Chinese social media, mobile payment and gaming giant Tencent has seen better days. The company has lost almost 30% of its market value, more than US$160 billion, since a peak in January.
The investor retreat has centered largely around new regulations placed on online and mobile games, part of the Chinese government’s efforts to tackle game addiction among the nation’s youth. Tencent’s business model relies heavily on revenue from games.
Now more than ever, Tencent’s strategy to remain competitive outside of that segment has far more important implications for the company’s future. As the company tries to leverage its mobile app ecosystem, which includes China’s most used social media and mobile payment platforms, to foster competition in the retail space, data will be key.
And that is the great challenge, one influential Chinese investor with contacts at Tencent wrote in a recent article, which was widely circulated inside China.
In the article, Li Guofeng, who was previously a fund manager at Penghua Fund, writes about the need for a “total rethinking” of Tencent’s strategy.
A recent newsletter from ChinAI published a complete translation of the article, and summarized why Li’s commentary is relevant:
“It seems like each one of [Li’s] articles make a huge splash and this one on Tencent has spread like wildfire. For the xinzhiyuan (AI Era) article which gives a little context before publishing Li’s full essay, it’s been viewed 34,000+ times in the past week, and this is one of many portals that have shared the essay in full to get page views. A Google search of the exact match for the essays’ title (“全面反思腾讯的战略”) gives 17,800 results. This essay was published August 13. Also, as you’ll see in the full translation, he will casually mention friends at Tencent who give him inside details, so this is a level of access that few get.”
The main takeaways from the article are that Tencent is at a huge disadvantage in its competition with Alibaba because it failed to make the transition that Jack Ma made so decisively. It failed to see itself as a data company, first and foremost.
Tencent just can’t provide the same level of big data that Alibaba can, which it needs to do if it wants to compete in areas such as retail. The reason being, the company just hasn’t upgraded its algorithms to process data.
From ChinAI’s summary of the article:
“Even though Tencent’s user data is ‘far and away’ larger than Toutiao’s, Tecent’s algorithms ‘still give a very imprecise profile of users’ because ‘Tencent’s customer data is scattered in various departments and has become the “private property” of departments’ (e.g. WeChat’s advertising algorithms are not under the purview of the WeChat department but are actually under another department which does not have access to the data of the WeChat team)”
In short, Tencent is not going anywhere, and still has a US$400 billion valuation, but it has a tough road to hoe.