What’s stopping Tencent from monetizing WeChat in the most obvious way?
The $22 billion Chinese technology giant Tencent is sitting on an advertising goldmine. Just 18% of its total revenue in fiscal year 2016 came from online advertising, and industry analysts believe that the company’s WeChat social media app in particular is undermonetized. Compare this with Facebook’s model: advertising makes up 98% of its total revenue. So why hasn’t Tencent yet made the most of its advertising potential?
To answer this, we need to understand Tencent’s monetization strategy – and its philosophy on user experience. And to do that we need to go back to the company’s early days. Co-founded in 1998 by Ma Huateng (better known as Pony Ma) and four friends, Tencent launched its first product – a free PC-based instant messaging (IM) service called OICQ, later renamed QQ – in 1999. It secured one million users in the first year but the company remained unprofitable. It was only in 2001, following the launch of the MobileQQ IM platform for cellphones, that Tencent turned its first profit: $1.2 million on sales of $5.9 million. Three years later, Tencent was listed on the Hong Kong Stock Exchange.
In 2005, it introduced Qzone – a multimedia social networking service. By 2010, thanks to Pony Ma’s decision to open up Qzone to apps from third-party developers, Qzone was the largest social networking platform in China with 492 million active users.
Capitalizing on the growing importance of mobile, WeChat was born in 2011. Since then, Tencent has added official accounts, payment services, a game center and even an office chat app to WeChat. Investors rewarded the company for its ability to execute in its core businesses while also developing adjacent businesses. The company’s market capitalization grew with a five-year compound annual growth rate of 40% for 2011-16 and it broke into the league of the top ten most valuable listed companies in the world in April 2017.
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