Liz Gannes

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How Tencent Became a $100B Company With a Portfolio of Apps

Tencent’s market cap passed $100 billion a few weeks ago. That didn’t happen overnight. The Chinese Internet giant has methodically leapt from online era to era since being founded in 1998, according to company president Martin Lau.

Tencent President Martin Lau

Tencent President Martin Lau

For instance, a few years ago, Tencent completely reorganized around what was coming next — moving more than half of its 20,000 employees to focus on mobile, Lau said today at the China 2.0 conference at Stanford University.

One of the main results of that effort was the mobile messaging product Weixin. It worked. Weixin had 236 million monthly active users as of this summer, Lau said.

But Weixin is part of a larger library of products: QQ instant messenger has 818 million monthly active users, Tencent mail has 274 million, and Tencent Weibo microblogging has 220 monthly active users.

“A lot of people say, ‘You have a hodgepodge of different services, so what is the core?’” Lau said. “The core, I would say, is the comprehensive social infrastructure. At core, we are a social company.”

Sure, it might be more convenient for Tencent to have one service to rule them all, Lau admitted. But the portfolio of products emerged over the years, rather than arriving as a fully formed unit. “All these services came at a different time,” he said. “[Tencent's social network] Qzone came when asynchronous chat became possible. Weixin came when we saw a big wave of mobile Internet coming.”

At this point, it would be technically difficult to combine everything and make it all compatible, Lau said — but Tencent does try to provide a common ID system and a common monetization back end.

Tencent had $4.5 billion in revenue in the first half of 2013. Where did it come from? Not advertising, like U.S.-based social networks. Only nine percent of Tencent revenue is based on ads. Seventy percent of revenue comes from user payments, for example for virtual goods, including 53 percent from games. And the rest comes from commerce, Lau said.

Focusing on mobile hasn’t paid off yet in revenue, Lau admitted. He cited growth in mobile advertising from Facebook and Twitter, but said that was less applicable for Tencent properties. Lau said he expects that eventually “the real value is the connection of the phone with businesses offline.”

To that end, Tencent has a very active platform for outside developers, with 400,000 registered apps and $500,000 worth of revenue shared with partners so far, Lau said. Many of those are game developers, but they also include Chinese equivalents of Uber, which are shaking up the local taxi industry, and are built within Weixin.

What’s next for Tencent is international expansion, and it’s clear that the company is still figuring out how to do that, through a combination of investments and partnerships (mostly in games, but also in things like and its own product development.

For instance, Tencent built an international version of the Weixin mobile messaging app called WeChat, with slightly different code. Lau said WeChat has 100 million registered accounts. (We should flag that this is different from the other stats, as it’s not active users.)

How will Tencent break into the U.S.? That question seemed to flummox Lau a bit. It’s clearly a pressing challenge, with no obvious answer. “U.S. is a very tough market, U.S. is about the toughest,” Lau said. “It’s the source of innovation in the Internet industry. You have your free SMS which takes away the cost appeal of microchat. You have iMessage … We will try to find ways to provide differentiated services.”

For now, Lau said, WeChat is seeing great traction in Southeast Asia.

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Another gadget you don’t really need. Will not work once you get it home. New model out in 4 weeks. Battery life is too short to be of any use.

— From the fact sheet for a fake product entitled Useless Plasticbox 1.2 (an actual empty plastic box) placed in L.A.-area Best Buy stores by an artist called Plastic Jesus