Summary: Influence Empire: Inside the Story of Tencent and China’s Tech Ambition by Lulu Chen

Recommendation

The riveting saga of Tencent lies in its precipitous rise to be one of the world’s largest tech companies and its struggle to stay competitive within the Chinese business ecosystem, reports Bloomberg journalist Lulu Chen. Those outside its home base of China may never have heard of it, but the tech giant is bigger than Facebook. Learn what’s next for this global powerhouse, how its unique strategy has given it a competitive edge, and what it reveals about China’s regulatory landscape.

Take-Aways

• Chinese tech giant Tencent powers many of the world’s most popular products and services.
• Tencent’s unique strategy involves copying, investing in and learning from its competitors – then innovating beyond them.
• Tencent believed it could conquer and transform any industry by connecting it to the internet.
• A Tencent-backed, ride-hailing app bested Uber, illustrating the Chinese company’s investment strategy was working.
• Increasingly, Tencent must contend with government restrictions and anti-monopoly regulations.
• Chinese fintech giants like Tencent eased mobile payments, which threatened state-owned banks and led to a government crackdown.
• Tencent must navigate government attempts to control and surveil its apps.
• The future of Tencent could be driverless cars and metaverse technologies.

Summary

Chinese tech giant Tencent powers many of the world’s most popular products and services.

Tencent is one of the most powerful tech companies in the world, yet few outside its home country of China have heard its name. Global awareness of Tencent is on the rise, though, as tensions between China and the United States mount. The tech powerhouse’s wide-ranging services include social networking, digital payments, finance and mobile games. In addition, the company merges the functionality of social media, mobile payments and instant messaging into a single, wildly popular “super-app” called WeChat.

“Tencent has been one of the world’s most powerful companies that few people outside its home turf are aware of. That’s changing.”

Tencent’s founder Ma Huateng, a billionaire who goes by “Pony,” started his company in 1998, shortly after graduating from Shenzhen University. Pony reached out to Tony Zhang Zhidong, a former classmate. Both were working at rival pager companies. Pony attacked a server belonging to his friend’s employer with malware to playfully get Zhang’s attention.

“It was you, wasn’t it?” Zhidong asked Ma, knowing that only his friend had the capacity to launch such an attack. Pony later asked Zhang to help him build a start-up. Pony put together a small team, and registered a company named Teng Xun – Tencent in English – a combination of his name and the Chinese word for information and speed.

Tencent’s unique strategy involves copying, investing in and learning from its competitors – then innovating beyond them.

Tencent’s strategy involves nurturing its competitors: Rather than kill competing start-ups, Tencent invests in them to act as an incubator. Tencent often takes minority stakes in start-ups, creating ecosystems of companies in which to invest. Tencent controls only the companies it knows how to run best, entrusting those not within its areas of expertise to partners with greater understanding.

For example, in 2014, Tencent endowed its e-commerce unit to JD.com, buying a 15% stake in the Chinese retailer. Since then, Tencent has made over 800 strategic investments, over 120 of which were in start-ups that became unicorns. Indeed, Tencent invests in some of the world’s most popular companies, including Tesla, Snapchat, Spotify and Reddit.

“Tencent’s entire philosophy is to be a connector. It strives to link content, information and people, helping a billion users build their identities.”

Tencent began as a copycat company. Pony wanted to replicate what the chat program ICQ had done in the West. He created software he called OICQ, before rebranding it as QQ. At first, it had so few users that Pony would spend time in chat rooms to “keep them company.”

Tencent improved on the product it was copying, making QQ easy to install. Users could send messages offline, and they could access their accounts from any computer. The chat service became Tencent’s first popular product, accruing 440 million users by 2005 – the combined populations of Japan and the United States. QQ became more than a communication platform. Pony decided it would be a destination for entertainment, blogs, videos and information.

Tencent believed it could conquer and transform any industry by connecting it to the internet.

Today, Tencent is the world’s biggest gaming vendor, and has backed 180 gaming companies worldwide since 2008, including Riot, Activision Blizzard and Epic. Tencent released its own version of the popular free game, Crazy Arcade, that drew 100,000 users in its first year. Crazy Arcade makers Nexon sued Tencent for copyright infringement, accusing the company of ripping off gameplay, images, characters and background colors. This was the first lawsuit an international corporation had ever brought against a Chinese tech company. Tencent won the case, which emboldened Pony to keep “learning” from his competitors.

“The idea was you could topple and revolutionize any industry if you linked it with the internet. Link the web with retail, and you get e-commerce; with entertainment, and you get online gaming.”

Tencent expanded its gaming to include e-sports, taking inspiration from professional sports associations, like the NBA. The company creates and publishes e-sports games. Its Honor of Kings, for example, has spawned entire networks of professional clubs, tournaments, champion users and investors. The gaming world takes King Pro League tournaments as seriously as soccer fans might take the UEFA Euro Championships.

Gamers support hierarchical e-sport tournament tiers that progress from the university to national level. China’s e-sports market surpasses that of the United States and generated a revenue of $21 billion in 2020. Tencent didn’t stop at e-sports. It’s since branched out into entertainment, investing in films such as Venom and Top Gun: Maverick, and the creation of a new music streaming service.

A Tencent-backed, ride-hailing app bested Uber, illustrating the Chinese company’s investment strategy was working.

Prior to launching their app in China, Uber’s executives toured the country in 2013 to suss out potential ride-share competition and prospective partners. Tencent created competition for Uber by combining forces with the ride-hailing start-up, Didi, linking services to WeChat. This transformed WeChat users into ride-share customers and service providers.

In a tense meeting with Uber, Didi founder Cheng Wei promised that his company would overtake Uber one day, given their local advantages. For example, their activities aligned more closely with Chinese government regulations, such as restrictions on using privately owned cars. Uber co-founder Travis Kalanick suggested investing in the Chinese ride-sharing platform, demanding a stake of 40%. Uber had a valuation roughly 10 times that of Didi’s at the time, and appeared poised to win China’s ride-hailing market.

“Didi had officially joined the select club of Chinese corporations that had bested better-funded American rivals.”

Both companies accrued over a billion dollars in investments during this competition, with Uber executives ultimately realizing they faced a destructive, money-losing siege if they didn’t change tactics. Didi ultimately bought Uber’s Chinese business, giving it a significant stake in the company. Tencent was the biggest beneficiary of Didi’s victory. Kicking the Silicon Valley ride-hailing app out of China proved Tencent’s investment strategy was working.

Increasingly, Tencent must contend with government restrictions and anti-monopoly regulations.

Tencent publicly embraces China’s Communist Party. At its Shenzhen headquarters, even the gym commemorates the Red Army, with a series of scannable and decorative QR codes directing smartphone users to stories of the army’s “Long March,” the military campaign that established Chairman Mao Zedong as the Revolution’s leader. Pony is a legislative council member; every year he convenes with the nation’s Party members and elite to discuss China’s agenda.

“How could China be trying to choke its biggest and best companies, or risk destabilizing the inflow of foreign capital?”

Tencent’s pro-government stance doesn’t protect it from the government’s recent move to strictly regulate tech giants. In 2020, the Chinese government drafted anti-monopoly rules, with China’s President Xi Jinping campaigning to “curb the disorderly accumulation of capital.” While those working in China’s tech industry have enjoyed a “goldmine” in recent years – with regulators of the past opting not to control the industry’s powerful, fast-moving players – the regulatory climate is changing.

Since winning the market for services like ride-hailing and gaming, Tencent has had to contend with government attempts to restrict and regulate its activities. In 2021, regulators claimed the company’s products violated data protection regulations and insisted Tencent stop selling updates and new apps. The same year, regulators scrutinized the gaming industry, slowing down approvals for new gaming titles and banning children under 18 from gaming for more than three hours per week. In response, Tencent has reigned in its aggressive expansion to cope with shifting regulatory norms.

Chinese fintech giants like Tencent eased mobile payments, which threatened state-owned banks and led to a government crackdown.

Tencent spent years competing with China’s Alibaba Group for domination of the mobile payments market. Alipay’s Quick Pay service sought to do the work of a central bank or clearing house, linking users to a network of 200 Chinese banks, thus speeding up digital transactions. Tencent followed suit with WeChat Pay to keep pace with consumer demand for digital financial services. WeChat Pay proved more successful than Alipay because users trusted their digital connections on the social app. Alipay lacked built-in trusted networks, leaving it more vulnerable to scam attacks.

“For years, the fintech industry presented regulators with significant challenges because of its huge client base and growing role in China’s money flows and financial plumbing.”

The new generation of Chinese fintech companies expanded access to financial services, thus posing a threat to state-owned banks’ profits and the nation’s traditional financial infrastructure. In 2020, the government’s antitrust authority curbed fintech industry growth. President Xi’s decision to clamp down on China’s tech giants reflected his growing dissatisfaction with capitalism, and the public’s desire to end billionaire wealth hoarding. The impact of Xi’s anti-capitalist stance is beginning to show. For example, Alibaba and Tencent laid off workers, as investors shifted focus from Chinese platform companies toward technologies like semiconductors and robotics.

Tencent must navigate government attempts to control and surveil its apps.

The Communist ruling authorities seek to glean data from the public, who freely surrender their information to Tencent-powered apps. Regulators have demanded that Tencent share user data from WeChat by surveilling individual conversations. In 2014, WeChat complied with regulators, locking human rights activist Wen Yunchao out of his user account and permanently banning him from the platform; Tencent claimed his activities violated company policies. Beijing has imprisoned WeChat users over their private chat activity and held group administrators personally liable for members’ posts on shared message boards.

“These idealist geeks, who ventured out to change the world, are now shackled and have become part of a system that they wanted to change.”

Public anger at government censorship came to a head during the COVID-19 lockdown. Beijing ordered WeChat and other internet platforms to erase content that expressed citizens’ frustrations. Users virtually protested WeChat’s compliance in April 2022. Pony was in many ways idealistic when he started Tencent, aspiring to create tools that enabled powerful connectors. Today he must carefully navigate his government’s attempts to control the internet.

The future of Tencent could be driverless cars and metaverse technologies.

With its eye on the future, Tencent is backing emergent trends, such as driverless cars. Tencent acquired a 5% stake in the electric vehicle company Tesla. Pony wants Tencent to power new user interfaces and services with its cloud operation. Its music streaming service is already Tesla’s default app in China, which enables Tencent to glean user data via a new portal. Tencent also wants to invest in metaverse technologies that enable socially connected experiences in virtual 3D environments.

“The metaverse promised an entire world to explore and conquer beyond smartphones, a chance to leapfrog the giants of today that have come to dominate mobile computing.”

But Chinese tech leaders must deal with unique challenges. Not all Chinese thought leaders and regulators support the metaverse. For example, economist Ren Zeping speculated it might lower birth rates, as young adults would find more pleasure in virtual worlds than in procreation. Tencent must cope with the possible Web3 switch to a more decentralized, blockchain-based internet. The change would contradict the government’s priority to control infrastructure and content from the top down. As Pony explores future possibilities, he must consider his legacy and how best to keep Tencent a leading global company.

About the Author

Commenter for BBC, ABC, Bloomberg TV and Bloomberg QuickTake, Lulu Chen has spent over a decade covering China and the tech industry for Bloomberg Businessweek and Bloomberg News.

Review

Influence Empire: Inside the Story of Tencent and China’s Tech Ambition is a book by Lulu Chen, a Bloomberg technology reporter who has covered Tencent and other Chinese tech giants for years. The book is the first definitive look at Tencent, one of the world’s largest and most influential tech companies, and its symbiotic relationship with the Chinese government. The book reveals how Tencent rose from a humble startup to a global powerhouse that dominates social media, gaming, entertainment, e-commerce, and fintech in China and beyond. The book also examines the challenges and opportunities that Tencent faces in the era of increasing geopolitical tensions, regulatory scrutiny, and technological innovation.

The book is divided into three parts. The first part, “The Rise”, traces the origins and evolution of Tencent, from its founding in 1998 by a group of young engineers led by Pony Ma, to its launch of QQ, a popular instant messaging service that attracted millions of users, to its creation of WeChat, a super app that offers everything from messaging to payments to mini programs. The book shows how Tencent leveraged its massive user base, data insights, and network effects to expand into various sectors and markets, such as gaming, music, video, literature, news, cloud computing, artificial intelligence, and blockchain. The book also reveals how Tencent forged strategic partnerships and investments with other tech giants, such as Alibaba, JD.com, Meituan, ByteDance, Snap, Spotify, Tesla, and Epic Games.

The second part, “The Empire”, explores the impact and influence of Tencent on China and the world. The book illustrates how Tencent’s products and services have become an essential part of digital daily life for hundreds of millions of Chinese people, who use them for communication, entertainment, education, health care, travel, shopping, and social good. The book also analyzes how Tencent’s platforms have enabled new forms of expression, creativity, entrepreneurship, and activism in China’s tightly controlled society. The book also discusses how Tencent’s ambitions have extended beyond China’s borders, as it seeks to tap into new markets and audiences in Southeast Asia, India, Africa, Europe, and North America. The book also examines how Tencent’s global expansion has encountered various obstacles and risks, such as cultural differences, local competition, political backlash, and cyberattacks.

The third part, “The Future”, looks at the prospects and challenges that Tencent faces in the coming years. The book highlights how Tencent has been adapting to the changing landscape of the tech industry and the world at large. The book describes how Tencent has been investing in cutting-edge technologies and emerging fields that could shape the future of humanity, such as biotechnology, quantum computing, space exploration, and virtual reality. The book also addresses how Tencent has been coping with the increasing pressure from the Chinese government and regulators who have been cracking down on the tech sector for various reasons such as antitrust violations data security concerns social stability issues national security threats. The book also considers how Tencent has been responding to the growing competition from other tech players both inside and outside China who are vying for market share and user attention.

The book is a well-researched and well-written account of one of the most important and influential tech companies in the world today. It is based on extensive interviews with Tencent executives insiders investors competitors regulators experts journalists activists users as well as public records company documents media reports academic studies industry reports etc. The book provides a comprehensive and balanced perspective on Tencent’s history strategy culture vision values achievements challenges controversies opportunities etc. The book also offers a rich portrait of China’s tech ecosystem and its dynamic interaction with the state society economy culture etc. The book is not only informative but also engaging as it tells captivating stories anecdotes examples cases etc that illustrate Tencent’s remarkable journey and impact.

Influence Empire: Inside the Story of Tencent and China’s Tech Ambition is a must-read for anyone who wants to understand one of the most powerful forces shaping the world today. It is a fascinating and insightful exploration of how technology business politics society culture etc are intertwined in the era of globalization digitalization innovation etc. It is a book that raises important questions about the role and responsibility of tech companies in addressing the opportunities and challenges that humanity faces in the 21st century.

In conclusion, “Influence Empire” is an informative and engaging book that offers a comprehensive look at Tencent’s history, culture, and business strategies. It provides valuable insights into China’s tech ambition and its impact on the global tech industry, making it a must-read for industry professionals, investors, and anyone interested in the future of technology and innovation.

Rating: 4.5/5 stars

Recommendation:

I highly recommend “Influence Empire” to anyone interested in the tech industry, innovation, and China’s growing influence in the global economy. The book provides valuable insights and a unique perspective on one of the world’s most influential tech companies, making it a must-read for industry professionals, investors, and anyone interested in the future of technology and innovation.