Tencent has been restlessly compared with its Western equivalent, Facebook. Some analysts would praise Tencent for its innovative approach to mobile, O2O and revenue model. Others would treat it as a mere copycat.
So, who is leading the way? Who is catching up? Let’s look into it.
Two very different companies
There are obvious differences between Tencent and Facebook. None the least being: they make money in very different ways.
Here is a chart showing revenues from Facebook and Tencent as of Q2 2015
Facebook is making money via ads, while Tencent is making money via value added services (mainly games)
This might be the main point where Tencent is leading the way…
Where is Tencent leading?
Tencent has done a much better job than Facebook at integrating a variety of services within the confines of its APP. While Facebook has focused mostly on content (also via its acquisition strategy of Instagram and WhatsApp), Tencent has a much wider reach, touching on payments, healthcare, music, transportation, food, cinema, etc…
From this perspective, Tencent can be perceived as extremely innovative: it made WeChat the app, the app through which everything happens, from your most intimate online social interactions to paying for your cab ride.
So why did Tencent succeed where Facebook failed, or did it?
Tencent is not leading the way, Chinese users are
The first thing to say about the two companies operate in widely different contexts.
According to a PWC report published in 2014:
- 71% of Chinese users already made purchases via their mobile while only 32% of Americans did
- 37% of Chinese users use smartphone to book diner tables while only 13% of Americans did
- 35% of Chinese users purchased stock using their smartphone, while only 5% of Americans did
It is common knowledge that Chinese users have leapfrogged to mobile. This is a much more favourable environment for Tencent to push its mobile solutions, and there is no doubt that much of the company’s success is due to its users
Where Tencent is falling short
On the other hand, Tencent is falling short on a few specific aspects.
First of all, Tencent ads are bad. They are poorly targeted, overpriced, access is limited. More of a worry: the layer of technology enabling more relevant advertising seems much thinner than in the case of Facebook. This is bad for advertisers, and it is bad for users: conversion rates are low, and end users are served ads they don’t care much about.
Another characteristic of Tencent is its lack of focus. This could, on the long run, be a flaw or an asset. While Facebook is intensely focused on content, Tencent has entered a wide range of industries. This gives Tencent an unprecedented hold over its users. But it also means it is operating in much more fragmented markets, while Facebook basically holds a monopoly in all the industries in which it is present (readers of “0 to 1” by Peter Thiel will be familiar with this strategy)
The long term
Facebook also seems to be looking far ahead. Farther ahead than Tencent.
After successfully transitioning to mobile, Mark Zuckerberg is now looking for next revolution in order to make sure it won’t kill his company. The acquisition of Oculus Rift by Facebook is, in this respect, a fascinating event.
Facebook is also pioneering a lot of new fields such as speech recognition (the company is developing a Siri-equivalent called “M”) or social search (graph search).
Once again, Facebook appears as more focused on keeping its edge in the few areas in which it holds a monopoly
The impact of culture
The last thing which might give Facebook an edge over Tencent is culture.
Facebook benefits from an outstanding culture. It feeds from the ethos of the Silicon Valley, but goes much beyond it: even by the valley’s standard, Facebook is a widely open company with a deep impact within its community.
Programmers will be familiar with the contributions of Facebook to the ecosystem (with frameworks such as React.js and React Native). Facebook also has a policy of open sourcing elements of its more state-of-the-art research, such as Torch, its machine-learning and neural networks library.
This highly-open and collaborative culture, with the continuous rise of Open Source, might very well be a game-changing factor supporting the company in the long run.
Conclusion
Tencent is, by all means, an impressive company. It has kept a continuous stronghold on the messaging market in China. It also did so with incredibly bold moves such as cannibalising its own offer with new products competing inside the company (QQ by WeChat). It is now expanding in an aggressive and successful way to new markets.
However, saying that Tencent is at the bleeding edge of its market would be an overstatement. The company benefits from the Chinese users being “early adopters”, but is lagging behind on some core technologies such as targeted ads.
The company therefore can still learn a lot from its Western competitor. And Tencent showed it is great at learning.
Only then, will it be ready for a fair fight for markets outside China.