Tencent’s secret to success is cannibalization

As Tencent forays into live-streaming video segment, founder Ma Huateng is falling back on cannibalization—allowing at least six of its divisions compete for eyeballs


Tencent Holdings Ltd’s founder Ma Huateng. Photo: AFP
Tencent Holdings Ltd’s founder Ma Huateng. Photo: AFP

Hong Kong: Success inside China’s most-valuable public company sometimes requires a bit of cannibalization.

Tencent Holdings Ltd’s ubiquitous WeChat service emerged after founder Ma Huateng encouraged employees to compete against each other to create a mobile messaging business. WeChat now has more than 805 million users, who turn to the service not just for texting but also for playing games, paying bills and buying money-market funds.

That blockbuster helped propel Tencent’s growth into the biggest publicly traded company in China with a market value of HK$1.97 trillion ($255 billion).

Ma now wants to repeat that success as Tencent moves into live-streaming video, letting at least six divisions compete for eyeballs in a market expected to mushroom nine-fold in value to almost $13 billion by decade’s end.

“Tencent’s culture is like a shark womb,” said Andy Mok, managing director for recruiter Red Pagoda Resources in Beijing, referring to how some unborn sharks cannibalize siblings in the womb to ensure their own survival. “It’s not as deadly, but it makes every member adapt faster and be more competitive,” he said.

The idea of competing with co-workers has been extolled by Goldman Sachs Group Inc. and General Electric Co. Ma, China’s third-richest person, said in December that internal competition is a necessary driver of innovation. Besides the live-streaming services, Shenzhen-based Tencent currently operates at least four music apps, has three businesses working on virtual-reality technology and owns two film units.

“We have a start-up mentality,” said Ross Liang, a general manager at Tencent’s Social Network Group.

“At Tencent, there isn’t a real clear line about who can’t do what.”

Tencent declined to make Ma available for an interview. Its shares have risen 37% this year in Hong Kong trading, compared with a 5.8% increase for the Hang Seng Index.

Potentially the most lucrative of Tencent’s nascent efforts is in the live-streaming business. Those services let users broadcast themselves in real time while eating at a restaurant, test-driving a car or putting on makeup.

A market valued at about 9 billion yuan ($1.3 billion) last year is estimated to reach 85 billion yuan by 2020, according to an HSBC report in July. The number of active users during that same period is expected to more than triple to 491 million.

Apps such as Twitter Inc.’s Periscope and Facebook Inc. are banned in China, creating fertile ground for domestic competitors. There currently are about 200 homegrown services, including those developed by Alibaba Group Holding Ltd. and Baidu Inc., according to researcher iiMedia. The biggest include Momo Inc., YY Inc.’s Me and Inke.

‘Virtual campfire’

Celebrities, both traditional and internet-created, can cash in by interacting with fans for virtual gifts such as flowers and toys, and by promoting their own products. Hosts typically keep 30% of the revenue from virtual gifts, with the rest going to the platform, according to a Credit Suisse report in July.

“This is the virtual campfire,” said Nir Eyal, the San Francisco-based author of “Hooked: How to Build Habit-Forming Products.” “The faster someone can get a response, that’s going to make the technology more habit-forming, stickier and increase user engagement.”

Start-ups in the sector have raised an estimated $750 million in capital, according to researcher Zero2IPO.

Tencent is developing its units—Qzone Live, Huayang, Now, eGame, Kg.qq.com and Live.qq.com—as the number of Chinese accessing the web via smartphones increases to about 656 million, according to the government.

Sports, Karaoke

It’s also trying to keep up with the ongoing structural shift in China’s advertising market. Spending on mobile ads is expected to triple in the next four years to an estimated 497 billion yuan.

Each of Tencent’s teams focus on a different interest, including sports, karaoke and video games. The businesses need to establish themselves before Tencent commits more money and marketing, said Liang, who oversees the Qzone Live product that attracted more than 17 million viewers for a broadcast of celebrity performances during a charity fund-raiser.

The competitive culture is drilled early on into employees, who regularly are told to look out for new products emerging in the industry. Failure to spot those trends can result in being outsmarted by colleagues, which is considered “a shameful thing,” said Alex Bai, a former product director now working for Baidu.

New ideas often come from the bottom up, and employees proposing them can be rewarded with cash prizes—from 500 yuan for redesigning an interface to 1 million yuan for more significant innovations.

Bai once received 300,000 yuan for improving the company’s advertising business.

Executive WeChats

“It’s considered pretty cool when you win something, no matter how small,” Bai said. “That has become part of the ingrained culture.”

At Tencent’s monthly meetings, hundreds of staff ranging in seniority from vice presidents to new hires will discuss their latest projects. President Martin Lau, the No. 2 executive, attends gatherings that can last three hours, and sometimes even Ma shows up. Tencent also declined to make Lau available for an interview.

The decision-making process also can be less formal. Business units communicating via WeChat sometime gets requests from Ma or Lau to join the discussion, and then the executives start asking questions, Liang said.

“This is something that the big bosses encourage,” Bai said. “They want the teams to run free for a bit because they don’t know which team will come out with the better product.” Bloomberg

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