21 February 2019

Is Tencent ready to step up onto the global stage?

Founders of the red-hot photo and text messaging application Snapchat, which features a “burn after reading” function, recently turned down a US$3 billion acquisition offer from social media giant Facebook Inc. Now, Chinese internet titan Tencent Holdings (00700.HK) is said to be a new suitor for the US firm.

Snapchat has been a huge hit as users are attracted by the burn function which destroys photo and video messages after a set time. Users love it for the privacy it provides, as the messages leave no virtual footprint.

Thus, it is easy to see why Tencent would be interested in getting its hands on such an asset. As a matter of fact, this is not the first time that Tencent has made an attempt to gain ground overseas. The group already has overseas investment of over US$2 billion, which is equivalent to the firm’s full-year profit last year.

The group does not hide its ambition to become a global player, but the question arises: does it have what it takes to carve out a presence outside its home turf?

The Chinese firm’s international foray so far has been bumpy.

QQ, the instant messaging service developed by the group, has cooperated with AOL back in 2008. But without a concrete user base, the project eventually failed.

Tencent then figured out that it has to be less aggressive at the beginning, and was more willing to become a passive investor to strengthen strategic relationships with technology startups in the Silicon Valley.

The patience has paid off. The WeChat operator has invested in nearly 30 overseas internet game firms. For example, Tencent is a major shareholder in well-known game developers Riot Games, Epic Games and Activision Blizzard.

User base is the cornerstone in the mobile internet era, and Tencent knows this more than anyone else. So, the next major challenge for the firm is to internationalize its instant messaging app WeChat.

At the moment, WeChat users in US are mainly Chinese overseas students. Major rivals like WhatsApp and Facebook Messenger still have a large share in the foreign markets. That’s perhaps why Tencent is eyeing Snapchat as the stepping stone. The latter’s popularity in US could help Tencent win over overseas users. It won’t be surprising if Snapchat shows an interest in teaming up with Tencent, which could be a powerful guiding light for the US startup to crack the Chinese market.

If Tencent pulls this off, it could be possible for the group to apply overseas its business model, which largely relies on internet games as income drivers.

Tecent’s founder and CEO Pony Ma {馬化騰} is quite confident about the company’s mobile platform. He told earlier this year that mobile internet development in Asia is in some aspects even surpassing that in the Western countries. And this would provide an opportunity for Asian tech firms to step up on the global stage.

– Contact the writer at [email protected]


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