[Tencent’s popularity may help it avoid trouble with Beijing. But its vast power could still squelch innovation in the world’s largest online market.]
“Is there any business that Tencent
wouldn’t do?” he asked.
Mr. Wang’s quote led a 2010
magazine article about Tencent with a headline so famously profane — think the
rough Chinese equivalent of an F-bomb — that two top editors were fired shortly
after it was published. The cover depicted Tencent’s mascot, a chubby penguin
wearing a red scarf, stabbed with knives, blood dripping to the floor.
Dramatic, perhaps, but back then
the Chinese technology industry considered Tencent to be Public Enemy No. 1. It
wouldn’t hesitate to copy somebody else’s idea and drive the upstart out of
business. Its top executives were confronted at industry conferences and in
media interviews. Entrepreneurs called it the industry’s most brazen copycat.
More than a decade later, the
Chinese government is finally reining in the country’s most powerful technology
companies — but not, at least for now, Tencent. While the company has drawn
small penalties, the government has focused most of its attention on Tencent’s
archrival, Jack Ma’s Alibaba empire. The government’s next target? It might be
Tencent’s onetime rival, Meituan.
Only China’s antitrust regulators
know why Tencent hasn’t drawn their full attention so far. As China’s biggest
and most powerful technology company, with an outsize power to pick winners and
losers, it still might — and probably should.
(Reuters has reported that the Chinese government is considering a
fine of at least $1.54 billion against Tencent for failing to properly report
past acquisitions and investments for antitrust reviews. If true, that would be
smaller than the
record $2.8 billion fine the government imposed on Alibaba in April.)
But one reason may be that the
industry is no longer clamoring for somebody to take Tencent down. In fact, it
has in many ways become the industry’s biggest and most deep-pocketed
cheerleader. The company has managed to revamp its image by throwing money at
the little guys and buying off competitors rather than driving them out of
business.
No longer Public Enemy No. 1,
Tencent now enjoys a status akin to an enlightened ruler of an expansive tech
empire. A big chunk of the Chinese internet industry now belongs to what’s
known as the Tencent ecosystem. That includes the hundreds of companies that it
has invested in, including Mr. Wang’s — Tencent is now Meituan’s biggest
shareholder, with a 21 percent stake. (Meituan didn’t respond to a request for
comment.)
China’s tech companies “didn’t fall
when Tencent was copying them,” wrote a widely shared blog post. “They lost their will to fight back and
surrendered when Tencent held out a check.”
Tencent’s cozy relationships with
many industry players may serve the company well. But it could still hold back
competition and ultimately hurt China’s one billion internet users.
“Both Alibaba and Tencent control a
lot of online resources,” said Yin Sheng, a tech consultant in Beijing. “Both
of them can cause tremendous harm to our society if they choose to do evil.”
Tencent declined to comment for
this column. In the past, it has said that it invests in high quality and
innovative companies and that it embraces fair competition.
Few technology investors and
executives will talk about either company publicly. But even confidentially,
when I put my pen down and my notebook away, I hear a lot of grousing about how
Alibaba treats the companies it invests in and the merchants who use its
platforms — complaints that Alibaba hotly disputes. By contrast, these same
people often describe Tencent and its founders as decent, humble and well
behaved.
Some of that niceness comes from
business necessity. Cozy relationships help cement Tencent’s power in China.
There’s no company in the world
like Tencent. It’s a true monopoly on many levels. It wields the kind of
influence in China that Facebook, Amazon, Apple and Google can only aspire to.
Tencent is a mega entertainment
platform. It is the world’s largest online game company, owning stakes in Riot
Games and Epic Games. It owns China’s biggest online video, music and online
literature businesses, too.
Tencent is a venture capital
investor. In 2020, it lagged only Sequoia Capital, the Silicon Valley
investment firm, in terms of the
number of unicorns — start-ups valued at over $1 billion — it
has invested in, according to the Hurun Report, a Shanghai research firm. By
its own account, it has invested in more than 800 companies,
including a 12 percent stake in Snap and 5 percent in Tesla. By
comparison, GV, formerly
Google Ventures and the most active corporate venture capital arm in the United
States, has invested in more than 500 companies.
Most important, Tencent is a
platform operator. It runs WeChat, a mobile messaging app with social media and
financial services abilities. The WeChat business is where it becomes important
for the company to have friends.
WeChat needs other companies to
keep its one billion users glued to the app. An operating system and an app
store in its own right, WeChat allows users to run miniprograms created and run
by other companies. Those users can make purchases using WeChat’s payment
system. Tesla, Airbnb and Starbucks all have their own WeChat miniprograms. So
do most of major Chinese websites — barring those that WeChat forbids.
That’s where Tencent’s good
relationships within the industry become important. Friendly companies build
miniprograms for WeChat. Tencent invested in China’s ride-sharing and
bike-sharing companies because their users pay frequently, and Tencent wanted
them to use WeChat Pay.
The Tencent chief executive, Pony
Ma, likes to say that half of Tencent’s life lies in the hands of its portfolio
companies and partners. “When you grow, we grow together. When you fail, we as
a platform fail, too,” he told a TV talk show in 2016.
That’s glossing over the huge power
imbalance between Tencent and the many satellite companies in its orbit. Colin
Huang, founder of Pinduoduo, hinted at that in a 2018
interview, in which he groused that WeChat declined to help censor
accusations about fake merchandise on his shopping platform.
“Tencent won’t die when Pinduoduo
dies,” he said, “because it has tens of thousands of sons.”
No matter how decent or humble
Tencent may act, it’s a giant conglomerate with $24 billion in profit last year
and spends much of it on investment. It picks winners and losers, but the
winners won’t always be the best out there, thus harming innovation and
efficiency.
It limits user access to other
products and services. Its WeChat app doesn’t allow users to share links for
merchandise on Alibaba’s Taobao online marketplace or for short videos on
Douyin, TikTok’s Chinese sister company. (Other platforms block Tencent’s
services.) When three social messaging apps were launched in January 2019, they
were blocked on WeChat immediately.
Douyin’s parent, ByteDance, shows
the possibilities when a company goes it alone. In its early days, ByteDance’s
founder, Zhang Yiming, took a small investment from Tencent to fend off the
company but resisted tighter ties. In a response to rumors that Tencent would
invest in ByteDance in 2016, Mr. Zhang wrote that he didn’t start ByteDance to
become a Tencent employee. He posted the lyrics of the song “Go Big or
Go Home.”
ByteDance’s independence paid off.
It’s now valued at nearly $400 billion with a few hugely popular online content
apps, including TikTok, the first Chinese internet product that became a global
phenomenon.
Tencent doesn’t just court the
industry. It has also long tried to get close to the government. Compared with
the sometimes defiant Alibaba,
Tencent has long publicly underscored its willingness to comply fully with
rules and regulations.
“Now I think it’s important for us
to understand even more about what the government is concerned about, what the
society is concerned about, and be even more compliant,” Tencent’s president,
Martin Lau, said in a January earnings call. Tencent executives used the word
“compliant” six times in the call.
In April, the company said it would
spend $7.8 billion on green energy, education, village revitalization and other
pet topics of President Xi Jinping. In the view of Hong Bo, an internet
commentator, Tencent is acting for self-preservation.
“For the sake of securing its
operation,” he said, “it has to look like it is shouldering more social
responsibilities.”
