Date
16 July 2019
Reddit's large user base could offer an opportunity for Tencent as the Chinese internet giant seeks to internationalize its WeChat, mobile payment and gaming businesses. Photo: Reuters
Reddit's large user base could offer an opportunity for Tencent as the Chinese internet giant seeks to internationalize its WeChat, mobile payment and gaming businesses. Photo: Reuters

Why the Tencent-Reddit tie-up makes sense for both parties

Chinese internet giant Tencent Holdings (00700.HK) is buying a stake in Reddit, one of America’s top free-speech forums.

The deal has stoked fears among Reddit users about potential censorship and breach of user privacy.

Established in 2005, Reddit figures among the top 5 in most-visited websites in the US, with 330 million active monthly users. The forum allows users to set up new subreddits on their own, instead of confining participants to several big categories such as general, entertainment, sports, financial, etc. That has enabled the site to gather a large number of small groups, who are interested in niche topics for discussion.

Reddit is viewed as the one of the freest online forums, and users can make any anonymous comments as per their like as long as they don’t violate laws. The website has gained respect for standing up and refusing to provide user information to law enforcement agencies such as FBI.

It’s reported that Reddit has raised US$150 million from Tencent in a US$300 million Series D fund-raising, which values the company at US$3 billion.

The investment from Tencent has sparked fears about the introduction of some sort of Chinese Great Firewall, or leakage of user data to governments. If that happens, it might prompt most of its users to migrate to other platforms and sharply depreciate Reddit’s value.

But Tencent’s investment will only give the Chinese tech giant a small stake, around 5 percent, in Reddit. Since founder and CEO Steve Huffman will still have absolute control, worries as such seem to be premature.

The deal makes sense for both parties.

Tencent is keen to expand its presence overseas as competition with rival Alibaba heats up. Reddit offers a highly diversified user base, with around half of its users from other developed markets, such as UK, Canada, Australia and Germany.

If Tencent can tap into this large user base, it would be very useful for internationalizing its WeChat, mobile payment and gaming businesses.

Huffman has not been good at monetizing Reddit’s vast user base so far. Currently, the forum still relies on banner ads as main source of revenue and has been suffering heavy losses.

Currently, Google and Facebook, the two most visited websites in the US, have market value of around US$760 billion and US$470 billion respectively. Despite being among the top five visited sites, Reddit trails way behind with its US$3 billion valuation.

Hopefully, Tencent will help Reddit open up new revenue streams in monetization.

This article appeared in the Hong Kong Economic Journal on Feb 13

Translation by Julie Zhu

[Chinese version 中文版]

– Contact us at [email protected]

RC

Hong Kong Economic Journal columnist

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