Tencent, an Industrial Internet Giant

Article  by  Daphné RICHET-COOPER  •  Published 16.11.2011  •  Updated 17.11.2011
Tencent's mascot, the penguin with the red scarf, used in a calendar
Created in 1998, Tencent Holdings Ltd has become one of the major nerve centers of the Asian media landscape, with an endless list of online activities. How did this key player in the informations technology industry get to where it is today?



Created in November 1998, Tencent Holdings Ltd. (hereafter Tencent) has developed in a dozen years into the world’s most visited Web portal, and China’s most used instant messaging service[+] NoteInstant messaging or online chat enables the exchange of instant messages between several users (connected to the Internet).X [1]. The company has created several Internet, mobile and 3G[+] NoteMobile network on which web-surfing is enabled.X [2] platforms, thus creating one of China’s most important web communities. Some of these technologies and platforms are immensely popular amongst Chinese netizens – including QQ Messenger (hereafter QQ IM), the Web portal QQ.com, and microblog service Tencent Weibo. With more than 647.6 million registered QQ IM accounts in December 2010, Tencent represents 76.2% of the IM marketshare in China in terms of use. Technologies developed by Tencent exert a very strong influence on the developments of China’s Internet as well as on the new tools for communicating, and on the country’s social media landscape.

NoteInstant messaging or online chat enables the exchange of instant messages between several users (connected to the Internet) X [3]
In 2010, Tencent had revenue of 2 billion euros and turnover of 1.4 billion euros. Since June 2004, Tencent has been listed on the Hong Kong Stock Exchange; its mission is to “improve Chinese people’s quality of life by the provision of Internet services”. In order to do so, 50% of the group’s workforce is almost exclusively devoted to R&D. Thus, Tencent has obtained patents in the following fields: instant messaging, e-commerce, online payment services, search engines, games, and more. In 2007, Tencent launched the Tencent Research Institute, which has campuses in Beijing, Shanghai and Shenzhen, for the development of innovative Internet technologies. On top of that, in 2006, Tencent launched its charitable arm, the Tencent Charity Fund – the first charitable foundation founded by a Chinese company of this size.

Page d'accueil anglophone du site Tencent.com
This key actor in the field of new information technology has imposed itself on the domestic market by squashing Western giants such as MSN – which has only had a limited success in China – and by opening itself to international markets: its software has been translated into French, English, German, Japanese and Korean. Tencent technologies have been at the start of societal trends; QQ IM is an essential element of China’s contemporary pop culture, and its mascot [+] NoteSimilar to Tux, Linux's mascot penguin.X [4], the red-scarfed penguin, can be seen everywhere in China. Tencent technologies are also extremely powerful “soft-power” tools. Behind Tencent’s success is a team of young entrepreneurs based in Shenzhen – China’s southernmost metropolis, whose exponential growth is intricately linked to that of the country as a whole.
Despite these developments, which have enabled the company to rapidly conquer most of China’s market, Tencent has been involved in several conflicts over intellectual property rights.
How has Tencent expanded and developed? Which strategies have been adopted by the company, and what kind of competition, challenges and conflicts is the company now faced with?
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The company’s genesis

Founded in 1998 by four computer engineering graduates from Shenzhen, Tencent’s executive team now counts 18 members. Four of them are graduates of U.S. Universities (Harvard Business School, Stanford, Rutgers, and University of Michigan), and several of them worked for multinational companies (MNC) like McKinsey and Goldman Sachs before joining Tencent. Others have taken part in the development and promotion of IBM and Microsoft software in China (Internet Explorer, MSN, and Windows). There is only one foreigner within the executive team of the company: David Wallerstein, who joined the company in 2001 as its executive vice-director. After having worked for more than fifteen years in the ICT field in China, Wallerstein is now in charge of Tencent’s international development.
Pony Ma (MA Huateng马化腾in Mandarin) is the founder and executive director of Tencent. With 3 billion euros in assets, he was China’s 9th-richest person in 2010, and number 49 worldwide. He graduated from Shenzhen University in computer engineering and worked for a Chinese computing company before creating Tencent. He only makes rare appearances in the Chinese media.
Over the years, Tencent has developed a wide range of software. However, the company’s software first gained popularity because they copied foreign software. In February 1999, Pony Ma and his team launched OICQ (Open ICQ) – a mere copy of ICQ AOL’s instant messaging software – on the Chinese market. The software was easily accessible and downloadable online. By the end of 1999, 9 months after the launch of the software, more than one million users had registered accounts on OICQ. However, OICQ soon got involved into an intellectual property rights conflict and Tencent was thus forced to rename its software QQ in December 2000. 
Despite QQ IM’s growing popularity amongst China’s young generation – 500 million registered users in 2001 and more than one million daily registrations in 2002 – Tencent made very little profit. The little profit that was made was systematically used to cover the Internet servers’ fees. At that time, the company’s main source of revenue (80%) came from paying services that enabled QQ IM users to send text messages from a QQ IM account to a mobile phone. Tencent shared the revenue from this service with mobile phone operators. Gradually untimely online advertising as well as the creation of the QQ currency, the Q Coing, soon became important sources of revenue .
Despite QQ IM’s success and the revenue from advertising in 2002 Tencent decided to transform its free instant messaging service into a paying one, thus provoking netizens’ wrath – most of whom decided to abandon QQ IM to register on rival services such as MSN, Yahoo ! Messenger and ICQ. Tencent thus resumed its free access to QQ IM. However, add-ons and apps for avatars and blogs remained paying services.
In 2000, IDC, an American investing fund, and Pacific Century Cyber Works (PCCW), a Hong Kong telecom company, invested 1.5 billion euros for a 40% share  within Tencent. On June 16, 2004 Tencent was listed on the Hong Kong Stock Exchange (HKSE: 00700), and in February 2010, total shares amount to 186 million euros. The main shareholders are MIH (34.32%), a South African multinational company (MNC) in the field of pay TV and instant messaging, Pony Ma (11.16%) and Zhang Zhidong (3.66%), respectively Tencent’s CEO and COO.
Between 2005 and 2010, Tencent’s net profit grow extremely rapidly: 52 million euros in 2005, 168 million euros in 2007, 560 million euros in 2009, and 870 million euros in 2010. Between 2004 and 2009, Tencent’s advertising revenue was multiplied by 17.

Table: Tencent’s advertising revenue (2004-2009) NoteAbréviation de « renminbi » signifiant monnaie du peuple en chinois et désignant le yuan.[5]
This rapid growth is mainly attributed to the diversification of Tencent’s online services and softwares.
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Tencent's range of software and services

In thirteen years, Tencent has grown from a company offering a limited range of software to China’s main provider of software and online services. The specificity of Tencent’s software and products is their interconnectivity and their ability to be mutually synchronized and promoted. Most of Tencent’s social networks and software are synchronized and interconnected.  "Tencent's social hub is as if AIM, MySpace, Facebook and Twitter were owned by one company, and all cross-promoted and synched to each other."

A range of products are on offer:

Software and Internet services

Tencent’s flagship product is QQ Messenger, the company’s instant messaging service. Like MSN, with this, it is possible to chat online, exchange videos, voice messages and files. It is available in various languages including Chinese, Korean, Japanese, English, French, Spanish, and German, and is compatible with most systems (such as Windows XP, Vista, Linux, Mac). By March 2011, QQ had 674.3 million “active user accounts,”[+] Note“Active user accounts are defined as those who have logged onto the network at least once during the last 30 days.” X [6] and peak simultaneous online IM account use came to 137.2 million. However these figures should be put in perspective, as according to market specialists, the number of unique account users is closer to one-third of the figure announced by Tencent.  This is mainly due to the fact that users’ activity on Tencent social networks is always synched throughout the group’s various platforms and services. Thus, a user is always counted as being active on one or several services whereas it is not always the case.

Table 1: Total number of QQ IM accounts, according to the official Tencent website

La croissance de Tencent d’après le site de la société
Table 2: Tencent's economic growth, according to the official Tencent website
QQ IM’s design is rather simple, with the chat window similar to those of any other instant messaging service. Various sound signals can be chosen to let the user know that he or she has received a message or that a friend wants to chat.

Thanks to QQ IM, Tencent has gathered a large database of users to which – through embedded advertisements – the company advertises its other social networks, platforms and software. QQ IM works as a recruitment “hub” for Tencent’s other products.

Apart from QQ IM, Tencent has also developed other instant messaging software such as QQ Enterprise, Tencent Messenger, and RTX (Real Time Exchange), which have been specially conceived to ease company work.

Tencent has also developed a range of other products such as a web browser (Tencent Traveler), a system security software (QQ Doctor), and two email services (QQ Mail and Foxmail).

QQ.com is Tencent’s largest web portal, through which Chinese netizens can gain access to a wide range of news, interactive communities, advertisements and links to some of Tencent’s other flagship products. Integrated to QQ.com is Tencent’s very own web search engine. Launched in March 2006, Soso.com is one of China’s two most important web search engines, together with Baidu. Like Google Doodles, Soso’s logo regularly changes appearances according to the events of the calendar. Thus, for China’s Dragon Boat Festival[+] NoteThis festival marks the beginning of summer 端午节June 6, 2011.X [7] , Soso’s logo was transformed into a dragon boat. Finally, the management of software downloads and set-up is facilitated by QQ Download and QQ Software manager. Tencent’s multimedia player, QQ Player, enables users to watch movies and listen to music.

Tencent’s instant messaging services have enabled the company to gather a large user base. Gaming is a large source of revenue for Tencent. Tencent Games has more than 20 games on offer, with game design and creation often externalized to other companies. QQ Game is China’s biggest online game community,  counting more than 504.8 million active users. The games available are diverse and appeal to China’s youth: first person shooter games (Cross Fire and Alliance of Valiant Arms), massively multiplayer online games (Dungeon and Fighter, Hero Island), and simpler games (QQ Dancer, QQ Speed, QQ Tang, QQ R2Beat, Punch Monster, QQ Pet).

Most games developed by Tencent and its partners are intrinsically Chinese. A lot of them are based on novels, legends and historical figures that are known by all in China (Journey to the Fairyland, Tencent’s first 3D game, QQ Huaxia, Dragon Power, World Of Fantasy, QQ Xianxiazhuan and QQ Feng Shen Ji). Journey to the West (西游记) is a game based on the eponymous novel by Wu Cheng’en, a Chinese literary classic which relates the monk Xuanzong’s expedition to India (7th century). In a similar way, Three Kingdoms is a game based on The Romance of the Three Kingdoms (三国演义), an extremely popular historical novel that depicts the Han dynasty and Three Kingdom period (220-265). Silkroad Hero is based on the reign of Emperor Wu, of the Han dynasty (206-220). Launched in August 2003, QQGame gathers China’s biggest casual games community, with 4.8 million rival players.

Social networks and Internet platforms

Over the years, Tencent has developed several easily accessible Web portals. Lauched in 2005, QZone Tencent’s very own MySpace now counts 7.7 million simultaneous registered users. With QQMusic and QQLive, Tencent streaming film and music platforms, netizens can listen to music and watch movies. The company has also developed several social networks such as Pengyou and City Life as well as Alumni (open only to students).

Tencent WLogo de Tencent Weibo eibo (腾讯微), launched in April 2010, is Tencent’s latest extremely popular service. This microblog[+] NoteeA microblog is the concise verion of a blog on which users can publish 140-characters long messages. Microblogs are halfway between blogs and instant messaging service. XX [8] service enables netizens to publish short messages (140 characters maximum). In April 2011, Tencent Weibo had 160 million registered users [+] NoteThis number is to be put back into perspective, see above.X [9] and 10 billion published micro-posts. The interconnectivity offered by Tencent reaches a peak in the case of Weibo, as 40% of users register for Weibo accounts from the QQ IM accounts. It is also possible to post micro-posts on Tencent Weibo from QQ Messager, QQZone, Alumni and Pengyou.


In March 2006, Tencent launched its e-commerce platform Paipai, and its online payment system Tenpay, which is quite similar to Paypal. More than 200,000 online shops as well as most of Chinese banks’ e-banking services have agreed to be paid through Tenpay. Merchants that have an online shop on Paipai have to use Tenpay – bringing Tenpay’s alleged user numbers to 78 million. Tenpay has a 20.5% share of the online payment market in China. Alipay, Alibaba’s online payment system, has 51.2% of the market share.

Mobile services

With the rapid expansion of mobile Web services and the growing number of smartphone[+] NoteA smartphone is a mobile phone which has the following functions: web browsing, email, instant messaging services, GPS, agenda, calendar and other downloadable apps.X [10]users, most of the aforementioned Tencent Internet services are also available in a mobile version:
·         3G.QQ.COM is the mobile version of the QQ.com Web portal
·         Mobile QQ is the online version of QQ IM
·         Mobile Games and Mobile QQ Music enable netizens to access music and Tencent’s games from their mobile phones.
Tencent operates in many areas of China's ICT, and has redisgned the boundaries of China's new media and social network landscape. However, a great deal of Tencent services, software and products are facing extremely tough competition, especially in the field of e-commerce and microblogging. Tencent has also had to deal with intellectual property issues.
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Conflicts and competition

While it is true that Tencent has redefined the landscape of social media[+] NoteSocial media is: “A group of online application which are based on the philosophy and the technology of Web 2.0 and enable the creation and exchange of user-generated content.” Andreas Kaplan and Michael Haenlein.X [11] in China, similarly to the way Facebook shapes them in the rest of the world, the company is not exempt from competition and has also been linked to intellectual property rights litigations.

Le paysage numérique chinois et ses différents acteurs
The chinese internet landscape and the different players / Resonance China

Because the services, products and software offered by Tencent are numerous, the company’s competitors are also numerous. Tencent doesn’t hold the majority of market share in all the fields in which the company provides services. Its main competitors are:

  • Weibo: Tencent Weibo is having difficulties facing and overcoming competitor Weibo (微博, Sina’s microblog service). According to a recent study, 14% of China’s netizens have a registered user account on a microblog service, 54% of whom have chosen Weibo, while only 21% have chosen Tencent Weibo.

Graphic extract from the site Resonance China which offers infographics from social media websites in China
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Development stymied by intellectual property mismanagement

From its beginnings, the company has faced intellectual property problems. Tencent’s flagship product, QQ IM, was initially a mere copy of ICQ, a popular instant messaging service. In 1998, Tencent launched OICQ, an imitation of ICQ. Quickly, Tencent was informed that the use of the name OICQ was in breach of ICQ’s intellectual property rights. In 2000, ICQ was bought by AOL and claims on the domain name were made. AOL won the case against Tencent and OICQ was taken off the market. Ironically, ten years later, when AOL was selling ICQ, Tencent was amongst the last three “bidders”.
In 2006, the growing popularity of Q Coins[+] NoteOne Q Coin can be bought for one RMB online or at kiosks.X , Tencent’s virtual currency, allowing netizens to buy paying add-ons for avatars and blogs, raised the antenna of China’s Central Banking authorities. A lot of websites that were not affiliated to Tencent began to accept Q Coins as an online currency. Q Coins could even be exchanged for real money, as online shops where one could buy Q Coins started sprouting on the web, which had a negative impact on the exchange rate of the RMB. In February 2007, following an allegation that a growing number of netizens were using Q Coins as real money, the People’s Bank of China and 14 Ministers who concerned about the extent of the phenomenon asked companies to stop the commerce of Q Coins. Tencent was thus forced to diminish the maximum amount of transferable money via Q Coins.
In October 2010, another notable conflict of interest opposed Tencent and a Chinese software company. Tencent suddenly announced that its instant messaging software, QQ IM, would stop working on computers that had the security software 360. The main reason behind this initiative was that Tencent was trying to “force” its 500 million registered users to use its own security software (QQ Doctor), which had functions similar to 360. In retaliation, 360 updated its security software, and QQ IM’s main functions stopped working on updated computers. Netizens were left with only two options: QQ or 360. This dispute millions of netizens with a sour taste in their mouths; a clear drop can be seen in the use of QQ IM during the second quarter of 2010. Li Yizhong, the Minister for Industry and Information Technology criticized both companies for the negative effect that their dispute had on Chinese netizens. Both had to present public excuses.
One of the most recurring criticisms made against Tencent is its lack of originality, creativity (poor design, etc.) and above all, its omnipresence on the Chinese market. Chinese magazine Computer World (计算机世界) published a special issue on Tencent entitled “F****ing Tencent” in which the company’s various flaws are laid out.
However harsh the criticism, Tencent is still dominating the Chinese market, and is thus an important part of China’s newly effective “soft power” strategy.

Computer World
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Soft Power, Pop Culture, Globalization: Tencent’s position on Chinese and global markets

In 2008, an international version of QQ IM was launched, called IMQQ, and available in six languages: English, French, German, Korean, Japanese and Spanish. Tencent also launched a series of international partnerships with Asian companies such as ibibo.com, in India (of which Tencent bought 50% of the shares, and VinaGames, a Vietnamese online gaming company.
QQ’s mascot, the red-scarfed penguin, is part of daily life in China, and can be seen virtually everywhere: on stickers, notebooks, processed foods, stuffed animals and even cars! Printing your QQ IM number on your business card is also very common – QQ IM is at the very basis of corporate communication and business life in China.  
For the 2011 Chinese New Year, in February, Tencent released a video that gained instant attention from Chinese communities in China and overseas on Youku, a popular video sharing website. QQ IM is represented as a link between Chinese families and their children studying abroad. This marketing operation was mainly aimed at regaining Tencent’s lost popularity in the wake of the dispute that opposed the company to 360 during the fall of 2010. The video went viral, with 450,000 views in 2 days.

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Tencent is one of China’s most unique ICT companies. In just a dozen years, it has managed to conquer the domestic and international markets by positioning itself on many fronts: instant messaging, security software, games, blogs, web search engines, and more. Tencent has managed to set up an original and inimitable model. The interconnectivity of the different software and services enables the company to have access to a large base of users who are free to register on the numerous services offered by the company. Bo Hong, one of China’s most popular bloggers, considers that “If Facebook is the world’s social graph, then QQ is China’s social graph”. :  "If Facebook is the world's social graph, then QQ is China's social graph." 

Photo credits :
- Illustration of the article : image extract from a calendar published by Tencent, 刘云天 / Flickr ;
- Home page in English for Tencent.com ;
- Tencent Weibo logo;   
- Front page of Computer World (计算机世界) ;
-Search engine Soso's logo displayed during the Duanwu Festival.
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  • 1. Instant messaging or online chat enables the exchange of instant messages between several users (connected to the Internet).
  • 2. Mobile network on which web-surfing is enabled.
  • 3.
  • 4. Similar to Tux, Linux's mascot penguin.
  • 5.
  • 6. “Active user accounts are defined as those who have logged onto the network at least once during the last 30 days.”
  • 7. This festival marks the beginning of summer 端午节June 6, 2011.
  • 8. eA microblog is the concise verion of a blog on which users can publish 140-characters long messages. Microblogs are halfway between blogs and instant messaging service. X
  • 9. This number is to be put back into perspective, see above.
  • 10. A smartphone is a mobile phone which has the following functions: web browsing, email, instant messaging services, GPS, agenda, calendar and other downloadable apps.
  • 11. Social media is: “A group of online application which are based on the philosophy and the technology of Web 2.0 and enable the creation and exchange of user-generated content.” Andreas Kaplan and Michael Haenlein.
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