Way Tencent: From The King Of Fakes To Competitor Facebook And Apple

Bloomberg on how the Chinese Internet giant is conquering the world market. The steering Committee of China Internet giant Tencent usually holds its annual retreat in comfortable Japanese resort or hotel in Silicon valley. Last fall, the Committee has arranged something a little more grandiose.

A two-day hike through the rugged boulders of the Gobi desert. The trip was organized at a high level is under be the 14 most senior leaders of the most valuable companies in China. Tents they were collected by the assistants, and the shower water was delivered for a substantial price. However, by the end of the 26-mile hike on the first day several participants asked to get home.

But Tencent Holdings President Martin Lau and CEO Pony MA Huateng insisted to go on. On the second day they were still 26 miles and, tired and exhausted, reached Dunhuang, the former border town on the Silk road. While the leaders were wandering in the desert, shares of Tencent rose, so that made it the richest company not only in China but throughout Asia (though later the status went back to their implacable enemy of Alibaba Group). Team Tencent celebrated the event by a Banquet at the hotel.

However, company executives noted that their celebration was not dedicated to growth stocks, and travel. “The trip demonstrates the companys culture, said Lau a few months later in the comfort of the Tencent office in a skyscraper Hong Kong. €? We are much more focused on where we are going, and on the process than on the stock price”.

The main strives for a company to go beyond the domestic market. Tencent is an integral part of everyday life in China. About 70% of Chinese use two apps WeChat and QQ — for all. From texting to shopping, flirting, Dating, watching videos, playing games, ordering food and taxis.

According to venture investor Mary Meeker, Chinese users annually spend 1.7 billion hours on apps Tencent, more than all other applications combined. MA founded Tencent 19 years ago, close to Shenzhen office with three fellow students from College and other. For their first product they cloned the service of instant messaging of Israeli production and adapted it for the Chinese market.

Unlike his namesake, co-founder of Alibaba Jack MA, Pony MA were not known abroad, so how bad know English, and rarely appeared in public. Colleagues and friends say that he is a typical businessman from Guangdong, shy and cautious. In photos taken in 2015 at the meeting, the head of China XI Jinping with 28 of the most famous in the world of technology executives, including Jeff Bezos, Tim cook and Jack MA, all smiles and looking at the camera. With the exception of Pony MA, staring at his feet.

While the MA — the chief ideologue of Tencent, 44-year-old Lau is a leading strategist and managing daily activities and also one who asks questions during quarterly conference Tencent investors and analysts. Slender, bespectacled, he is a devout Christian and energetic gamer. His love and respect — at least those whove heard of him.

“Actually, I think most people in Silicon valley dont know who Martin Lau, says Sean Liu, a native of China, worked as an investment Manager in venture Fund Vy Capital in San Francisco. This is shocking, because it still that people are interested in Facebook, wouldnt know who Sheryl Sandberg. Except that Martin Lau even more powerful and influential in Tencent and in the technological society of China”. Indeed, while Lau was in College in the US and speaks fluent English, he still largely escaped the attention of Western media.

But now, faced with one of the most serious problems in business — how to bring the Chinese company to the world market, — it is no longer hidden. Laus first encounter with Tencent in 2003, when the company was five years old, and he worked as a banker at Goldman Sachs. Then Tencent was about a thousand employees, and the company was known primarily for its messaging service QQ and mascot — a winking penguin dressed in a scarf.

In that year, the revenue of Tencent amounted to $108 million from the sale of advertising and improved services in QQ. However, the initial investors were skeptical about the prospects of the company and refused attachments. So Tencent decided to hold the first public offering of shares.

Lau at Goldman specialized in telecommunications and media and participated in negotiations with Tencent at the IPO. The user Tencent was so impressed with Lau that offered him a job in the company before held a placement of shares. “Honestly, I was trying to understand whether its real or not,” said Lau about it. The company entered the stock exchange in June 2004, and by the end of the year, Pony MA and his colleagues have already become multimillionaires, again offered Lau work.

In a sense, Lau life aspired to such a position. His parents, both electrical engineers, met and married in Beijing. Lau and his older sister were born in the last years of the Cultural revolution. The family moved to Hong Kong when he was 6 years old, during the reformist regime of Deng Xiaoping.

Lau spent the rest of his childhood in Hong Kong, playing video games and dreaming of rockets. “Parents,” he says, “has taught us that if youre an engineer, you will be able to survive many upheavals, because your knowledge is always necessary”. It is well passed the tests in the preparatory class, and, realizing that only Americans can engage in the space race, I decided to study electrical engineering at the University of Michigan in Ann arbor.

Lau graduated from the University, and then received a masters degree in engineering from Stanford and an MBA from the Kellogg school of management at northwestern University. After training he went to work at McKinsey, then at Goldman. The second sentence of Tencent, according to him, found he had a response, because the new job allowed him to use the engineering skills. Lau even agreed to significant wage cuts.

MA initially appointed Lau chief strategic officer responsible for investor relations, mergers and acquisitions are two areas which at that time was not well known in China. Lau brought in Tencent standard corporate practice of the United States, such as setting revenue targets, and developed a five-year plan for implementing new directions such as social networks and digital media. “This discipline was very necessary for the young company, which has developed very quickly in 2004,” says Hans Tung, managing partner of GGV Capital and Tencent co-investor in Didi — Chinese company carpooling.

In 2006, MA has raised Lau to President and appointed him responsible for the daily activities. Although Tencents revenue has doubled this year, five of the founders understood that the company will soon require more professional management. They considered a hypothetical successor. MA chose Lau.

Tencent grew rapidly over the next five years, choosing a different game in Asia and adapting them to QQ. In 2011, four of the five most popular games in Chinese Internet cafes owned by the company. A large demand for sales of virtual armor, healing potions and other digital devices for games.

The company also belonged to the popular social network Qzone. “She was a pioneer in the combination of social networks and games,” said Russian investor Yuri Milner. While Tencent has gained the reputation of the king of fakes, who feared and hated the Chinese entrepreneurs. They believed that if you create something good, Tencent will copy and paste it.

Western media such as Business Insider, diminished creativity and business model of the company. Tencent was also involved in a legal battle with a Chinese company Internet security Qihoo 360 Technology. Companies have accused each other of anticompetitive behavior. Tencent eventually won the suit.

In 2011, Lau and MA decided it was time for some internal reflection. Tencent invited 72 experts in the industry on a series of ten closed meetings, which staff called the “conference of the gods”. Invited invited leaders of the company their criticism and accusations — and those do not have to restrain myself.

“Tencent staff were absolutely baffled how strong and direct this feedback, says Hu Yanping, founder of Internet consultant DCCI and FutureLab from Beijing, who took part in the sessions. It was the first time the leadership of Tencent at a high level are faced with such assault.”. The reviews helped managers to understand that their problems are much deeper than just bad public relations. “We started to realize that something is wrong,” says Lau.

In particular, the company needed to do something to shake off the reputation of a copycat. Fortunately for Tencent, the answer is already developed. Late one night in late 2010, a programmer named Allen Zhang, the founder of email startup in Guangzhou, Tencent acquired, sent a message to MA asking if he could develop a social network for smartphones. MA, who usually stays up until 4 in the morning, agreed.

Zhang and ten of his colleagues came up with Weixin, or WeChat. The service was launched in January 2011 and quickly developed a sales of smartphones in China reached 100 million users in 2012, and a year later tripled this figure. Making conclusions from the experience with QQ, Tencent has allowed corporations to create “official accounts” for the publication of reports and interaction with users, which, in turn, gave impetus to the development of the network.

In addition, the company sought ways to reduce losses and play to your strengths. In 2013, Tencent has abandoned its search business, passing his rival Sogou, and invested in the company $448 million. The following year she sold her as a failed initiative of the e-Commerce company JD.com and invested $214 million in JD for a 15% stake. Today, WeChat 937,8 million active users, more than a third of which is carried out in the application for more than four hours a day.

For comparison. On average, people worldwide spend more than an hour a day in Facebook, Instagram, Snapchat and Twitter combined. Services Tencent so widespread in China that there is fraught with startups to refuse to enter unions with the company or its investment. “Its a bit like the godfather don Corleone.

“Im gonna make you an offer you cant refuse,” says Andy MOK, founder and President of Beijing consulting company Red Pagoda Resources. €? If you do not take the money and Tencent invests in a competitor, for you it could be fatal”. With the growth of Tencents WeChat is trying to act or, at least, look like the worlds technological leaders. Later this year she will join Apple, Amazon and Facebook, opening a new headquarters — a pair of conjoined skyscrapers in Seattle, designed by NBBJ Design firm.

Towers connected by three corner transitions, reminiscent of giant, slow-dancing robots. MA and Lau there will be offices next door. These days MA is focused on the development of products and technologies. It every two weeks is conducting a protracted meeting, which can last for ten hours or longer.

He also engaged in relations with the state, as officials of the Communist party of China want to deal only with the most important people in the companies. Lau dedicates much time to search companies in other countries that could buy. Tencent is close to market saturation in China and should look for development elsewhere if it wants to grow as fast. Lau says that in 2013 I wanted to make a significant strategic investment in Snapchat, but was forced to limit investments to a smaller size.

He refuses to disclose the exact figures that he has in mind. “There was a time when Evan was not sure whether this is good or not, he says, referring to Director General of Snapchat Evan Spiegel. €? At the last minute he decided he didnt want to have a strategic investor.”.

In early 2014, Tencent was interested in buying the messaging service WhatsApp. This acquisition could shock the world and give Tencent instant global coverage. But at a time when the negotiations were close to completion, MA had to undergo surgery that postponed his visit to Silicon valley to meet with the founder Jan Koum. Meanwhile, mark Zuckerberg intervened and acquired WhatsApp for $19 billion, more than twice as expensive than going to pay for Tencent.

Last year, Lau was finally able to find their own style. Japanese tech conglomerate SoftBank Group has decided to sell the Finnish gaming company Supercell, which produces the popular game Clash Royale. Lau went to Helsinki for talks, and as the training began to play in the Clash Royale. A lot. So much that I was able to show 97th in the world.

“For me it was a way of due diligence, says Lau without sarcasm. €? I still do. But then I did it very hard.”.

Tencent also tried to go global in a natural way, presenting their products in different countries. But some of those things at home make her a Titan, in other places only hinder. For example, the design. Chinese users are accustomed to complex feature sets, heavy and massive applications. In the US, where there is a lot of simple apps for booking movie tickets, ordering food and reading the news, sell them much more difficult.

Another local hit that Tencent is just starting to try to transfer abroad, is WeChat Pay, which is used in China about 600 million people. The service relies on the advantages of low commissions in Chinese banks; it allows users to send each other very small gifts of money, called Red Packets. In the West Bank charges are much higher, which makes these small transactions unjustified.

Also the problem is Facebook and WhatsApp, which have a huge market advantage almost everywhere outside of China. “In fact, this problem is every Chinese company. We tried to make WeChat international. The reality was that the market already has other products,” says Lau.

Perhaps the main hope Tencents overseas expansion is that more and more Chinese users are moving or traveling abroad, while maintaining a commitment to WeChat. But there is a problem. Researchers of civil rights at the University of Toronto recently reported that Tencent scans user content for specific keywords and removes all content and images associated with the controversial political and cultural topics, like all Chinese Internet companies. The company also censors accounts registered in China, WeChat users who travel around the world, even if they switch cell phone numbers.

The company does not comment on this report, but if the conclusions are correct, it could put her in a difficult position. According to Lau, Tencent supports the principle that if the company operates in a foreign country, it must abide by its laws. Lau and MA are also focusing on new technologies, Tencent diverting away from its original activities. In the spring of 2017, the company announced plans to open artificial intelligence lab in Shenzhen and Seattle.

Lau also says that the company is developing a “smart” speaker that can be released in a few months. In addition, Tencent recently acquired a 5% stake in Tesla after several meetings Lau with Elon Musk in California. Tencent still enemies, some of which — an extremely large and rich. Earlier in the year 2017, the company introduced what she calls a “mini-programs”.

The service allows smartphone users to access the services of other companies on WeChat without downloading the actual application. Many Internet observers took it as a positioning WeChat as an operating system for phones and an attack on Android and Apple. A few months later Apple forced Tencent to disable the function that allowed WeChat users on their iPhone to leave a tip for bloggers, because it worked to bypass its own payment system Apple.

Another challenge the company left in may, adding to WeChat its own search engine and news feed in Facebook style. Observers have worried that giving the company too much control over news and other messages published by users. Memes against Tencent, has spread rapidly on Chinese social networks. One of the images, which went viral, shows a screenshot of the new interface WeChat, where a bright red font lists all the companies that Tencent threaten each function in the application.

Lau refutes criticism that Tencent threat. Adding search and news, he said, allows the company to use data and artificial intelligence to give more personalized content. Then he smiles and reaches for his phone.

It turns out that Lau also saw a meme with the WeChat interface. He then scrolls through his feed in the messenger to show him. Related articles:

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