Naspers’ winning lottery ticket, Tencent

Tencent HQThe Cape Town headquartered multinational media company, Naspers, has spent the last decade and a half establishing operations in fast-growing regions such as China, Latin America, Central and Eastern Europe, Russia, India, Southeast Asia, the Middle East and Africa. But it was perhaps only last month (when the value of the group’s shares reached a record high following the announcement of Tencent Holdings’ financial results) that the extent of its success in emerging markets – and China in particular – hit home.

When Naspers acquired a 46.5 percent interest in the mostly loss-making, Chinese-owned Tencent Holdings in 2001, it seemed like a gamble, to say the least. Fast-forward to the present, and Tencent is reporting fourth quarter profits of $973 million. 

The company’s two major cash cows are the mobile social networks, WeChat – called Weixin in Chinese, meaning “tiny message” – and Mobile QQ, a reincarnation of the company’s original instant messaging service, QQ, which was Tencent’s only offering when Naspers made its initial investment.

When Tencent launched QQ in 1998, the Myspace-like platform would not have seemed innovative to more developed markets. China was far from competing on a global scale in most respects anyway, and – as is still largely the case today – the local market was a world unto itself.

Tencent’s QQ plugged a major gap in the Chinese market. It created a function that allowed users to send messages from PCs to mobile phones, and also between mobile phones that operated on different networks, at a time when there was still no interoperability.

This decade has seen Tencent fill a gap in a different sense. It has successfully monetised smartphone games to a significant enough proportion of its combined 1 billion-plus WeChat and Mobile QQ users to be a leader in this arena. “Revenue growth in the online game business mainly reflected contributions from smartphone games integrated with Mobile QQ and Weixin, as well as growth in PC client games,” Tencent said in an earnings release.

But “games” is a broad term, and some of the company’s more innovative initiatives involve “gamifying” services on its platforms. Last year, WeChat put a spin on the Chinese New Year custom of giving friends and family money in red envelopes by allowing users to send each other virtual red envelopes via their mobile payment accounts. Users could send funds directly or opt for a random lottery-style distribution of a fixed sum among groups of friends. On the eve of Chinese New Year in 2015, a whopping 1 billion virtual red envelopes were sent via WeChat.

WeChat’s success at home will be difficult to replicate within its approximately 100 million international user base, but that doesn’t make Tencent’s growth in an online marketplace where there is no established revenue model less impressive. When the company launched QQ in 1998, just 0.2% of China’s population were internet users. That figure is in now in excess of 46%. Naspers may have taken a gamble on Tencent, but when the potential winnings are a population soon to reach 1.4 billion, the group’s investment was more than a lucky number.

Featured Image – a render of Tencent’s headquarters – via NBBJ

This post was originally published on The Future’s Muse.

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