Turning Tencent into billions

At 40 years old and with a self-made fortune estimated by Forbes magazine at around $4.7bn, Ma Huateng – AKA ‘Pony Ma’ – is China’s Bill Gates, Mark Zuckerberg and Sergey Brin rolled into one.

But if you live outside China or don’t speak Chinese, chances are fairly high that you’ve never heard of him; nor of his company, Tencent, the web portal he founded 15 years ago that now ranks as China’s biggest internet company and one of the 10 most popular sites in the world.

He rarely speaks to the media, but in an exclusive interview with NUS Business School Ma said he remains firmly focused on taking Tencent – and its cutesy penguin logo – beyond China and onto the global stage.

In such a rapidly growing market as China, a highly localised, authorised and responsive team is vital

Pony Ma,
CEO Tencent

“When we introduced products that had been successful in China to overseas markets, we encountered many cultural differences,” he said.

“Even when we hired local teams to run them, it’s still difficult to penetrate the market.”

Opportunities

The internet came relatively late to China, but in his mid-twenties Ma was among the first to see the potential opportunities presented by the Chinese market.

Working for a Chinese telecoms firm as a young engineering graduate, in the late 1990’s he was sent on a training programme to the US. There he quickly latched on to the new communications technologies then emerging; in particular the concept of instant messaging.

Back in the southern Chinese boom town of Shenzhen, he launched a small start-up with a few friends aimed at replicating the instant messenger concept for the Chinese market.

Turning Tencent into billionsWhat emerged was QQ – an instant messenger which rapidly added online dating, gaming and other social features. It quickly caught on and today it’s the most popular instant messaging service in China, racking up more than 711 million active user accounts.

Across China Tencent employs more than 20,000 staff – up seven-fold since 2005 – and makes more than half its revenue from online gaming via phenomenally popular titles such as Cross Fire, QQ Dancer, QQ Speed, Dungeon and Fighter, and League of Legends.

Ma puts this success down to Tencent’s deep understanding of the “highly complex” Chinese market – a factor he says foreign multinationals looking to tap into China’s booming online economy tend to overlook.

Flexibility

Many overseas firms, he said, have tried to take products and business models that have succeeded elsewhere and apply them in China – without giving their Chinese teams the authority or flexibility to alter them to the local market.

Five facts on Tencent
Cofounded by Pony Ma and three college classmates in 1998, initially built around QQ instant messenger service.
Business has diversified into social networks, web portals, e-commerce, and multiplayer online games.
Reported earnings of RMB10bn (US$1.57bn) in 2011, up 25 per cent on previous year.
Business makes 90 per cent of revenues from user fees, with less than 10 per cent from advertising.
Now China’s largest internet company by market value (approx. US$50bn).

China, he said, offers huge promise for the growth of social media and online entertainment. In May, Ma announced a shake-up at Tencent aimed at boosting its services for smartphone and social network users.

But if foreign companies want to tap into this, their best hope lies in teaming up with local partners who know the territory and understand Chinese culture.

“Flying solo won’t work,” he said.

“You can see in the last decade or so, if local companies were to grow they had to be able to respond to the market quickly, because the internet could change in six months as much as it takes traditional industries to change in 10 years.”

New features, technologies and trends are emerging all the time, many of them with a strongly Chinese cultural focus, he said, and companies need to be able to react quickly to them.

Dominant

“In such a rapidly growing market as China, a highly localised, authorised and responsive team is vital,” he said. “The response mechanism of multinationals simply cannot cope.”

siteTencent’s own rapid growth has not been without its share of critics, with some accusing the company of abusing its dominant position and copying ideas from smaller start-ups to put them out of business.

The company has certainly received some unfavourable press in the Chinese media and the very active Chinese blogosphere, but Ma blames much of this on what he called “unfounded rumours.”

Tencent, he said was just one of several companies working in concert to grow and develop China’s online sector, among them Baidu, Alibaba, Sina, Sohu, NetEase and others.

“We are all growing together. I think our mission is to enlarge the cake and then share it,” he said.

However Ma acknowledges that the firm has recently embarked on a change of business strategy.

“In the past we had a tight and closed development model. That drew a lot of criticism. But in the past two years Tencent has begun a new era of reaching out, opening up all our resources to partners across the supply chain industry.”

Open platform

One such step, he said, has been to open up the supply chain to smaller companies in a similar way to Apple’s App Store and Facebook.

“One year on and it has proven highly successful. Our platform has provided the environment for many small and medium enterprises to thrive.”

At the same time, Ma has reoriented Tencent’s approach to overseas growth, focusing on investment in smaller foreign firms.

Last year, for example, it took over Los Angeles-based online game maker Riot Games for $400 million. And earlier this year it took a controlling stake in a Singapore-based game developer.

“I think investing in local teams is a sound strategy because they are familiar with the local culture,” Ma said.

“The founders keep a stake in the company too, giving them long-term motivation for taking the company further. I think this a preferred direction – a win-win approach.”

Sign up to our newsletter