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TECH PANORAMA | Tencent’s 2019: midlife crisis, short video pain, and a strategic pivot

Written by Julianna Wu Published on 

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Despite record earnings, the ubiquitous giant faced a series of challenges in 2019 and began testing a new corporate strategy.

In the early hours of China’s internet industry, a bootstrapped Chinese startup, Tencent (SEHK: 700), developed a messenger service dubbed QQ featuring a penguin mascot in a red scarf, and launched it into a runaway success. At the time, in 1999, the platform became synonymous with the internet in China.

Since then, Tencent has built up a virtual empire, ruling over China’s social networking and gaming industries on the back of the popularity of its first online chat platform. The Shenzhen-based company has also extended its efforts into almost every profitable area of business from real estate to agriculture to mobile gaming, making itself an indispensable part of life in China.

It’s biggest success came when Tencent took advantage of China’s growing population of mobile phone users—the country is now the world’s largest mobile market, with over 750 million of its population accessing internet from mobile devices—and launched a mobile messaging app, the now ubiquitous WeChat.

According to the Shenzhen-listed company’s latest earnings report, WeChat has 1.2 billion monthly active users (MAU), making it second to none among China’s instant messengers. Revenues from online gaming also contributed almost a third of Tencent’s better-than-expected Q4 financial results, RMB 30 billion (USD 4.28 billion), to further consolidate the company’s position as the biggest game publisher in the world.

However, 2019 also presented a series of new challenges for Tencent. The company now faces competition in short video and geosocial networking (networking that encourages striking up conversations with strangers in your area via smartphone), areas in which Tencent lags behind rivals, particularly ByteDance and its app Douyin.

Amidst this test, the company also entered the B2B sector, pivoting much of its efforts on corporate services and the industrial internet.

The social network’s midlife crisis

In the latter half of 2019, Tencent quietly rolled out more than seven new social networking apps, each with a different specialty—including video chat, audio chat, and even 3D avatar chat. Each aimed to break into China’s “stranger networking”, or “geosocial networking” market (see graph below).

All these apps encourage users to make friends with strangers, an approach different from its flagship WeChat app, which emphasizes real-life connections.

A study by market research firm iiMedia shows that China is expected to have 649 million users of geosocial networking apps. Though that number is only half of WeChat’s current monthly active users, Tencent is afraid of being left out as the younger generation turns to new social networking trends, as KrASIA previously reported.

However, judging by the apps’ unimpressive rankings among China’s social apps, Tencent is yet to catch up with industry leaders like Momo, which once ranked as high as 11th in the app store.

Clash of short video titans

Tencent has long been craving a share in China’s rising short video market. In fact, the company was among the first to experiment with short video content back in the 2010s. During the Chinese New Year of 2014, Tencent’s video app Weishi ranked in the top five most downloaded iOS apps with over 45 million users.

However, Weishi lost its momentum. Three years later, Douyin and Kuaishou swept across China and turned viral.

In retrospect, Tencent has had no issues with strategically letting go of failing efforts⁠—from rolling back its heavy investments in a search engine, to giving up on its big bet on e-commerce.

However, Tencent has yet to give up in the short video segment. It has launched a barrage of 17 short video apps over the past few years. It even resurrected Weishi in 2017 in an escalating competition with Douyin, albeit with Douyin coming out on top.

“During 2019, we have aggressively stepped up our investment in the short form video space, given users are spending substantial time watching such videos,” said Tencent in its 2019 Q4 and annual report. “As a result of our efforts, our short video app Weishi increased its DAU 80% and daily uploads 70% sequentially in the fourth quarter of 2019. ”

However, Douyin and Kuaishou remain the indisputable leaders, covering higher-tier and lower-tier markets, leaving little room for Weishi.

In its biggest gamble yet, WeChat finally launched a new function called “video account” to millions of content creators in January 2020, hoping to leverage the enormous user base of it flagship product, WeChat. Only time will tell whether the move proves to be a game-changer.

Business model transformation

Another less visible shift in 2019 occurred in Tencent’s business model to expand more heavily into B2B.

Tencent reorganized itself and added a new “Cloud & Smart Industries Group (CSIG)” back in 2018, which was interpreted as a major milestone in its push on its business model transformation.

“The consumer internet without the support of the industrial internet will only be a castle in the air. Next, Tencent will entrench its consumer Internet business as well as embrace the industrial Internet.” said CEO and co-founder Ma Huateng in an open letter.

Responsible for promoting the company’s cloud and industry internet strategy, CSIG will provide innovative solutions for businesses, industries, and corporations via cloud, AI, and network security tech, as written on Tencent’s website.

Last year, Tencent’s cloud services gained revenues exceeding RMB 17 billion (USD 2.43 billion), with more than 1 million paid customers, said the company’s earnings report in which “Cloud and Business Services” was highlighted repeatedly.

This article is part of KrASIA’s “Tech Panorama” section, where KrASIA’s reporters dig deep into China’s internet & business phenomenons in the form of graphical narrative.

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