeChat, Games, and Tenpay have met a great variety of needs including social network, entertainment, financial services and all kinds of daily services.

Business Model

The three legs of Tencent Business Model are Value added service (VAS), online advertising and others like online payment respectively.

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These three parts of Tencent’s Business model are all correlated. Tencent gives free services such as QQ and WeChat communication platform to attract customers → customers are persuaded to pay for more value-added service including privileged membership, game equipment, costumes for avatars, etc. → Online advertising and others like online payment will be involved in previous process.

Actually the main competitive advantages of Tencent Business Model compared to others is that

the “value-added services” such as fancy weapons, costumes for avatars and higher membership while its peers still make most of their money from advertising which is less profitable.

Strategy

Since the trend of industry changes overtime, the company strategy evolves from time to time.

1. Connection strategy: Because of the transition from PC to smartphone in the last decade, Tencent tries to integrated all the services and products following connection strategy which enables users linked with various products and services providing extraordinary one-stop online lifestyle for customers in one “Swiss Army Knife” platform even APP. This strategy became more evident after the launch of open platform in 2010 and the launch of WeChat in 2011.

2. Merger & Acquisition Strategy:         

The upward trend of China-related technology, media, and telecommunications (TMT) mergers and acquisitions became more evident in the past 10 years. From 2010 on, Tencent began to implement its merger and acquisition strategy. In the past 5 years, Tencent has merged or acquired more than 80 companies for over 50 billion RMB, owning significant interests globally in South Korean firm (CJ Games and Next Play), US firm (Riot Games, Epic Games, Activision Blizzard, Vanilla Plain), south-east Asian firm and also Chinse firm (58, JD, LEJU). As is shown, Tencent always lay emphasis on Games and began to invest more on E-commerce and smartphone APP.

3. Game Winning Strategy: The last decade witnessed that both users and revenues of online games increased exponentially, which made Tencent focus more on game strategy. Besides various acquisition of several famous game companies which contribute to its Leap in Revenue, Tencent would launch new games using QQ as well as WeChat messaging and advertising, and at the same time move profitable PC titles to smartphone.

4. Mobile Payment strategy: As the smartphone is more widely used, mobile payment is becoming more evident than ever bore. Tenpay (Wechat Pay and QQ Wallet) provides support to online mobile payment. Tencent is now expanding its use for network, O2O, etc., which in line with connection strategy to compete with Alipay, No.1 in China.