The Secret Chinese Company That Owns Everything

If you look at the world’s most valuable companies, you won’t be surprised to find the likes of Apple, Microsoft, and Google. But one name does stand out: Tencent. The company is worth more than the likes of Facebook, Mastercard, and Samsung, and yet if you asked the majority of people what Tencent does, you’d be met with a confused look.

The truth, is that Tencent does everything. Because whilst Tecent’s mascot is a friendly-looking penguin - a more accurate animal to embody this conglomerate would be a giant octopus, with tentacles reaching into almost every industry you can think of, all over the world. In most places, Tencent operates from the shadows, hence why it’s not a household name. But whether you realize it or not, you almost certainly use products or services Tencent is involved with.

However in Tencent’s home country of China, it’s a very different story; everyone is aware that Tencent dominates their lives. And that’s because in China, Tencent has achieved the seemingly impossible: one app to rule them all. You see, Tencent created an app called WeChat that's been dubbed ‘the everything app’ or ‘the operating system of China’, and that’s because almost all of China’s 1.4 billion population use this app for an average of 4 hours every day. That's more than the average American user spends on all social media apps combined. And the reason people in China use WeChat so much is because it’s basically every app you can think of rolled into one. Its essentially Facebook, PayPal, Whatsapp, Netflix, Google, Spotify, Uber, Yelp, Tinder, Zoom, YouTube, Deliveroo, Amazon and lots lots more all in one single app.

Now there’s no doubt this is extremely convenient. Everything connected in one app, and one profile. You pay your bills through it, call your friends through it, and essentially live your entire life through it. However one single company having access to literally all your data - every aspect of your life - from your exact location to your entire bank history to every message and call and search you’ve ever made - it’s a lot. And then it gets worse when you realize that the line between where Tencent ends and the Chinese government begins, is blurry. Meaning, the Chinese Communist Party, known as the CCP, has access to all that information as well, making WeChat one of the most powerful surveillance tools ever created.

Not just that, but private messages and images that are sent through Tencent’s apps like WeChat are scanned to see if they need to be censored - if you say anything the Chinese government doesn’t want you to, the best case scenario is your message just doesn’t get delivered. Worst case scenario is you end up in jail, or simply disappear. For example, one citizen literally just made a lighthearted joke to some friends about a government official, and soon found himself jailed for a text. And it almost seems like the CCP wants people to be aware of this in order to prevent them even trying to say anything they don’t like in the first place - because the Chinese government has even openly confirmed that it can access deleted WeChat conversations as well, without permission from the user or courts.

Now of course, as we know from Snowden’s leaks, countries surveilling their citizens with technology is certainly not just something that happens in China. However, China has definitely taken it to new levels. Amnesty International is an organization focused on human rights, and carried out a report of how messaging apps handle their data. And they concluded the worst offender by far was Tencent, the only company to literally score 0 out of 100 for its treatment of data. This is because of massive problems about transparency and what they do with data, where it ends up, and not even denying that it gives the CCP a backdoor to access all encrypted messages.

Now of course, pretty much all Chinese companies have to have some ties to the CCP in order to be allowed to succeed. But Tencent is unique because it has been allowed to monopolize entire industries in China, and use brutal tactics to wipe out competitors without any interference from regulators. But in exchange for that freedom, some would say as a result they’ve been turned into a weapon for the Chinese government. It’s estimated the CCP has thousands of members inside Tencent, including party officials on the Tencent executive board who can influence decisions. For example, during the initial Covid outbreak, the Chinese government used WeChat for population control, assigning colour codes to determine whether people were healthy and what they were eligible for, like if they were allowed to leave their homes or not. Another example is ordering Tencent to change their games to conform to communist party values, as well as making Tencent add facial recognition to their games so kids can only play them for a max of 90 minutes per day.

But before you think this doesn’t affect you, think again. You see, once Tencent built their monopoly in China, they began expanding abroad, and essentially went on one of the biggest shopping sprees in history. They’ve invested heavily in companies like Reddit, Tesla, Discord, Spotify, Snapchat and Universal Music. And those are just a couple of the many hundreds of companies outside of China that Tencent are now involved with. They are also the largest gaming company in the world - with revenue significantly higher than any competitor. This is particularly crazy when you consider that gaming is just one of countless different industries Tencent operates in, and yet their gaming division alone is bigger than the entire company of Nintendo or Sony. And the reason Tencent is so dominant in gaming is because they own 100% of Riot games, creator of league of legends, 40% of epic games, creator of fortnite, not to mention stakes in Ubisoft, Activision Blizzard, and so many more of the world’s most popular games. The same is true in other industries - for example Tencent’s Payments division is nearly as big as PayPal’s entire business. And its reported WeChatPay generates over 1 billion payment transactions per day - more than Visa and Mastercard combined. They’ve also got Tencent Music, they’re huge in e-sports, and are even now involved in making Hollywood movies like Men In Black.

In other words, it’s hard to fully grasp just how large Tencent is. But it’s only recently that the West has started to realise the influence Tencent - and thus China - actually have. One small example was how Blizzard, the World of Warcraft studio partially owned by Tencent, banned a gamer who endorsed the pro-democracy movement in Hong Kong. In other words, China seemed to be using Tencent as a weapon to influence decisions outside of China. This caused many people to ask: how is this one Chinese company seemingly now dictating what people in the US are allowed to say? The same was true with the NBA - you see, Tencent Video has a deal with the NBA to stream their matches, but in 2019 Daryl Morey, manager of the Houston rockets, tweeted: Fight for freedom. Stand with Hong Kong. In response, Tencent said they would not be streaming any Rockets matches in future. So soon after this, the manager was forced to delete his support for Hong Kong, backtrack on his stance, and apologized for his ‘inappropriate tweet’. Players then came out stating that they love China. So whilst in recent years some have started to wonder if China could use Tencent to influence things abroad, the answer seems to be that they already are. Multiple governments, from the US to India, have now called WeChat a “security threat.” - and others have suggested its a “a monitoring weapon in your pocket.”

But what’s perhaps most fascinating about Tencent’s story is that you can look at it in two ways: On one hand, Tencent is one of the greatest business success stories ever - at one point the company had only $1000 in its bank account, and so the journey of how a group of friends turned their struggling start-up into one of the world’s largest companies is remarkable and filled with useful lessons and genius business strategies. What they have achieved is ridiculously impressive, and there is definitely an argument that Tencent has been unfairly caught in the middle of a political storm that they didn’t want any part of.

But on the other hand, Tencent is often surrounded by controversy; this includes their brutal monopolistic practices to crush any competition, their blatant plagiarism of just ripping off other companies and apps, their extreme censorship and violations of privacy and freedom of speech, accusations of poor working conditions, and the fact multiple countries now see it as a national security risk because of its close ties to the Chinese government. But I do want to be clear: to just dismiss Tencent as a puppet of the CCP is unfair - in fact right now, the Chinese government is actively hurting Tencent’s business, and is responsible for wiping hundreds of billions of dollars off Tencent’s valuation. Which of course just raises even more questions: why would the CCP be damaging one of its most useful assets?

As you can see, the Tencent story has a lot of different pieces to it. There is both good and bad. And several plot twists along the way. Honestly, I’ve covered lots of different business stories, but Tencent is one of the most fascinating. In this video, we’re going on a journey through Tencent’s insane history to find out the truth behind this gigantic business empire. A company that influences so much, and yet is so rarely discussed. How did they get here? What are they planning next? And what does it mean for all of us? So buckle up, because I assure you: the story of Tencent is going to be a wild ride.

If you walked past Elon Musk, Jeff Bezos or Mark Zuckerberg, I’m pretty sure you’d notice. But when it comes to Tencent’s founder and CEO, despite running such a gigantic influential corporation, it’s quite likely you’ve never even seen him before. He goes by the name of Pony Ma in English - however this is his actual Chinese name, but since in English his surname translates to horse, he goes by the name Pony as a bit of a joke. The fact we don’t usually hear much about Pony Ma, or know much of his story, is mostly by design. Tencent tries to walk the tightrope of keeping both China and the rest of the world happy - and since that’s very difficult to balance, he opts to not speak out publicly much at all. It’s better to just say nothing rather than cause controversy and headlines. The other reason we know so little about Pony, is that unlike his arch-nemesis Jack Ma - the founder of China’s other dominant company, Alibaba - Pony is introverted and simply doesn’t like being in the spotlight.

And this has always been the case - growing up, Pony Ma was a quiet kid who mostly went unnoticed throughout his school years. The only time he did get much attention was when he hacked into his university’s computers, and got a reputation as a great coder. In fact, for his university thesis he created a software program that could help forecast stock price movements - and this software was so useful that at age 22 he sold the programme to the company he was interning at, for a price of about three times his annual salary. By the time Pony graduated from college, the internet was in its very early stages - and whilst of course it was very primitive back then, Pony was excited by its potential, and began thinking of business ideas to try and capitalize on this exciting new internet technology.

However, although Pony was undeniably a very talented and hard-working programmer, the beginning of his future business empire did not come from some revolutionary idea that Pony himself created. You see it’s time for the first uncomfortable truth about Tencent: the business was started by just ripping off someone else’s idea. And as we’ll soon see, that has remained a fundamental part of Tencent’s business strategy ever since. But it all began when one day Pony was browsing online, and stumbled across something called ICQ, an internet chat platform that at the time was pretty groundbreaking. It was basically the first mass adopted instant messaging system on the internet, letting any two people online have a private conversation in real-time. So in 1998 Pony and his Tencent co-founders, which was 3 of his friends from school, launched their own duplicate chat service that was more catered to the Chinese market. Now admittedly it was a common practice in China to just clone popular Western services - for example Baidu copied Google, Alibaba copied eBay, Weibo copied Twitter, and so Tencent copied ICQ. But just to demonstrate how much of a rip-off Tencent’s chat product was of ICQ, they literally called their service OICQ. So they just added the letter O to the name.

Initially though, Tencent’s future looked bleak. They got the cheapest office they could, in a chaotic and loud neighborhood full of street vendors peddling knockoff electronics. They were crammed into a tiny room, which bizarrely had a disco ball hanging from the ceiling. To be fair though, once Tencent had setup their internet chat service, OICQ, they did a great job of tailoring it more towards the Chinese market. One simple example of this is that because download speeds in China were so slow in the 90’s, it would take ages for people to download most chat programmes, whereas Tencent made sure their chat software had a much smaller file size so downloaded much faster. Also unlike other chat software where you could only message people you already knew, Pony made it so that on OICQ strangers could connect if they wanted to as well, thus laying the early foundations of it becoming a social network.

At first though, the problem was that very few people even knew OICQ existed. Pony himself later admitted: ‘When users first came, nobody was in the chat room. I had to keep them company and talk with them. Sometimes I had to change my profile picture and pretend to be a girl.’ So you had the CEO talking to random people in the chat, hoping they’d like the service enough to keep using it. Now to be fair, this was actually more of a side project for Tencent in the early days - Pony initially spent more of his time trying to work on a software that connected pagers, or beepers as they were also known, to the internet. Unfortunately that idea was going nowhere, and so Pony was relieved when one evening he logged onto their chat app and saw a spike in users. 2 months in they’d hit 500 users, and from that point, the user number began to rise faster and faster each month as people in China shared OICQ with their friends and family. Before long, the chat app was growing so fast that it became Tencent’s only focus. They ditched the pager idea completely and went all in on OCIQ.

Thousands of users were now joining every day, and so you’d think Pony would’ve been thrilled. But in reality, he was more stressed than ever. That’s because there were 3 major issues: Number 1: Servers in China were expensive at the time, and they kept having to buy more. Which was particularly problematic because of Issue number 2: Tencent wasn’t making any money. OICQ was taking off like a rocket but it wasn’t monetized - and so they were actually just losing money the more people used it. But then worst of all issue number 3 - one day in 1999, about 9 months after starting OICQ, Pony received a thick envelope in the mail from America. It was a letter from the lawyers of AOL, a big American company who owned the original ICQ chat software that Tencent had copied. It said that they were suing Tencent for violating intellectual property laws, and demanded Tencent stop using the name OICQ immediately.

By this point, OICQ had hit 1 million users and was growing rapidly, but Tencent didn’t have the money for a lawsuit. They barely had any money at all. In fact, most of the small Tencent team were doing freelance work on the side to try and raise enough money to pay the rising server costs. They were all working crazy hours and getting very stressed out, so eventually Pony decided to try and sell the company. Unsurprisingly though, given the lack of revenue and legal issues, nobody wanted to buy it. People just kept saying they didn’t see how it would make enough money to be sustainable.

But then Pony learned about the concept of venture capital; investors who were looking for companies that weren’t necessarily profitable yet, but had huge future potential. As soon as Pony learned about this concept, he immediately began contacting VC firms, and managed to get a meeting with China’s most well known venture capital fund, called IDG Capital. In the pitch, Pony used an unusual tactic; brutal honesty. He told IDG “if you don’t fund us right now, Tencent will probably die. And even if you do give us the money, the future is still uncertain”. Pony also admitted they weren’t fully sure how they would even monetize their chat software, but what he did know is that millions of Chinese people liked using it, and that there could be real value there.

Now you’d think this would be pretty underwhelming to investors, but surprisingly IDG capital agreed to invest in Tencent. Years later, one of IDG’s decision makers said that Pony’s total honesty, rather than the typical overconfidence and false promises that founders often make, is actually what made him think Pony was a really down to earth guy who could be trusted, which encouraged them to invest. So IDG Capital, along with another VC firm, together invested $2.2 million dollars for 40% of Tencent’s business. It’s not an exaggeration to say that if the deal had not gone through right then, Tencent probably wouldn’t exist today. Not only were they nearly out of money, but the dot com bubble burst in 2000, and investment in cash-burning internet businesses all but dried up. Luckily for Tencent though, they’d got the money just in time, and so could continue operating.

There was still the lawsuit threat from AOL to deal with though, and so Pony was forced to shut down the OICQ domain names and rebrand their chat app as something else. Eventually, Pony decided to re-name it as simply QQ. So, their legal trouble was sorted, they had enough investment to carry on running, and their user number continued to grow at an insane rate. After hitting a million users in year 1, they reached 50 million in year 2, as more and more people in China shared the software with other people so they could chat. Tencent had perfectly adapted the original ICQ chat to fit Chinese consumers better.

Now just one issue remained: making money. Whilst you’d think having lots of users would make monetization easy, back in the early 2000’s on the internet in China, it actually wasn’t. Pony tried multiple monetization strategies - including placing banner ads on QQ, selling QQ’s chat software to companies, and charging a small membership fee to use the software. All of these failed, and in fact the membership fee in particular backfired horribly; people in China hated the idea of paying a fee to use any internet service, and so this allowed some competitors to gain market share from Tencent. On QQ’s third birthday in 2003, Pony scrapped the subscription fee and made QQ completely free again. But of course, they had to make money somehow.

Luckily, it was around this time that some Tencent employees had discovered a Korean website called SayClub.com, which allowed people to create personalized avatars with customizable appearances and clothing. It seemed really popular in Korea, so Tencent decided to once again copy a popular feature from elsewhere, and launch their own avatar feature inside QQ called QQ Show, thus giving Chinese citizens a way to express themselves by having their own unique character to represent their profile. For a very small fee, you could buy designer clothes, accessories and styles for your character. Whilst buying things for your avatar was cheap, equivalent to just a few cents, it cost Tencent nothing, and those micro-transactions added up fast. This feature quickly became very popular, especially amongst younger users. Your avatar became a signal of your status. And the feature worked particularly well because many people had started using QQ as a dating app, adding strangers randomly and chatting with them - and so the avatar function was a way to express some personality, and in some cases establish themselves as being rich by purchasing the most expensive avatar items.

Finally, Pony could relax a little. Tencent’s chat software QQ was now making money by selling these virtual items, and they soon crossed 100 million users in China. Pony even met his future wife through QQ - for three months he was chatting with a girl on there before they met in person. Funnily enough when they first started chatting on QQ she had no idea she was speaking to the founder of the service. She reportedly messaged him asking ‘who are you?’ and he wrote back ‘I’m penguin dad’ - a reference to the fact that Tecent’s mascot was a penguin. But she replied ‘Then I’m penguin mom’ Their relationship began from there, and 6 months after meeting in person they were married. Unfortunately for Pony, that happiness would be short lived, as little did he realize his company was about to go to war. And their opponent was a hundred-billion dollar corporation called Microsoft.

In 2004, a chat service called MSN entered the Chinese market, as a direct competitor to Tencent’s QQ. MSN was run by Microsoft, which was terrifying for Tencent, as Microsoft had such vast wealth and resources. And Microsoft had decided to double down on its efforts in China, given it was such a massive market. And since their chat service was much more professional and streamlined than QQ, MSN quickly attracted businesses and students. QQ seemed more like a casual chat application, but less of a serious communication tool. On the other hand, MSN was becoming more widely used in offices in China, and thus was quickly eating into QQ’s market share.

Tencent really just had one big advantage over Microsoft though: MSN’s decision making was much slower because of their bureaucratic corporate hierarchy, where every big decision had to be signed off by their American headquarters. For example, it was actually MSN’s China team who suggested the idea that users should be able to still receive messages even while offline, and be able to see them when they came back. But the suggestion never went anywhere. Meanwhile Tencent managed to incorporate the same feature in just a couple of weeks, and it proved to be hugely popular. And so even though Tencent had grown into a fairly big company by this point, they still acted more like a scrappy startup. This often meant their apps were a bit buggy and had some issues, but they were able to launch new features really fast, get real-time feedback, and just fix issues along the way with very regular updates. Another issue for Microsoft’s MSN chat was that initially they kept all their data back on US servers, which meant Tencent’s QQ chat service that ran on local Chinese servers was much faster to use. But the biggest mistake for MSN was that they later incorporated their MSN chat into their platform MSN Live, and this just confused users, as now to use the chat they had to go to a website instead and it was just unnecessary extra steps.

Ultimately, despite having greater resources, MSN lost the fight to Tencent. In truth, China hadn’t been a main priority of theirs - Microsoft had bigger battles going on elsewhere like with Google in the US. Whereas Tencent at the time had just one focus, which had allowed them to go all in. But this victory over Microsoft was a critical turning point for Tencent, as after defeating a much bigger competitor, they went on to completely dominate the chat market in China, passing half a billion users in late 2005. And it was this dominance that would be the springboard for all of Pony’s other plans. You see, Pony had a vision of being much more than just a popular chat platform, but instead a whole network of integrated internet services, as that would make it harder for anyone else in future to try and compete with them. And so Tencent began adding several other features into QQ; like the ability to access news.

After seeing how quickly Tencent was growing, a South African company called Naspers had decided to invest $32 million dollars in Tencent and became their largest shareholder. In fact they still are to this day, meaning Naspers got one of the highest investment returns ever. But back when they first invested in Tencent, this gave Pony the influx of cash he needed to begin the next stage of his plan. And this is where things start to get crazy. Tencent had realized that a lot of people used QQ whilst playing games, as people would chat to their friends whilst they were all playing. So Tencent decided the next logical place for them to expand was into both acquiring and building games of their own. Since they already had such an active user base, within just a year of integrating games into QQ, Tencent had added another $50 million dollars in annual revenue.

Now, Tencent’s quick expansion into the gaming market was aided massively by the fact they were a Chinese company. As you may know, the internet in China is restricted by the great firewall, which stops people within China accessing many websites the Chinese government don’t want them to - including the likes of Facebook and YouTube. And that’s largely because it wants to censor what its citizens can see, but also because it wants to promote local Chinese companies instead. And as a result, in many industries China has a policy where foreign companies have to partner with a local Chinese company to be able to sell their products or services in China, and so this meant Tencent could simply team up with makers of successful games in other countries and then adapt and distribute their game to the Chinese market. These licensing deals allowed Tencent to make a lot of money quickly without even having to produce any games themselves. They could just partner with makers of popular games in other countries, bring their game to the Chinese market, and promote them to their massive QQ userbase. Since international companies were reliant on finding a Chinese partner if they wanted to enter the Chinese market, Tencent knew they had a lot of leverage, and an unfair advantage in negotiations. If game makers wanted to bring their game to China’s gigantic population, they needed a Chinese partner, and who better than Tencent given their huge userbase? One example of Tencent’s power is illustrated by an anecdote from the American video game developer Zynga, when they were trying to agree a deal with Tencent. An ex-Zynga employee said: “Negotiations go on for months and months, and then by the time you get to the redline stage in the contract, all of a sudden at the last minute, they change everything. It’s a business tactic they use to wear down their partner.”

But as well as licensing games for the Chinese market, Tencent did make some of their own games too - normally by just replicating fairly simple games that were working well elsewhere; for example QQ Speed was very heavily inspired from Mario Kart. This of course was even more lucrative than licensing as it meant they kept all the money for themselves. And it was low risk as they were using game concepts that were already proven to work well abroad, and just making their own version of it for China. However, since China had a major lack of digital piracy enforcement, Tencent realized if people weren’t paying for games upfront and were just sharing them for free, why not make the games free for everyone, and make money through in-game sales instead - like paying for extra lives, features, and upgrades. Nowadays of course microtransactions within games are extremely normal, but Tencent were definitely one of the first to push this so heavily. And it worked - Tecent’s revenue continued to rise.

With monetization now going so well, Tencent IPO'd in 2004 on the Hong Kong stock market, which provided them a war chest for Tencent to invest heavily in more expansion and growth. However, that growth would only be possible thanks to Tencent’s culture. Now, most Chinese tech companies are notorious for their long work hours; the schedule is often referred to as the 996 schedule; meaning you work 9am to 9pm 6 days a week. And certainly at Tencent the culture was very demanding, with internal meetings often going on past midnight. But Tencent also had a strict hiring process, as Pony believed that five A-players were better than a team of fifty who weren’t fully committed, as even one person lowering the standards and not working hard, can reduce team morale and drag down everyone else to their level. Not just that, but one of the key culture decisions Pony made after their battle with Microsoft, was to ensure that almost everyone in the business had freedom to pitch new ideas and work on new projects. So rather than having a specific research and development division, everyone was expected to innovate. As a result, the whole of Tencent’s workforce were actively monitoring the market for new apps and ideas they could essentially rip off and incorporate into QQ. Even Pony himself said in an interview at the time: ‘I don’t blindly innovate. The smartest approach is to learn from the best examples and then try to surpass them.’ Pony pointed out that this is exactly what American tech giants like Microsoft and Google did as well. But in China it really was the wild west where anyone could just blatantly copy anyone else with no protection. And to be fair, this wasn’t one way; whilst Tencent copied others, others copied Tencent as well. But because Tencent’s QQ software gave them access to hundreds of millions of Chinese users, it meant they could then divert that attention to the new features they launched, giving them a huge advantage. Before long, Tencent had a notorious reputation as a killer copycat.

And Tencent’s reputation took an even bigger hit after a battle with a security company called Qihoo, that offered a popular antivirus software called 360 Safeguard… Tencent had decided they wanted to get into the security market as well so they’d created their own very similar version of Qihoo’s security software, called QQ Doctor, and because they could simply integrate it into the already very-popular QQ software, they almost immediately gained a 40% market share in China. So, Qihoo decided to fight back by launching a big media campaign accusing Tencent of spying on its users, saying Tencent accessed user data and files on people’s devices it didn’t have permission to. Tencent sued Qihoo as a result, but in the court of public opinion this backfired, as it looked like a bigger company just trying to silence a smaller company with legal threats, rather than actually trying to demonstrate their innocence. And then Tencent made an extremely bold move: they informed users that Qihoo’s software was not compatible with QQ. Meaning users had to choose: either keep Qihoo’s security software, or keep their beloved chat app that connects them to all their friends and family. You couldn’t use both. If QQ detected Qihoo 360 safeguard on your system, QQ stopped working. But Tencent’s gamble paid off. Tencent knew that ultimately, most users were too connected to QQ to abandon it. So Qihoo were mostly the ones who lost users instead. People just switched to QQ’s antivirus software which was very similar anyway. It was yet another victory for Tencent, and proof of how easily they could launch a new internet service, and almost immediately become the market leader. In the media, headlines such as ”Tencent Empire Out of Control” started to appear, as this was clearly monopolistic to essentially ban your users from using a competitor’s product. But interestingly the Chinese government showed no interest in intervening; they seemed quite happy to sit back and let Tencent grow. Only later would it become clear why. But with no regulations or laws to stop them, Between 2005 and 2010, Tencent’s revenue went from $200 million dollars to $2.9 billion dollars.

However as Tencent continued their expansion in China, opening up more internet services and then leveraging QQ’s massive userbase to make them popular, eventually they realised a new strategy might be needed. For a while Tencent had simply been trying to work on everything, competing in loads of different sectors, and making clones of all different internet services and just seeing what worked. Basically, they tried to compete everywhere, rather than playing to their own strengths. And really, Tecnent’s biggest strength was in leveraging its QQ chat platform with hundreds of millions of users, to direct traffic to other places, like they’d done with news and gaming. So as their copycat reputation got worse, one Tencent executive said: ‘There’s a lot of great entrepreneurs outside, and if you turn every single one of them into your enemy, it’s not a good thing. As a company you can’t actually hire these entrepreneurs, so what are you going to do? Investment is actually the best way to get a piece of their action.’

Thus, Tencent began shifting its strategy towards investing in Chinese companies instead of always trying to directly compete against them and crush them. For example, Tencent paid $448 million dollars for 36.5 percent of China’s third largest search engine, and merged their own search product into that, rather than competing. Tencent was now willing to back a champion rather than do everything itself. Essentially, Tencent’s new strategy was almost to become a start-up incubator. It would invest in businesses and take some of their equity, and then build an ecosystem of connected companies that it could help grow using its existing userbase and infrastructure. Another example was when Tencent combined with China’s second-largest online retailer, JD.com. Tencent had no real expertise in e-commerce themselves, and so they figured it made sense to just back one of the most prominent companies in the industry in exchange for equity, and then leverage their own internet traffic, experience and capital to help the company they backed succeed. As a result, Tencent became a kingmaker - as support from Tencent could help ensure a company was successful. And from Tencent’s perspective, it meant they massively reduced operational complexity as they weren’t doing literally everything themselves any more. Before long, Tencent was one of China’s biggest investment companies. And QQ was now much more than a chat software - it was a portal to many other internet services that Tencent had either created or invested in. And thus, QQ seemed unstoppable.

But interestingly, the one app that would eventually surpass QQ, was also created by Tencent. Tencent had already succeeded with QQ’s desktop chat app, which had now evolved into a website portal with online games and other internet services. But in 2010, mobile internet was beginning to rise in popularity very quickly; many Chinese people began using a smartphone, but not a computer. Pony was paranoid that with the switch to mobile happening, a new startup could displace their dominance. So he decided Tencent needed to create this new startup themselves. Internally within Tencent, Pony created three separate teams to work on a new mobile messaging app, meaning they were competing against each other, and also competing against Tencent’s desktop app QQ. This practice of teams internally competing at Tencent is normal. In fact, the culture of Tencent has been described as a “shark womb”, referencing how some unborn sharks cannibalize siblings in the womb to ensure their own survival. So basically rather than put all their eggs in one basket, multiple teams at Tencent work on a concept, like a new mobile chat app in this case, and the best survives. Or as Pony himself has said: ‘You either wait for someone else to kill you, or you do it yourself first’.

So Tencent began work on their mobile chat app that they wanted to essentially be a clone of Whatsapp and Kik; a free mobile chat app where people could send messages to their contacts using wifi or mobile data. Interestingly Tencent had actually tried to buy Whatsapp for 10 billion dollars rather than starting a new app from scratch, but because Pony Ma had to have back surgery the discussions got delayed. In that time Mark Zuckerberg swooped in and bought Whatsapp for $19 billion. And some think the possibility of Tencent buying Whatsapp prompted Zuckerberg to close the deal so quickly. Either way, after the whatsapp deal fell through Tencent decided to pursue their own chat apps instead, and in January 2011 they launched WeChat - although in China it has the name Weixin.

Unlike QQ which had been developed for desktops, WeChat was specifically made for mobile. Despite this, the app was not a massive hit right away. But it did start to gain traction in China when Tencent added a feature called ‘push-to-talk’, which allowed people to easily record a voice note, and it would convert what you say into a text message. This was immediately a very popular feature… but once again, it was copied from someone else - an app called TalkBox. You see at first Tencent had offered to buy TalkBox, but whilst negotiations were ongoing, Tencent just replicated Talbox’s app within WeChat by themselves, and inevitably beat TalkBox with their superior resources. In later years, companies in China would learn that an offer from Tencent was actually an offer you couldn’t refuse - you either lose your company by selling to them, or lose your company by them copying and crushing you. At least if you sell your company, you make some money. When Pony was asked about this at a conference in China, he said “In America, when you bring an idea to market you usually have several months before competition pops up, allowing you to capture significant market share, In China, you can have hundreds of competitors within the first hours of going live. Ideas are not important in China–execution is.”

So, WeChat was now gaining momentum in China - and just like with QQ, Tencent did not want to keep it as just a chat application. In fact, because WeChat was a mobile app that people would always have with them wherever they were, Pony quickly realized that the amount of services they could connect to WeChat was seemingly limitless. For example, within WeChat’s app, Tencent introduced a feature called Moments - basically their version of Facebook or Instagram, a real-time social media feed of posts, images and articles. Following the success of this, they added a blogging service called Public Accounts so people could write articles which could then be shared on Moments. There was also Official Accounts, allowing publishers to distribute content and businesses to distribute products and services. By 2012, WeChat had 100 million users. Remember it only launched in 2011. Thus making it the fastest social media growth in history, taking only 433 days to hit 100 million users. For context, it took Facebook around 5 years. A year later in 2013, WeChat was at 300 million users.

But the key to WeChat’s eventual dominance in China was that Tencent just kept bundling more features in this same app. For example, they added quirky features like ‘Drift Bottle’, which was a service within WeChat to help people find new friends or dates. You essentially put either a voice or text message in a virtual bottle, throw it into a virtual sea, and then another random user picks it up and decides whether to reply to your message, or throw it back for someone else to get. This actually became a really popular feature, with many Chinese people making genuine friendships and relationships through it. And for some people, it became a hook-up app. Tencent also created ‘Friends nearby’ for a similar purpose, which was like an early version of Tinder, and helped WeChat grow even faster.

But one of the most crucial developments for WeChat came about kind of by accident. You see, in China it’s a tradition that during the Lunar New Year, people charitably give away red envelopes and packets containing money. So WeChat decided to create a red packet function within their app so people could digitally send red packets to people, which transferred real money to their accounts. During that holiday, over 75 million red packets were sent via WeChat. This led Tencent to a clear realization: mobile payments were the future. This feature that was meant to be a fun little temporary thing over the holidays ended up leading Tencent to create WeChat Pay, their mobile payments platform to digitally transfer money. Before long, Wechat’s wallet feature was not just used to send payments to other people, but as a way to pay for things in shops, and in fact basically anything where money needed to be sent or paid. Rather than carrying around a credit or debit card, it was easier to just use WeChat since their bank details were already connected. Once again, this may seem like an obvious feature today, but back in 2013 when it launched in China this mobile payment function was an incredible feature, and hence helped WeChat become even more popular. And as more and more people in China started predominantly using smartphones, eventually WeChat surpassed QQ. Even though they were both started as chat services run by Tencent, WeChat was definitely better for mobile - and mobile was becoming much more widely used in China. By 2015, WeChat crossed half a billion users.

Of course, whilst the app name hasn’t changed, chatting is now just a tiny fraction of WeChat does. Which leads us to the most crucial feature of all for WeChat - the feature that turned it into the super app it is today that dominates the lives of almost everyone in China… In January 2017, WeChat launched a feature called Mini Programs, that allows users to access tens of thousands of other apps within WeChat’s own app, completely bypassing the need for an app store. So for example, instead of you having to download a separate app for every single restaurant, hotel or shop you go to - they’d all just have a mini program within WeChat. This not only allowed WeChat to connect itself to people’s offline lives as well as online, but it helped cement WeChat as the everything app. Even before this, Tencent had created so many of their own services bundled into wechat - like payments, games, and dating - but this Mini programs feature meant there was basically no need to even have other apps on your phone, because services from other businesses were now available via Wechat as well. For example, China’s dominant ride-sharing platform Didi have their own mini program within wechat, so if you want a taxi you don’t need a separate app. Or there’s a mini program within wechat for food delivery or tracking parcels and pretty much everything else you can think of.

So, to demonstrate this, let’s imagine for a moment you’re a Chinese citizen, and you’re meeting a friend for dinner. You call them through Wechat to confirm the plans, you book your taxi to the restaurant via WeChat. In the taxi you play games and browse the news via Wechat. Send your friend your location via Wechat.. Access the restaurant’s mini program via wechat, which means you can view their menu via wechat. Then take a photo of your food and post it on your social feed which is on wechat. Pay for the meal via wechat. Then afterwards if you want to watch a movie, guess what, you book your tickets through wechat. Essentially, imagine your life without a smartphone at all, and in China that’s what life would be like without WeChat. Ok I think I’ve said the word WeChat too many times. But anyway, as a result of this mini programs feature, Tencent has essentially become the gatekeeper to the market for other businesses - since people don’t really need to use the app store when WeChat has everything inside of it, so companies almost have to partner with Tencent in order for their services to be used. But this means Tencent can effectively tax all other companies by taking a percentage of the revenue generated through their mini programs.

Now, what’s interesting is that an all-in-one everything app like this has been suggested outside of China as well - in fact even quite recently Elon Musk talked about X, a super app similar to WeChat. But it was quickly shut down. We have enough concerns about big tech and social media, without one single company controlling everything. But you can see now why Tencent has become a money machine. Because unlike many of the big tech giants in the west, such as Facebook and Google, Tencent doesn’t need to rely so heavily on advertising revenue. In fact, some Tencent staff joke about how Facebook’s business model is very primitive. There’s a quote from a Tencent employee saying: “When you have a billion users, the last thing you should be thinking about is how do I sell them a ton of ads. What you should be thinking of instead is how to ensure you keep these users happy, so you don’t drive them away because you’re annoying the hell out of them.” And that’s what’s notable about WeChat: it has kept a pretty clean interface, and doesn’t spam users with ads - it doesn’t need to. They make so much money through micro-transactions since they are involved in so many aspects of people's lives. When you have over a billion people using your app for so many different parts of their life every single day, those small fees on every transaction add up in a massive way.

However, given that WeChat dominates peoples lives in China, you may wonder why its not so popular outside of China? Whilst we don’t have confirmation of exactly how many people use it outside of China; estimates suggest possibly up to around 100 million, which is decent, but its a tiny fraction compared to the well over 1 billion people inside of China who use WeChat. And most of the people who use WeChat outside of China are Chinese expats living abroad or people needing to connect with others who are in China. So if WeChat is so useful in China, why didn’t the rest of the world adopt it? Why doesn’t Tencent expand more in other countries? Well, this is where things get dark. The simple answer is that the same reason Tencent’s apps are so big in China, is precisely the reason they’re not so big anywhere else. It’s time to look at Tencent’s complicated relationship with the Chinese government.

Before we get into Tencent’s current relationship with the CCP, it’s important to understand how things all began. In 1979, the then leader of China designated an area called Shenzhen as the first test zone for his new economic plans - this would be the first part of China where capitalist business models were allowed, and this began China’s rapid ascent to becoming a global super power. Nowadays, Shenzhen has been dubbed the silicon valley of

China, as its home to many of China’s tech giants, including Tencent. But, the Chinese government’s plan was essentially to give some Chinese companies a huge amount of freedom as long as they were benefiting the country overall. So when companies like Tencent and Alibaba capitalized on the internet and built massive userbases, China was happy to allow them to build such dominant companies by any means necessary, without any real regulation - as long as they were benefiting China and the CCP overall.

They felt it elevated the image of China and Chinese entrepreneurship by having these hugely successful companies. It also meant that rather than foreign companies succeeding in China, like the big American tech giants, instead local Chinese companies would dominate, as the government made it mandatory for foreign companies to partner with a local Chinese company. And finally, the CCP knew that if some Chinese companies became huge empires, then they could invest in lots of other companies; both in China and abroad, thus by proxy allowing China to have a lot of influence on the world, and control the narrative they want.

So basically for the Chinese government, Tencent was an appealing prospect; having access to so much data was great for government surveillance and censorship and understanding the psyche of its citizens. "Physicians who were on the front lines who were warning about the pandemic even before it had a name had their communication censored." "WeChat routinely blocks accounts for discussing issues like the pandemic or human rights abuse issues." "They went to my father and threatened him, and said if your daughter doesn't stop talking about human rights we're going to persecute your family like in the Cultural Revolution." "After their accounts are blocked, users say the police come in to question them." "The problem is the app is so crucial for existence in China that users can't even give it up."

So China was mostly happy to not interfere and let Tencent continually grow its dominance even if it sometimes used anti-competitive tactics. Of course, the CCP were wary of how much power this gave Tencent, which is why their relationship is not as straightforward as you might think. They knew it was important to make sure Tencent were always very closely aligned with the CCP, and give them reminders that if Tencent stopped being useful to the Chinese government, Tencent’s power could just as easily be taken away.

But anyway, let’s talk about what this partnership actually means. Tencent’s stance is that in order to comply with China’s legal and regulatory requirements, it can process and handle private information without requiring user consent in certain situations…those situations being: ‘if the Chinese government wants us to’. The CCP reportedly have a direct line to the desks of Tencent product managers, and are able to order deletions whenever they want, or monitor specific accounts and specific phrases in both public and private posts. One particularly intimidating policy change in 2017 was that group admins on WeChat were made personally liable for whatever was said on group chats they run. Many simply deleted their groups as a result.

Tencent also feeds data to China’s social credit scoring system, which can affect what citizens can do. All that information they have like payment history, real-time location, who you’re associated with - can allow the government to create an incredibly detailed picture of who you are, what you buy, and how you behave - thus allowing the government to give you a score of how trustworthy you are as a citizen. But as Tencent grew larger, it seems the CCP became more demanding - Tencent has to employ hundreds, possibly thousands of their own censors, whose job it is to block anti-government posts. Tencent then began deleting lots more posts and suspending accounts that stepped out of line. There are multiple examples of creators - such as blogger Laura Lian - who had hundreds of thousands of fans reading her work, but after making one comment the CCP didn’t like, her account was deleted without warning, and her income gone. And thus whilst Chinese citizens clearly enjoy the convenience of WeChat, which admittedly is such a useful app - in the back of people’s minds they are aware that their every move and comment is documented - something which the CCP openly reminds people of. Whatever Tencent can see, the Chinese government can see. And so it’s kind of crazy that over a billion people have opted to sacrifice all aspects of their privacy and free speech for convenience. There’s apparently a joke in China that if you order too much food via WeChat, you might get police tracking you thinking you’re harboring fugitives.

Now to be fair here, I really do not believe Tencent set out to create a government surveillance tool - this wasn’t some evil plan. Tencent was started by some entrepreneurs wanting to build a business like anyone else - but they managed to create something so popular that the only way the CCP would allow it was if they had some control too. So Tencent didn’t have any real choice but to fall in line. Pony is a pragmatic businessman, and knows he has to keep the government on side. Hence when a reporter asked him about censorship at a tech conference, Pony seemed to side with the government by saying: “Lots of people think they can speak out and that they can be irresponsible. I think that’s wrong,” - now to be fair we have no idea how Pony really feels; but he knows what would happen if he spoke out against the CCP in any way. And the reality is that China’s laws require all companies to hand over data if requested. In fact, it’s reported that many companies in China have a special office at their headquarters called ‘the internet security police room’ where Chinese public security forces can intervene in company operations or track certain users.

Which brings us back to the question: why isn’t WeChat as popular outside of China? It’s not like Tencent didn’t try at all - they do have an English version of their app and even ran big marketing campaigns, like this advert with Messi to try and promote WeChat to the world. However, one of the most fundamental reasons for its limited international appeal is clearly because of this surveillance and censorship. Research from Citizen Lab found that the Chinese government does monitor and censor confidential information sent via Tencent’s apps even from users outside of China - for example I saw a story where one person in a private group chat had sent some news about pro-democracy protests in Hong Kong, and was confused when nobody else in the group responded. She only later found out nobody else could even see her messages, as her private messages had been censored without her knowing it. Any taboo issues like mentions of Tiananmen Square, or Tibet are censored on Tencent apps regardless of if you’re in China or not. So basically, just because you were using a Tencent app outside of China, doesn’t mean that Tencent wouldn’t still have to supply any of your data to the CCP if they requested it - remember Tencent have to stay on China’s good side. And thus many people would have some fear about one company, especially a company with ties to the CCP, having all their info on every aspect of their life. Thus, whilst surveillance and censorship is what allowed Tencent to become dominant in China as it meant the CCP let them grow so big, outside of China that has scared users off.

But that’s not the only reason WeChat isn’t as popular outside of China. The second reason is that every country has different requirements. WeChat works so well because it’s perfectly tailored to China. But for the app to be so effective elsewhere, every country would need their own WeChat version with services specifically suited to their country. Thirdly, since China is such a massive market, it made more sense for Tencent to go deep into that market where they already had lots of momentum, rather than diverting resources to start from scratch in other countries. After all, China has a population of over 1.4 billion people, more than 4 times the entire population of the US. But the one downside of doubling down on China was that Tencent didn’t get the first-mover advantage in other countries. So if WeChat did want to try and become more popular in the US for example, it would somehow have to compete against so many different established companies who’ve already managed to get their apps ingrained in people’s lives. But the final reason WeChat didn’t work so well abroad is simply that it’s historically been the case that Chinese tech companies struggle outside of China, just as American companies struggle inside China.

However, of course there has been one very notable exception recently: TikTok. A Chinese app which truly has managed to go global. And this leads us to one of Tencent’s most fascinating battles. In China, once your business reaches a certain size, you normally have to sell to or partner with one of the big 3: Baidu, Alibaba or Tencent. But TikTok, and its parent company Bytedance, were the one notable exception. Now if you’ve seen my video on the history of TikTok, you’ll know that the western social media giants - like Facebook and Google - completely dismissed the threat of TikTok until it was too late. They let TikTok become one of their biggest advertisers, thus letting them steal hundreds of millions of users from their platforms as TikTok ran endless ads on YouTube and Facebook. Only years later would the American tech giants realize short-form content was here to stay, and launch their own short video apps to compete. But by that point TikTok had already become a massive hit through advertising on their platforms.

Tencent on the other hand, immediately realized TikTok’s threat and carried out their usual playbook move. Tencent assembled a large team to re-create a very similar app to TikTok within WeChat, and then ran massive promotions to advertise it. Tencent also banned TikTok from advertising on their platforms, and straight up just started blocking links or mentions of TikTok on its platforms like WeChat. It’s interesting because when Elon Musk briefly blocked external links to competitors within Twitter everyone went 'this is dumb', but in China, that’s just part of the game, and an example of the anti-competitive tactics that have enabled China’s biggest companies to build such huge businesses. Unfortunately for Tencent though, for once, this tactic didn’t work. TikTok’s biggest strength was its machine learning algorithm that very accurately showed users the content that would keep them on the platform longer. And thus once people were hooked on TikTok’s algorithm that already knew their preferences, and was perfectly tailored to them, there was little incentive to switch to Tencent’s copycat version and start over with an algorithm that didn’t yet know their preferences so well. So TikTok’s first-mover advantage always gave them the edge.

Things actually got heated between Tencent’s founder Pony Ma, and Bytedance’s founder Zhang Yiming, because Zhang posted a screenshot of TikTok being the #1 most downloaded app in the world, and underneath criticized Tencent for making an almost clone version of TikTok and for banning TikTok within WeChat. Pony felt this public criticism was unfair given this was a common practice in China, and bluntly responded ‘your words can be regarded as slander’. The heated public spat captivated China as both CEOs were normally so mild-mannered and reserved. But it was clear no love was lost in this bitter rivalry. However seeing TikTok succeed globally on such a huge scale - something which Tencent’s own apps like WeChat have never managed to do - was definitely tough for Pony to take.

But wait - hold on a second. Remember back at the beginning of this video I said Tencent had a lot of influence all over the world? Well if their 2 most popular products, QQ and WeChat aren't that popular with people outside of China, why is Tencent considered such a dominant global company, with influence all over the world? To answer that, it’s time for us to look at Tencent’s genius bigger picture strategy for world domination. Pony Ma once called a meeting of Tencent’s top managers, and highest-ranking employees, to plot out Tencent’s strategy. The meeting has since been dubbed The Conference of the Gods, since it was essentially a meeting of minds that would plot out Tencent’s plans for domination, and the decisions made in that meeting would have serious ramifications for not just China, but the rest of the world.

The main purpose of the meeting had been to establish what Tencent’s core competitive advantages were, and how those could be exploited. The answer was fairly simple: Tencent’s advantages were that they have huge amounts of traffic and money. Far more than any competition. And thus the plan became: Step 1. Attract other businesses to launch their own mini programs via WeChat, so they could leverage some of WeChat’s traffic. Step 2. Tencent would then invest money into the businesses that were doing the best, since Tencent had all the data of which mini programs people were using, how often, and how much money they were spending. Step 3. After investing in certain businesses, Tencent could then artificially give more traffic to the companies it invests in, thus making them even more money, which they can also reinvest in even more companies. In other words, Tencent can cherry-pick the best mini programs, invest in them, boost their popularity, and practically guarantee their investment is a big success. No other company in the world has quite the same level of data on user behavior to see what’s popular, and then the ability to significantly increase their value further by promoting them within WeChat.

It also creates synergies between Tencent’s investments. For example, Tencent has a significant stake in Didi, which is China’s equivalent of Uber. And through WeChat, Tencent can promote Didi more, thus giving it an unfair advantage and increase the value of its investment. But not just that, because Didi uses WeChat Pay, Tencent also takes transaction fees on every payment. It did the same thing after investing in the Chinese e-commerce company JD - once Tencent owned part of the business, they massively increased JD’s visibility within their apps to drive more sales. Of course, all of this was insanely lucrative for Tencent, but then came the next part of the plan: using some of the money it generates from its cash cows in China to invest in companies abroad, thus letting Tencent diversify away from China. This is particularly important for Tencent, because if their entire empire is only based in China, they are totally at the mercy of the Chinese government. So, Tencent has acquired or invested in many hundreds of companies outside of China in all different industries, thus building a huge international portfolio. For example, Tencent became one of the largest shareholders of Tesla. Tencent also bought part of Reddit, and Discord. This did prompt some backlash and concerns, as some argue that if Tencent has access to a company's data, so does the CCP, and that through Tencent they can subtly influence decisions in these international companies, and thus ultimately influence Western culture. It sounds extreme, but it’s not unrealistic - just look at the NBA example from earlier where the coach backtracked on his comments and apologized after threats from Tencent and China.

But to be fair here, Tencent do mostly seem to stay out of the way of the international companies they invest in, and just take an equity percentage and then not get too involved. Or at least, they haven’t yet. As a result of this hands-off approach though, some accuse Tencent of basically abandoning innovation, and now just becoming essentially a gigantic investment fund, funneling money from its apps in China into promising companies in other countries, rather than creating much that’s new or original itself. And they don’t even really try and build their brand that much internationally - @Tencent on Twitter is actually suspended, because someone had been holding the Twitter handle with a bio saying “daddy Tencent, come and buy my account” - basically they were expecting Tencent to come and buy the @Tencent Twitter handle off them. But Tencent didn’t bother. Building their brand internationally isn’t a big priority for them, they’re happy to just quietly invest abroad.

Now, one of their most lucrative investments has been in gaming. The gaming industry is estimated to have generated $176 billion of revenue in 2021, almost five times the box office of the movie industry. And Tencent are essentially the biggest players in the market. Now of course, even from the relatively early days of Tencent, they’d been experimenting with creating games themselves - especially mobile games. In fact their game Honor of Kings is so popular in China that there’s a black market where people pay for others to play the game for them to improve their ranking, as just like everything else in China, it’s connected to WeChat. So some people pay better players to improve their game stats as it’s a bit of a social and status symbol. However, most of Tencent’s original games were overly tailored to the Chinese market, often featuring Chinese propaganda to appease the CCP, and so it quickly became clear to Tencent that rather than trying to promote their own games abroad, it made sense to find games with potential and just give them loads of money to help them grow quickly, and take a percentage of their company. As a result, Tencent is invested in the studios that make some of the biggest global titles such as League of Legends, Fortnite, World of Warcraft, Clash of Clans, PlayerUnknown’s Battlegrounds, and the mobile version of Call of Duty. They also partnered with Roblox to bring their games to the Chinese market. But two of Tencent’s most important investments were buying 100% of Riot Games, and 40% of Epic Games, one of the world’s most valuable start-ups. This not only gave them a stake in some of the most played games on the entire planet, but also investment in Epic Games’ Unreal game engine, which has been described as ‘the world’s most advanced real-time 3D creation tool’ and is used for all kinds of different projects.

Whilst Tencent’s investments in international game studios have been extremely lucrative, it’s also brought some unwanted attention to the company. Many fans noticed that after Tencent acquired some of these popular games, there seemed to be more upgrades and unlockable content within the game that required additional payment, and some blamed this on Tencent being greedy, as they were clearly pushing for more microtransactions like is the norm in China. Another issue arose after acquiring Riot Games, as Tencent wanted to turn their most popular title League of Legends into a mobile game to make even more money from it. But the game developers didn’t want to do this - that was never their vision of what the game should be. And since it was their game, they thought that was the end of the discussion. But they later found out Tencent had gone behind their back and made a rip-off of their game - which is where Honor of Kings came from. One Riot Games employee said that “we were stunned, they were blatantly ripping off our intellectual property”. To add insult to injury, Tencent even used notable League of Legends players to promote their new game, which caused many people to assume Riot Games were actively involved with this new game, even though they weren’t. To be fair to Tencent, they were right that a mobile version would be popular: by the end of 2017 Honor of Kings, the League of Legends-inspired game, was the most popular mobile game in China. It was also in 2017 that Tencent overtook Facebook to become the fifth largest public company in the world. Their cash cow apps in China were more dominant than ever, and their international investments were paying off massively, thus extending Tencent’s influence all across the planet.

And it has to be said that nowadays Tencent are truly great at finding ways to monetize. For example Tencent’s video platform, essentially their version of Netflix, now inserts extra ads into movies and TV series that weren’t there in the original - such as adding extra billboards and signs in the background. Tencent’s cloud hosting business has also become very profitable - just like Amazon Web Services it started off to host their own services, but then began selling it as a service to others. Plus, as if Tencent weren’t already dominant enough, the outbreak of COVID was actually great for Tencent’s revenue; people were at home on their phones more than ever, which meant using their services and playing their games more. Tencent generated 86 billion dollars in 2021 alone, and 35 billion of net profit, making them one of the most profitable companies.

And so you may think that would be the end of the story - that Tencent would be unstoppable. Many shareholders clearly thought so; Tencent’s market cap was approaching 1 trillion US dollars. But in 2020, suddenly Tencent began to face a lot more scrutiny. Quite suddenly Donald Trump began threatening to ban WeChat, and other Chinese apps, on the grounds that the Chinese Community Party could use them to steal users’ private data, censor anything critical of China and help spread disinformation. Of course, there were definitely strong political motivations for this attack on Chinese apps and the subsequent executive order to ban them in the US, but even now with the Biden administration there are continued investigations into these Chinese apps and whether they are a national security risk that should be banned. And thus as one of China’s biggest companies Tencent was thrust into the international spotlight more than it would like. It may have taken a while, but it seemed people were finally realizing the influence that Tencent, and thus China, actually had.

Luckily for Tencent, their strategy of taking minority stakes in international companies gave them a lot of protection - for example even if the US did want to take action against Tencent, it’s not like they would ban Reddit or Discord just because Tencent had invested a lot of money in them. The only risk was governments banning apps Tencent fully owned and created, like WeChat, but as we know most of their users are in China. So Pony figured this negative media attention in the US wasn’t going to cause too much damage to Tencent’s empire overall. As long as Tencent was on good terms with the Chinese government, things should work out. He breathed a sigh of relief, realizing maybe things were going to be okay after all.

But then, quite suddenly, Pony’s worst nightmare became a reality. You see, Tencent has faced a lot of business battles - we’ve seen them go to war against Chinese companies like Qihoo, big American companies like Microsoft, and even political battles like with the US government. But there is one enemy Pony Ma most certainly did not want. One enemy that could genuinely destroy them: the Chinese government. In 2018, rumors of a change in government policy began to spread, and then one day Chinese regulators suddenly stopped approving all new games from being released. The CCP said it felt kids were becoming addicted to video games, and they were also growing concerned about the amount how violent some games were. One government publication described online games as spiritual opium, and the CCP announced a ban of kids under 18 playing games for more than three hours a week. Tencent’s stock price immediately started to fall. Later that year, Tencent’s profit fell for the first time in over a decade, largely because it couldn’t release or monetize new games due to this new government policy.

To appease the Chinese government, Tencent had to make big changes. For example Tencent introduced facial recognition in their games, and began using police databases to verify the identities of its users and their ages - that way it could ensure people weren’t playing games unsuitable for their age, and also that they weren’t spending too much time playing. Tencent also had to change the nature of some of its games to ensure they aligned with the CCP’s values - for example one of their most popular games, PUBG, previously involved 100 people killing each other until one person is left. But Tencent had to change it completely - they rebranded it as Game For Peace, and the story instead became about patriotic warriors. The violence was removed, and blood was replaced with green liquid. When someone gets shot, instead of dying the character simply waves back and disappears. The game was filled with banners of nationalist slogans and patriotic propaganda. Basically, the game was completely censored, and as some users pointed out, turned into a pro-government propaganda machine. Whilst most people didn’t like it, they had no choice. Tencent had realized that despite their huge power and wealth, they were still completely at the mercy of the Chinese government.

And then things got much worse. In October 2020 Jack Ma’s company The Ant Group, a gigantic fintech company in China, was preparing for its IPO. It was all approved and ready to go. And then, Jack Ma gave a big speech where he seemed to publicly speak out against the Chinese government; more specifically, he openly criticized China’s traditional finance industry and its regulators. Shortly afterwards, The Ant Group IPO was abruptly canceled, supposedly by order of the Chinese president himself. Then, Jack’s other company Alibaba became the subject of an antitrust investigation, with allegations of using anti-competitive monopolistic practices. And then, Jack Ma, a guy who was always happy to take the limelight and do speeches and interviews and high-profile events, just suddenly disappeared. All of his planned public appearances were canceled, and it seemed he’d been exiled - in fact some questioned if he was even still alive.

Now, it’s worth pointing out Tencent and Alibaba have been rivals for years, directly competing in so many different industries in China as the country’s two most dominant conglomerates. So when Jack Ma spoke out and faced immediate punishment, Pony Ma must’ve thought he’d won. But little did he know Jack’s actions would be the domino that began Tencent’s downfall as well. It turns out that the Chinese government was not just going after Jack Ma and his companies, but all of China’s big tech giants. In 2021, several other large Chinese tech companies, including Tencent, received huge fines for essentially being monopolies. The fines added up to billions of dollars. The CCP had allowed big tech almost free reign for years, but now it was reigning those tech giants back in.

Now to say that Jack’s public criticism of the government was the reason for what happened next is probably not true - that incident was likely just the straw that broke the camel’s back. In truth, China for a while had been growing concerned about just how powerful some of these companies were becoming. China’s leader often promotes the idea of ‘common prosperity’, and the tech sector had definitely created a large wealth gap in the country. Trying to limit that inequality would definitely be popular with many Chinese citizens. The Chinese government also expressed national security concerns of their own, given all the data these companies like Tencent have - because sure China likes having that data for themselves, but letting any single corporation dominate too much could be a risk for China. So as well as the fines, and some executives being forced to step down, new regulations were introduced to limit the power of some of these tech companies. Of course, the stock prices of Chinese businesses began to plummet. Its estimated 1.5 trillion dollars of value was wiped off Chinese tech companies’ valuations due to the crackdown. Tencent in particular has lost over 500 billion dollars off its market cap, more than half its value, since the crackdown began.

And to be honest, many were surprised Tencent was even dragged into this - because unlike Jack Ma who publicly spoke out, Tencent were known for being extremely cooperative with regulators and the government - they were always compliant with policies and never publicly critical of the CCP. And yet Tencent was definitely targeted. As well as facing anti-monopoly investigations, and big fines, their new games stopped being approved, and new deals they wanted to make were blocked. And part of the reason may have been that the CCP didn’t think Tencent was actually doing enough to help the state. You see China had got into a difficult position; as a result of sky-high rent costs, its controversial zero-COVID policy and massive extended lockdowns, many citizens were unhappy, and soon huge protests and riots broke out. And it’s clear some of this would’ve been organized and word spread through Tencent’s apps like WeChat. Because although Tencent do employ a lot of censors to try and monitor things, but controlling the discourse of over a billion people isn’t always easy. There are ways around it, like in China some people simply hold up a blank piece of paper as a protest symbol, since that way it’s hard for Tencent’s software to detect any wrongdoing. In other words, Tencent was inadvertently giving a voice to people to speak out through its apps, and so perhaps the government began to see Tencent’s dominance as less of a good thing.

But the other reason for all this is not so specifically about Tencent, and more just that the CCP perhaps felt big tech in general had grown too powerful and the government needed even more control, and to remind everyone who's really in charge. So basically, it seems China had achieved what they wanted to: by not having much regulation for years they’d allowed Chinese business to thrive, they’d got their surveillance tools like WeChat, and enabled Chinese companies to invest internationally to give China some influence abroad. But now that they’d achieved what they set out to, it seems the CCP wanted to send a message that even the wealthiest and most influential Chinese entrepreneurs and companies are not above the party or the law. Tencent perhaps grew too large for the Chinese government, and needed to be tamed. And of course it should be pointed out that many of the new regulations and laws to prevent monopolies made sense - it only seemed extremely aggressive because for so long there’d been almost no regulation, and within a couple of years a lot changed.

But in the midst of all this, Pony began showing up for less and less public events, even missing his company's own annual party. And as Tencent’s valuation continued to fall, some began to question what was going to happen to Pony Ma and his business empire? Before we get to the next chapter, did you know that when shopping online, shipping costs are the number one cause of abandoned carts? So if you sell absolutely anything online yourself, you’re going to want to know about today’s sponsor, ShipStation. These days cheap and fast shipping has become the standard customers expect. And this means it can be hard for smaller e-commerce businesses to compete on shipping prices and delivery times. But that’s where ShipStation comes in to save the day - they have the best discounts in the industry, so you’ll never have to worry about overpaying for shipping again - For example you can get up to 84% off USPS and UPS rates. And not only does ShipStation help you lower shipping costs, it easily integrates everywhere you sell online, including Amazon, Etsy, eBay, Shopify, and more - giving you one easy dashboard to manage all your orders in one place. Thus saving you time and letting you give your customers a better experience. So keep growing your business all year long with ShipStation. Go to ShipStation.com/magnates today and sign up for your FREE 60-day trial. That’s ShipStation.com/magnates to get started now for free.

Before we get to this final chapter on what the future may hold for Tencent, let’s just quickly summarize where we’re up to, as we’ve covered a lot here, and I think we could all use a very quick recap. So, Tencent started out by copying a chat software, and by tailoring it to the Chinese market. They then turned it into more of a social media platform, just as the era of desktop computing was exploding. Tencent then used their resources to jump on the wave of mobile internet growth, and became an essential part of Chinese people’s lives by creating WeChat for mobile. They then utilized the insane traffic they were getting from QQ and WeChat to diversify into other more lucrative opportunities like gaming and video. Tencent’s approach to rivals was to clone their product or service, and then drive vast amounts of traffic to it thanks to QQ and WeChat. If that didn’t work, they’d buy out the company instead, or buy a large stake in it. And Tencent continually kept reinvesting profits to either clone or buy other services, and often swallow them into WeChat. Eventually Tencent had a whole ecosystem of influential companies. But the reason they were able to often use anti-competitive tactics and expand so rapidly was because of ties to the Chinese government, who used their apps for surveillance and censorship. This limited the appeal of Tencent’s apps outside of China, so they began investing in international companies instead, including many of the biggest game developers, and companies such as Reddit and Discord. Tencent became one of the largest companies on the planet, but once China began its crackdown on big tech companies in order to rein them in after they’d become so powerful, Tencent’s valuation began to fall. Phew. Ok, so that’s where we’re at, but what next?

Well the cracks have definitely been showing for Tencent. There have already been layoffs over the last few years, and Pony recently blasted employees for being lazy, saying ‘You’re chilling on the weekends, playing ball’ and began demanding a lot more from his team in an uncharacteristically aggressive speech. But to be honest, Tencent should be fine. They are still an absolutely massive company worth hundreds of billions of dollars, with huge influence still. The crackdown may have stunted their plans a little, but Tencent is still a very powerful company, WeChat still dominates the lives of people in China, and Tencent will continue investing in companies abroad. Tencent even had some good news within China in September 2022 when for the first time in over 15 months it got its first new game license approved - a new mobile game called Health Defence. The game was about public health and had very clearly been produced to please the Chinese government. And that is perhaps the one thing that will change; Tencent will have to be even more closely aligned with the CCP to ensure there’s no further issues. For example, Tencent was actually one of the major investors in the movie Top Gun Maverick - but they decided to pull out of the project over concerns that the film’s themes could anger the Chinese government. Tencent has also partnered with the CCP’s propaganda department to help promote their worldview and socialist values. Like they released a game ‘Clap for Xi Jinping’ a game where you literally just clap for the president to show your appreciation. So basically, it seems clear that Tencent is trying harder than ever to stay in the Chinese government’s good books - I mean, they don’t really have a choice.

As for what’s next for Tencent though, that’s a question Pony is almost certainly thinking about often. He was early to catch the rise of desktop computing, and then early to double down on the rise of mobile internet as well. So can Tencent catch the next wave, whatever that may be? For example some believe the metaverse could be a big part of our future, and Tencent are arguably even better positioned than Meta for building the metaverse given their dominance in gaming and virtual worlds already. But then again, the CCP probably wouldn’t want a metaverse that they couldn’t have a lot of oversight in, so that probably limits Tencent’s chances of building a global metaverse. And thus the eternal struggle for Tencent to keep China and the rest of the world happy will continue. But what can’t be denied is that Tencent is ultimately an incredible business success story. Whilst this video has of course looked at some of the controversy surrounding Tencent, they’ve also done a lot of good too and made some incredibly useful apps - so there is definitely plenty of lessons to learn here. There is a quote that I like a lot which is ‘that you have to learn the rules of the game, and then you have to play better than anyone else’, and I think Tencent is a great example of that. They literally went from being a tiny company on the edge of bankruptcy to one of the world’s most valuable companies - and so I hope you’ve enjoyed this journey through Tencent’s history. But now, since we’ve just looked at one of China’s most influential companies, I think it’s only fair we do the same with one of America’s most influential companies - which you can do right now by clicking the thumbnail on screen. This is one of my favorites, and I think you’ll like it too. Anyway, all that’s left for me to say is thank you for watching this video to the end, you are a legend, and I’ll see you in the next video right here. Cheers.