Introduction
Tencent is a Chinese multinational company situated in Shenzhen, China. The company is a technological conglomerate and works both domestically and abroad to bring innovation and improvement into people’s lives (Tencent’s Innovation Strategy 2020). Founded in 1998, its influence has significantly spread throughout the world with the popularization of modern technology (Zhang & Alon, 2011). The company specializes in internet-related technology (Tencent – Top 100 Global Innovator – Software). Separated into 6 distinct groups, Tencent manages to both solidify its presence on the market and continue its gradual expansion into different spheres of life. Tencent actively invests into other industries, including infrastructure venues (Inside China Tech: Tencent and Baidu investing in the future 2020). The company has stakes in producing electronic entertainment, artificial intelligence, and other types of tech. Financially, the company is one is the most valuable businesses on the planet. During its existence, Tencent has garnered a solid reputation as a child-friendly organization that strives to make the lives of people more interconnected. They have also continuously exceeded the profitability expectations, creating a stable and profitable business in the face of hardship (Kharpal, 2020). This analysis will focus on understanding Tencent’s business model in detail, as well as noting the role innovation plays in it. Starting with their general approach to innovating the technological sphere, the work will try to underpin how Tencent achieves its goals and manages to sustain its rapid growth.
Tencent and Innovation
In terms of Innovation, the company is taking large leaps in stride as an attempt to be the leader in the technological world and keep its influence on the market steady. Having a major share in the online sphere, Tencent has ownership of multiple social media platforms and messengers, which are increasingly becoming more widespread. Another facet of Tencent’s innovation is the way the company spreads throughout the world and establishes connections with other multinational companies (A Closer Look Into Tencent’s Micro Innovation Strategy 2019). With an array of offices in different countries, including the Netherlands, Malaysia, Korea, Japan, and the US (Tencent腾讯). Their applications and work are actively expanding into foreign markets (Sun, 2019). Tencent has also partnered with a large portion of other companies in the technological field, allowing it to expand its reach and influence (Tencent WeStart). Another field where the company has taken large precedence is gaming.
With the rise of electronic entertainment as a viable hobby and a stable career, some dare to invest their time and resources into the sphere, and Tencent is one of such daring entities (Hermione, 2015). Buying stakes of major video game companies, the corporation has managed to become the largest video game publisher in the world (Chen & Nakamura, 2018). Owning 40% of Epic Games, Tencent can claim profits of two of the most profitable games in recent years, Fortnite and PlayerUnknown’s Battlegrounds. The company also claims full ownership of Riot Games, another famous studio responsible for the development and success of League of Legends, a staple of the gaming community (Kleinman, 2020). Besides the gaming industry, the company has its ties in the music field, movies, and many other spheres of life that work with media and technology (Kleinman, 2020). Their ability to adapt the approach and seize opportunities that arise is that makes them truly revolutionary in their work.
Business Model Canvas
Key Partners
The company’s key partners are other corporations that are specialized in providing services and platforms to customers. A large portion of these companies are situated in China, such as Etihad (Barbaschow, 2020). Be it social media companies, large websites, online storefronts, or even game development companies, Tencent has found an ability to profit off of its connections. It is known that Tencent has investments in at least 16 major video game companies that work internationally. Besides the already mentioned Riot and Epic games, the company also has bought parts of Bluehole, Ubisoft, Activision Blizzard, and Grinding Gear Games (Messner, 2020). Mobile game developer Supercell is owned by Tencent by at least 84.3 percent. Another big partner of Tencent is Kakao, a Korean company that works on the internet and Entertainment sphere (Messner, 2020). The company has its hand in sponsoring video games, instant messaging, and social platforms, meaning that its and Tencent’s areas of expertise align quite well.
Key Activities
Most of Tencent’s time and resources are spent in maintain and expanding various online platforms and services it provides. The company mostly sustains its growth through acquiring other firms and gaining access to their revenue streams, while also developing its own independent ways of gaining profit. Their strategy seems to be effective, as the company is gaining more profit with each passing day (Tencent Holding Revenue 2011-2020: TCEHY). The social media and messaging platform, WeChat, is a good example of such a platform. Combining the functionality of a simple instant messaging program, it also offers a variety of other services, such as delivery services, paying bills, reading news, and running small businesses. The company expands the list of available services and the functionality of both WeChat and its other platforms, gaining more revenue and a larger customer base in the process. Another key activity worth mentioning is the process of gathering analytics data on the users of their websites and platforms, which is then used to create machine algorithms.
Key Resources
Human resources play a large part in the success of the company. Without having capable and adept minds to handle a vast amount of networking and relations that the company has to manage, Tencent would have never been able to succeed in its field. Human resources also include marketers, scientists, computer engineers, and software developers who all work to maintain and create their online platforms (Tencent 2018). The process of maintaining a social media service is constant and ever-increasing in difficulty as the company’s influence over the market grows. Physical resources are also necessary for the company, as keeping an online service running demands keeping servers active and paying for electricity as well. Tencent has multiple centers for storing and working with data in various locations (Tencent 2018). Analytic data that is gathered from users that are on the platform is also considered a form of resource and demand both secure storage and careful analysis. The company uses data to better understand the needs of their client base and offer them better goods and services in the future.
Value Proposition
Tencent aims to create and support platforms that are able to meet the needs of a large variety of people and bring innovation into the daily lives of people. By utilizing new technology and monetary resources available to them, the company has the ability to create messaging and social media apps that can combine both the aspects of social life, lifestyle assistance, and daily necessities of people. Tencent’s work extends to many markets to offer a simple multi-tool solution to every individual’s problems (Zaffonato, 2019). By gathering and processing data on their client-base, the company has the ability to continually improve its services and business model in accordance with the recent trends and needs of the public (Tencent’s Innovative Business Model 2018). The creation of such apps as WeChat has made other internet platforms redundant by combing their features together for a more convenient and user-oriented experience.
Customer Relationships
The customer relationships in the case of Tencent mostly rely upon self-service, where people are able to utilize services and products the company puts out (Tencent 2018). The usage of such services is either free of charge with additional optional payments, or a one-off purchase, depending on the type of product the company distributes. In terms of social media platforms like WeChat, users are able to use the product and interact with each other without the need to establish direct communication with the company itself (Zaffonato, 2019). The ability to talk with an individual are slim, as announcements are usually made as blanket statements, created to address a large audience. On the other note, customer service and support also exist, available as a way to troubleshoot the service if it behaves incorrectly or gets specific instructions about an area of inquiry. In this specific case, personal communication is possible, although in the form of a phone call or an e-mail. In the case of gaming companies, Tencent has a share in, the situation is much similar. Video games are offered as a service that does not allow for direct communication with its creators or publishers, except in cases of customer service and marketing affairs. People buy the product and use it at their own discretion.
Customer Segments
The Company has segmented its market to appear to a large variety of clients while also having the ability to choose which ventures would be most beneficial for its development. The main focus in its service provision efforts is put on people of all demographics that use the internet and mobile services. Although teens and young people are more likely to use social media and instant messengers, Tencent casts its net wider, creating a mass-market appeal for all ranges of customers. Older people have the convenience of different services and the simplicity of the design, while the younger generations can enjoy the perks of communicating with others. Another customer segment the company uses is other companies that make investments into Tencent. By marketing itself as accessible and powerful, it attracts a lot of attention from other social media platforms and entertainment companies. The company has the ability to find the most profitable market segments and focus its marketing and advertisement efforts on them through the use of user data. The harvested data is analyzed to see the most recent behaviors, patterns, and trends, which allows the company to stay on top of the most recent developments with its approach to targeting the market.
Cost Structure
Tencent adheres to a cost-driven structure, one that allows it to minimize the costs or continued operations while gaining a constant stream of revenue. The main aim of this approach is to minimize expenses to ensure that the profits cover them with ease. Automatization of labor and various processes is a large part of the process, as it allows to put human work out of the equation and make the processes more streamlined. Management of social media platforms and websites often uses this approach, as it allows to support and maintain a space millions of people use continuously. Many of the processes that usually require human intervention are streamlined to reach maximum efficiency at minimum spending. This means that such services as customer support or assistance are also mostly relegated to automatic algorithms, which require human intervention only in specific cases.
Revenue Streams
There are multiple revenue streams that Tencent has managed to take advantage of (Thomala, 2020). One of such streams is from services that directly offer value to customers, such as some of WeChat’s services (Food Delivery). This allows the company to profit directly off of its products and receive money from customers. Another source of revenue is the online advertising services the company employs. By gathering and analyzing user data, Tencent can understand what potential customers want to see, and in what form they may become interested the most. Advertisements of other companies on their platforms is a significant source of money for the company, and with the improvement of advertisement algorithms, its revenue is likely to improve even further (Smith, 2020). The fact that more and more companies are entering the online sphere to conduct their business is also beneficial to Tencent and their advertisement efforts. The last source of revenue for Tencent it’s a share in other companies and service providers (Bischoff , 2014). Having collaborations and investments in other entertainment and service-related companies gives them the ability to gain a portion of their money as a benefit. Gaming in particular, has given the company a significant part of its current earnings, as Tencent aquires and licences more and more video games in search of profit (Jin, 2020).
Innovation in the Business Model
As briefly discussed in many other parts, Tencent has made a lot of strides to introduce innovation in its work and its business model. One of the more noticeable differences between Tencent and other companies is that it has found the ability to amass profit both by its own merits, by investing in others, and by using its services as an advertisement platform. Having the option of profiting from a large number of subsidiary companies has given Tencent a safety net against not being able to secure profit. A diverse approach to their operation and an ability to adapt to changes in the public with their data gathering software also gives them a significant advantage over the competition. Having the largest social media service in China with a dominating presence on the market allows the company to avoid competition and secure a large customer base that also serves as a ground for gathering information on their future moves and developments. Another innovative move is the variety of content the company has its interest in. While many firms focus their attention on a particular field, seeking to hold a firm position in their zone of expertise, Tencent attempts to work by expanding its reach as far as it can go in the field of internet and online platforms.
Recommendations
In terms of recommendations, it is difficult to pinpoint a single piece of advice that would benefit the company in its development. In 2018, the company has come under the scrutiny of the Chinese government in regards to their video game licensing, with the Chinese officials disallowing the release of many games and banning others (Pham, 2018). Knowing that Chinese government regulations are strict and restrictive, I would say that further expansion into other fields in the media sphere is the best course of action for the company (Tencent’s expansion plan and its implications for telecoms operators 2020). Having already gained major influence in the Chinese music and film distribution market, the company can also gain leverage in foreign markets and expand to its nearest neighbors, including Korea and Russia. Expansion into territories of lifstyhle and healthcare is also beneficial, as it allows for a large potential of growth and already has an approximate plan of action (Jiang, 2018). Spreading its influence into more service-oriented work for people may also be a good idea, as further expanding the capabilities of WeChat as an all-in-one platform is a promising and fruitful endeavor.
Conclusion
In conclusion, Tencent is a large Chinese company that has managed to expand its reach into the global market and gain a grasp onto fields its competition did not consider. By buying out or gaining stakes in companies it is interested in, Tencent has managed to create a safety net for its revenue gain and expand the scope of its professional influence. The main customer base of the brand is diverse, and the company’s image appeals to children adolescents, and older people alike. By offering people their services and platforms, the company establishes a one-way relationship that is supported through direct purchases and transactions from the users. Communication is achieved through marketing and customer support exclusively, partially due to the nature of the services the company provides. The cost model is cost-oriented, seeking to minimize unnecessary expenses and maximize profits in return. Through automatization processes, the corporation gains an ability to make the upkeep services of their platforms cheaper, while keeping the quality high. To answer the Chinese regulations, it is in the company’s best interest to expand further and gain influence over other fields of media to keep a secure footing in the face of government interference.
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