Tencent is the 4th largest internet company in the world with over 3 Billion in revenue, 1 billion of which was profit. They have seen their stock price increase 5000% since it’s IPO. They are one of China’s best tech success stories, yet they are feared rather than praised by other Chinese developers.
Pony Ma was interviewed by Sarah Lacy this morning in Beijing on stage at TechCrunch Disrupt: Beijing. This was the first interview Pony Ma had done with Western press. Previously he had been shy to talk to the West fearing that they would be more aggressive in their interviews than local Chinese press typically are. While Pony gave generic answers to most questions, he did give some interesting insight on others. The overarching theme for the interview was Tencent and its image to the world and the developer community.
Everyone’s favorite question, especially coming from the Americans, is why does China stereotypically copy everything. Partly this is a result of the culture as well as the legal system, but Pony believes it is also part of the growth process. He believes that China is learning, and as a child learns through mimicking its parents, so does China learn from mimicking the outside world. This is a necessity. However, as with a child, they must grow up some day and stand on their own two feet. If China does not do this, they will collapse.
Sarah Lacy pointed out that China has in fact shown innovation in the area of monetization. She critized Silicon Valley for its ability to create ideas, but its ineptness at making those idea make money. Pony agreed that this was a sign that China is capable of innovation and that it will come.
Mistakes by Foreign Companies Coming to China: Groupon Syndrome
When asked directly about Groupon, Pony did not want to critize them because they are currently a partner of Tencent. Perhaps it was a translation error, but he seemed to indicate that he does not believe in the Groupon business method, stating that some believe it is a viable business method. This use of “some” rather than “we” feels like Pony is already written them off.
Pony sees the difficulty foreign companies are having as proof that China’s culture is a protective barrier to entry. The West does not understand how the Chinese people work. He also believes that Western companies are not built to compete within China. “In America, you may have an idea. When you bring that idea to market you have several months usually before competition pops up. This allows you to capture significant market share. In China, this lead times does not exist. You can have hundreds of competitors within the first hours of going live. Ideas are not important in China, execution is.”
One Internet, Two Ecosystems
When questioned whether Pony felt if there was ever going to be a global internet or will it always be provincial in nature, Pony stated he felt that for the immediate future the net would stay provincial. He felt that demographics, culture, and government policies would not change enough to make such a world possible. For this reason Tencent has no plans of expanding outside the Chinese market for the next 5 years.
The Evil Empire Wants You To Know They Love You
The biggest part of the talk dealt with Tencent’s image. From discussing Pony’s background (My parents thought I didn’t look like a boss!), how Tencent got started (We were just a bunch of friends from school that had an idea of creating software that would make people’s lives better.), to even what scares Pony (The fragile state of the internet industry, security breaches, and stagnating as a company) the obvious push was to show there was a tender side to the company that made famous the Chinese entrepreneur mantra of “life, death, or Tencent” when referring to their project’s future.
Pony explained that Tencent wanted to help the community and turn their image of being the Microsoft of China into a positive image. He wants to build unity and trust amongst developers and Tencent. Though listening to his entire speech, it appeared that this “unity and trust” would only come to those that weren’t in a market that Tencent thought it could handle itself. Those specifically listed as off Tencent’s target list are game companies and e-commerce companies.
This makes perfect business sense though. The gaming world is a costly industry. Much like a higher risk version of the movie industry, for every blockbuster game, there are thousands that flop. By shifting Tencent to just profit off of sales or advertising revenue of games through Tencent’s platform, they make their lives much simpler. Let the little guys do the work and we’ll take in the easy money.
On the e-commerce side of things the story is a little different. Pony realizes that e-commerce is a vertical business and Tencent doesn’t really have the knowledge or power to compete in retail. Tencent knows software, not shoes. So announcing they are going to play nice and not gobble up e-commerce companies is an easy way to look nice, while again just doing what makes good business sense.
Pony received enthusiastic applause on several occasions when discussing these matters, but whether this is a real desire to build “unity and trust” or whether it is just a great way to spin something that is more seated in best business practices will have to be watched.
In the mean time, if I were a Chinese tech start up, I’d still be telling myself there’s “life, death, or Tencent.”