Inside Tencent | 2009 Edition
                   70%
                   60%
                   50%
                   40%
...
The Times Are A-Changing
        “The World’s Most Lucrative Social Network?
        China’s Tencent Beats $1 Billion Reve...
Attention Threshold
           =
  1 billion dollars?
About Tencent
• Tencent is China’s largest Internet company by
  revenue and profits.

• It is centered around an IM servi...
Its IM Service Looks Like That, But…
It’s a Blend of Many More Things
Q1.
What Were Tencent’s Revenue in 2008?
Over US$1 Billion & 40% Net Margin
                               70%

                               60%
     Operating P...
Q2.
How Much of It Was From Users?
90%
                          70%

                          60%
Operating Profit Margin




                          50%...
US$1 Billion From <10% Users

            892 mln registered IM accounts (2008).
                298 mln Internet users in...
Q3.
What is Tencent’s Market Valuation?
US$26 Billion (August 2009)

• Tencent is listed in Hong Kong since 2004

• DeNA, Gree and Mixi in Japan are all listed fo...
Q4.
   How Does Tencent Compare to
Leading Internet Companies in China?
Revenue 2008 of Leading Companies
 US$ Million

1,200
        www.plus8star.com        1047

1,000

 800

 600            ...
Q5.
What Is Tencent’s Revenue Split?
Value-Added Services Dominate
• Year 2008          US$1,047 million               Ads
                                    ...
Game Revenue in 2008
                                       US$340 million (#3 in China)
                                 ...
Q6.
What are Tencent’s Key Services?
Most of Internet’s Money-Makers
• Social networking           • Search engine
  –   Instant Messaging
  –   Blogs (200 mln...
From IM to Internet Giant
        Internet services                                    Wireless services
                 ...
Q7.
What Kind of Business Models is
        Tencent Using?
Leveraging Virtual Currencies
                        Free services to encourage users to join the community
             ...
Avatar-Related Virtual Goods
Connecting Games With IM & SNS
Q8.
What Do Experts Think of Tencent?
Could Tencent’s Model Work Outside China?
Pretty sure it works.
Virtual goods already                            For sure ...
Other Experts Interviewed In our Research
  2009

                     Olivier GLAUSER         Gang LU            Xing WAN...
+8*
Wish to Know More?
Get The Full Report!
• Complete report
  – Company-wide license | US$5,000
  – PDF, 284 pages
  – info@plus8star.com

• No...
About Us
• Innovation Arbitrage
                                   There are more ideas
  – +8* | Plus Eight Star is the  ...
Contacts


www.plus8star.com
                                  +81 | Japan
info@plus8star.com
                            ...
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Inside Tencent Presentation

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Short summary of our "Inside Tencent 2009" report, showing why Tencent is interesting to look at - US$1 billion in virtual goods can't be wrong!

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  1. 1. Inside Tencent | 2009 Edition 70% 60% 50% 40% 30% 20% 10% 0% 0 200 400 600 800 1,000 1,200 8 Questions & Answers on the World’s Most Successful Online Community +8* | Plus Eight Star Ltd | 2009.08
  2. 2. The Times Are A-Changing “The World’s Most Lucrative Social Network? China’s Tencent Beats $1 Billion Revenue Mark” (March 2009) “For Chinese IM Portal Tencent, The Money Is In Micro-Transactions” (March 2009) “Tencent Reaches New Heights in Virtual Goods Sales” (March 2009) “It was a trip 5 years ago to China where I met with Tencent when they were private that led me to come back and invest into Second Life. So one of the reasons we’re ahead of the crowd from a digital item type business model is because we were over there paying attention.” -- Bill Gurley, General Partner (June 2008)
  3. 3. Attention Threshold = 1 billion dollars?
  4. 4. About Tencent • Tencent is China’s largest Internet company by revenue and profits. • It is centered around an IM service named QQ. It also offers games, mobile, search, etc. • This Q&A based on our “Inside Tencent” report highlights some key points of its success.
  5. 5. Its IM Service Looks Like That, But…
  6. 6. It’s a Blend of Many More Things
  7. 7. Q1. What Were Tencent’s Revenue in 2008?
  8. 8. Over US$1 Billion & 40% Net Margin 70% 60% Operating Profit Margin 50% 40% 30% 20% 10% www.plus8star.com 0% 0 200 400 600 800 1,000 1,200 Revenue (US$ million) Note: Mixi, Gree and DeNA are Japanese social networks. Both Gree and DeNA are purely mobile.
  9. 9. Q2. How Much of It Was From Users?
  10. 10. 90% 70% 60% Operating Profit Margin 50% 40% 30% 20% 10% www.plus8star.com 0% 0% 20% 40% 60% 80% 100% Revenue from users
  11. 11. US$1 Billion From <10% Users 892 mln registered IM accounts (2008). 298 mln Internet users in China. Avg. 3 QQ accounts per Internet user. 377 mln are active accounts. Revenue 14.7 mln paying mobile users 31.4 mln paying web users About 8% of QQ’s active accounts bring revenue
  12. 12. Q3. What is Tencent’s Market Valuation?
  13. 13. US$26 Billion (August 2009) • Tencent is listed in Hong Kong since 2004 • DeNA, Gree and Mixi in Japan are all listed for over 1 billion USD • Facebook’s valuation varies between US$3 and US$15 billion
  14. 14. Q4. How Does Tencent Compare to Leading Internet Companies in China?
  15. 15. Revenue 2008 of Leading Companies US$ Million 1,200 www.plus8star.com 1047 1,000 800 600 522 429 452 468 439 400 370 200 97 0 Kongzhong Si a n Tencent Sohu N ease et Bai u d Shanda Al aba b i Mobile Web IM Portal + Online Search Online Only B2B content Portal Games games engine games e-commerce part
  16. 16. Q5. What Is Tencent’s Revenue Split?
  17. 17. Value-Added Services Dominate • Year 2008 US$1,047 million Ads 11% – Internet VAS 719 million Mobile VAS – Mobile VAS 205 million 20% Internet VAS – Ads 121 million 69% – Net Profit 412 million (39.4%) • 1H2009 US$788 million Ads Mobile 7% – Internet VAS 594 million VAS 17% – Mobile VAS 133 million Internet – Ads 57 million VAS 76% – Net Profit 330 million (41.9%)
  18. 18. Game Revenue in 2008 US$340 million (#3 in China) 80% 70% Profit margin 2008 (mln USD) 60% 50% 40% 30% 20% 10% www.plus8star.com 0% 0 100 200 300 400 500 600 Game Revenue 2008 (mln USD) Note: The size of the bubble represents the game revenue. The profit Margin for Tencent game and NetEase is taken as the one of the whole company.
  19. 19. Q6. What are Tencent’s Key Services?
  20. 20. Most of Internet’s Money-Makers • Social networking • Search engine – Instant Messaging – Blogs (200 mln reg.) • Mobile services – Social network – Mobile portal (#1) – “Twitter” service – Mobile client – Mobile browser • Games – Casual games • E-commerce – MMO – E-commerce platform – Virtual pet (#5 revenue – Payment system maker for Tencent)
  21. 21. From IM to Internet Giant Internet services Wireless services Q Zone Internet Portal QQ Search Super QQ QQ Notice QQ Pet QQ Show QQ Online Storage QQ Mobile WAP Mobile QQ Email E-commerce services QQ Games QQ Album QQ IM QQ Love Tenpay QQ Dating QQ Membership C2C service QQ Live QQ Music In addition to mass market services, QQ activities cover online advertising
  22. 22. Q7. What Kind of Business Models is Tencent Using?
  23. 23. Leveraging Virtual Currencies Free services to encourage users to join the community (QQ IM, QQ.com, WAP portal, QQ Group…) Personalization, value-added Interactivity ( Fee-based revenue) ( Traffic-based revenue) IVAS WVAS Advertising (Internet value-added service) (Wireless value-added service) Fee-based IM Fee-based IM IM Client-end Premium QQ, QQ Xing Mobile QQ Online identities Content-based SMS QQ.com QQ Show, Qzone, QQ Pet.. QQ Games 2.5 G Search Casual, MMORPG MMS, WAP… Others Mobile Voice VAS Dating, e-card, e-magazine… SNS IVR+CRBT
  24. 24. Avatar-Related Virtual Goods
  25. 25. Connecting Games With IM & SNS
  26. 26. Q8. What Do Experts Think of Tencent?
  27. 27. Could Tencent’s Model Work Outside China? Pretty sure it works. Virtual goods already For sure in Asia, and the gap is started with Playfish, not so large with the West. Zynga, etc. Habbo in Offer something appealing and Finland uses the same people are always willing to avatar model. Former Project Manager Olivier GLAUSER pay small amounts for it. Tencent Managing Director Western SNS are already Steamboat Ventures learning but not fully exploiting the potential. The idea comes from Korea so not entirely Chinese. And yes, I believe it will spread. It is not new in Asia. Korea and Japan are earlier than QQ. The Jim LEE concept is even more advanced General Manager in mobile than in Internet. Ring EA Mobile Back Tone (RBT) can be regarded as a precursor for the Yes, people need avatar on Internet, as the Yong LV differentiation and self- fundamental is the same: self- Investment Director expression. It is the expression! SK Telecom, China same in China and the West. Leon HUANG Product Manager Jiapu.com
  28. 28. Other Experts Interviewed In our Research 2009 Olivier GLAUSER Gang LU Xing WANG Dirk HE Zili REN Gang WANG Managing Director Founder Founder Senior Manager Founder Vice President Steamboat Ventures Mobinode Xiaonei, Hainei, Fanfou Huawei Appleap Sina Former Project Manager Tencent Leo WANG Jim LEE Brian RU Leon HUANG Yong LV Project Manager Founder General Manager Senior Analyst Product Manager Investment Director China Mobile 2008 Mobile 2.0 Forum EA Mobile Matrix Partners Jiapu.com SK Telecom, China Catherine CHAN Tangos CHAN Kaiser KUO Alex LIANG Dr. Song LI Buddy YE Wayne SHIONG IR General Manager Editor Digital Strategy Director CEO CEO CEO Partner Tencent China Web 2.0 Review Ogilvy China Pica.com Digu, Zhenai Wangyou Media WI Harper
  29. 29. +8* Wish to Know More?
  30. 30. Get The Full Report! • Complete report – Company-wide license | US$5,000 – PDF, 284 pages – info@plus8star.com • Not sure yet? Check the free sample! – www.plus8star.com • Selection of clients of the 2008 edition
  31. 31. About Us • Innovation Arbitrage There are more ideas – +8* | Plus Eight Star is the outside of your country than inside. leading cross-market consultancy on web & mobile Tom Kelley Author, The Art of Innovation in China, Japan and Korea. • Our clients – We work with large companies, SMEs, investment firms and governments worldwide to bring them strategic advice and the best practices from advanced Asian markets.
  32. 32. Contacts www.plus8star.com +81 | Japan info@plus8star.com +82 | Korea http://twitter.com/plus8star +86 | China Telecom & Internet www.slideshare.net/plus8star + Added Value * High quality
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