When it comes to Chinese internet giants, Baidu and Alibaba are familiar names to many in the U.S. But, Tencent may not ring a bell outside of China. I’m betting that will change as the Shenzhen-based social networking and mobile apps giant keeps growing its user base both inside and outside of its home country.
Fun fact: Tencent was one of only three tech companies to make the cut in four top tech innovator lists (from Forbes, Boston Consulting Group, MIT Technology Review and Fast Company), as Scott Anthony pointed out in a Harvard Business Review post on Thursday. The other two winners were Google(s goog) and Amazon(s amzn). That’s pretty heady company.
Tencent’s core products –apps like QQ instant messaging and WeChat SMS (also known as Weixin) — may not be all that innovative in and of themselves But, Tencent has been able to build a profitable business model around them — using those base services to sell a ton of other paid stuff like club memberships, avatars, community memberships, and dating services. In that, Tencent’s model differs quite a bit from that of Google, Facebook(s fb), or Baidu.
“Instead of seeking to build wide audiences and parlaying them into advertising revenue, the company has built a multibillion-dollar business out of micro-transactions, such as charging consumers to upgrade the look of the avatar that appears on their chat service. Hundreds of millions of small transactions add up, powering the company’s explosive growth.
A year ago, when Derrick Harris wrote about Tencent, it was adding 100,000 servers annually and said it was able to support more than 176 million concurrent users at a given time.
In November, Tencent said its WeChat mobile messaging application passed the 200-million user mark, up from 85 million users in 2012. That tidbit was reported in a Forbes post headlined “China’s Tencent about to overtake Facebook.” The same story pointed out that while Facebook worries about fading popularity among young people, Tencent has no such worries. (It probably helps Tencent that U.S,-based social networks are blocked in China, but still.)
According to The Economist, Tencent derives 80 percent of its $7 billion in revenue from sales of these services. And you have to know that Google and Facebook et al would kill to replicate that success.