Tencent turns to WeChat, games and deals for global strategy

China Literature

20/11/2017 14:59

* Tencent plans e-payment launch in Malaysia next year 
    * Tencent in no hurry to speed up overseas expansion - Lau 
    * Aims to reverse trend, and export Chinese culture 
 
    By Sijia Jiang 
    HONG KONG, Nov 20 (Reuters) - China's biggest social network 
and gaming firm Tencent Holdings  0700.HK , which last week 
reported forecast-beating quarterly results, is close to making 
Malaysia the first foreign country to roll out its WeChat 
ecosystem, an executive told Reuters. 
    Tencent has made a "breakthrough" in gaining an e-payment 
license in Malaysia for local transactions, and plans a launch 
early next year, senior vice president S.Y. Lau said in an 
interview. 
    The move pits Shenzhen-based Tencent, Asia's most valuable 
listed company, against rival Alibaba Group  BABA.N  as they 
scramble for new growth opportunities outside China. 
    "Malaysia is actually quite large in the sense that we have 
20 million WeChat users, huge potential, and the market is quite 
warm towards internet products from China," Lau said. 
    Southeast Asia, home to more than 600 million people and 
some of the world's fastest-growing economies, has been a key 
battleground for China's tech titans fighting for 
deals. urn:newsml:reuters.com:*:nL4N1LB2I9 Ethnic Chinese make up more than a fifth of 
Malaysia's population. 
    WeChat Pay and Alibaba's Alipay, which dominate China's 
digital payment market, have sought to expand their global 
footprint, although that push has so far been limited to payment 
services for Chinese outbound tourists. They can scan-and-pay 
for purchases in 34 countries or regions via Alipay and 13 via 
WeChat Pay, according to the companies. 
    Alipay's parent company Ant Financial has joint ventures in 
seven markets for local digital payments services, which operate 
independently under the partnerships' brand names. 
    Alibaba is looking to build a global payment system, while 
Tencent is more interested in generating traffic for WeChat - 
two different strategies, some bankers and investors say. 
    WeChat has more users, but Alipay's aggregate transaction 
volume is higher, according to JP Morgan's John Hall, though 
other investors note that WeChat Pay can also process large 
transactions if it's used on e-commerce platforms. 
     
    GLOBAL EXPANSION 
    One challenge for Tencent, say analysts, is that its success 
in China cannot be easily exported to other markets. 
    Tencent is "not in a hurry" to speed up its overseas 
expansion or increase the monetisation rate of its digital 
assets, Lau said. 
    "We walk our own path at our own pace ... and, to be honest, 
there is really quite a lot to do in China," he said. 
    WeChat, which has ballooned from a messaging app to an 
all-in-one platform with 980 million monthly active users, could 
be the "killer product" to spearhead expansion abroad, Lau said, 
as its embedded payment function draws more services. 
    WeChat, with an open platform of mini-programmes, was a key 
revenue contributor for Tencent in the third quarter. Social and 
other advertising revenue rose 63 percent, while payment and 
cloud helped "other business" post a 143 percent jump 
 urn:newsml:reuters.com:*:nL3N1NL3JH 
    "Honour of Kings", Tencent's top-grossing battle game that 
led an 84 percent increase in quarterly smartphone gaming 
revenue, also owes its success to the network help of WeChat, 
and is expected to find it tougher to crack Western markets, 
analysts say. 
    Tencent this month delayed the launch of the game's U.S. 
edition, "Arena of Valor", to next year to "further polish 
additional gameplay and social features". 
    After games and social media, most of Tencent's other 
businesses are in digital content, including Spotify equivalent 
Tencent Music and YouTube equivalent Tencent Video, which also 
makes its own dramas. 
     
    CULTURE CHALLENGE 
    Lau said the ultimate aim was to export culture from China 
to the rest of the world, rather than the other way round, which 
he acknowledged was challenging. 
    "What we're aiming to create is 'super IPs' (intellectual 
property) that leverage our different businesses from upstream 
to downstream," Lau said, citing Disneyland  DIS.N  and the 
James Bond movies as successful practices in the West. 
    A big business for Tencent's recently-listed publishing arm, 
China Literature  0772.HK , is to sell its popular novels and 
have them turned into dramas and video games by Tencent's other 
business lines. 
    Tencent this month announced a plan involving 10 billion 
yuan ($1.51 billion) of investment to boost its creative content 
ecosystem, though it gave no timeframe for the investment. 
    Company president Martin Lau - no relation to S.Y. - said on 
an earnings call last week that Tencent would keep investing in 
digital content, especially online video, to draw more time from 
more paying customers.  urn:newsml:reuters.com:*:nL3N1NL3JH 
    Overseas acquisitions will remain a key way of enhancing 
Tencent's global access and competitiveness, S.Y. Lau said. 
    Independent technology analyst Richard Windsor said 
Tencent's 2016 acquisition of Supercell gave it a strong 
position in gaming,  urn:newsml:reuters.com:*:nL4N1DZ0B0, while the move to buy a stake 
in social media firm Snapchat  SNAP.N   urn:newsml:reuters.com:*:nL3N1NE4G2 is another 
piece in the jigsaw. 
    "It increasingly looks as if Tencent is embarking on a 
circumnavigation of the digital life pie in order to build an 
ecosystem to challenge the Google  GOOGL.O , Apple  AAPL.O , 
Amazon  AMZN.O , Facebook  FB.O  dominance of consumer digital 
services," he said, noting it's at a "super early stage" in that 
process. 
    Tencent will likely seek more overseas acquisitions, Windsor 
added, which, beyond being expensive, could challenge Tencent in 
integrating all its digital assets at home and abroad. 
    Tencent has struggled to monetise its dominance over the 
Chinese digital life, he said, adding that's why he sees more 
upside in Tencent's market valuation, and prefers it to Alibaba. 
    ($1 = 6.6267 Chinese yuan renminbi) 
 
 (Reporting by Sijia Jiang, with additional reporting by Kane 
Wu; Editing by Ian Geoghegan) 
 ((Sijia.Jiang@thomsonreuters.com; +852 65313893;)) 
 
Keywords: TENCENT STRATEGY/