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  • Subject area(s): Marketing
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  • Published on: 14th September 2019
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1. Tencent was founded as a PC-based instant messaging service in 1998. Within nine years, Tencent had grown enormously, becoming China's largest internet, social media, and gaming company with over 850 million users interacting on its various platforms. Valued at $272 billion, Tencent was the most valuable company in Asia in 2017. (Page 1). This enormous growth is attributed to the company's business strategy, which was structured as offering a wide array of interconnected products and services that satisfied the everchanging needs in communications, information, entertainment, and e-commerce (7). By pursuing an open platform strategy, Tencent benefits from serving as a multi-propitious platform that provides value for users, application developers, and themselves. Tencent's achievements can be attributed to the broad and efficient diversification of its products and services through a consistent and systematic set of portals and platforms. Because of its diversification strategy, Tencent has become a secure multi-platform digital ecosystem with a market leading position in the majority of their sectors.

Tencent's most valuable and strategic resources used to its advantage include its current multi-platform digital ecosystem, extensive customer base, and its strategic partnerships. Because Tencent's current business model satisfied four user needs: communication and community, entertainment, information, and e-commerce, the company can deliver more convivence using integrated data than stand-alone services (6). Through this integrated platform, Tencent can seamlessly drive its users from one product to another, thereby increasing company revenues. This integrated model is valuable, rare, costly to imitate, and properly exploited by the organization leading to a sustainable competitive advantage.

Tencent's extensive customer base, including over 850 million users, also led Tencent to secure a sustainable competitive advantage. Tencent is very effective at monetizing its customer base, persuading a high percentage of users to purchase value-added services, and encouraging them to increase their spending each year (13). Tencent was able to utilize its vast customer base by collecting data on user's needs and was able to diversify and increase revenue streams. This broad customer base and data on customers is also considered valuable, costly to imitate, and exploited adequately by the organization leading to an increased sustainable competitive advantage. Additionally, Tencent was committed to partnering with industry leaders, instead of competing with them, to add more value more efficiently. This decision was proven to be very beneficial and attributes to the sustainable competitive advantage.

2. Tencent's multi-platform ecosystem offered multiple synergies including a coordinated strategy synergy through combined business creation, shared resources synergy, and a pooled negotiation power synergy.

Tencent is a conglomerate, combined of social media portal and apps, entertainment and games, payment services, and utilities such as an app store. Through a coordinated strategy, combining features such as a unified login, users' social graphs, multi-platform marketing capabilities, infrastructure support, payment solutions, and insights into user needs (7), each platform benefits of the other, resulting in a more profitable entity. Each platform benefits from the success and growth of its other platforms, creating a combined business with a sustainable competitive advantage. Additionally, combining resources obtained from each entity, primarily customer data, Tencent can improve the web experience for each customer segment, resulting in a more profitable business bottom line. Additionally, the individual platforms are structured under one big corporate umbrella, resulting in the conglomerate benefiting from pooled negotiation power synergy due to its status as the most valued and influential company in Asia.

3. In the PC and mobile internet industry, it is vital for companies to be able to adapt its strategy fast and seamlessly due to the rapid nature of the industry. Tencent has maintained its leading market position through a series of innovative and smart business decisions. By anticipating the lucrative opportunities provided by mobile phones, Tencent was one of the first to launch instant messaging services for mobile devices in May 2000 (2). Additionally, the technology team at Tencent knew when to invest heavily in new technology, and when to partner with third parties or acquire companies. Diversification was necessary for Tencent, and the company focused on investing heavily to become the market leader provider for online gaming, social media, and payment systems while partnering with third parties to provide value through search platforms and e-commerce. Tencent was a fast mover, and Wu Siqiao, vice president of Kugou, a competitor of Tencent, noted that Tencent moved fast and furiously, like a ‘vacuum cleaner,' observing emerging services, establishing a platform for that service, and implementing the service rapidly and better than everyone else (7). This fast-moving process was vital when considering the growth of the company.  

4. Facebook was banned from the China market in 2009 but has reportedly been developing censorship software to facilitate its re-entry into China. If it were to re-enter the market, there would be stiff competition in the social media space between Facebook and Tencent. Although both companies seek to offer similar services in the social media space, the two entities follow very different strategies. Facebook is a global company that primarily profits on advertisements that target specific customer groups, based on user-generated data and machine learning technology. While Tencent did obtain revenue through ads, the majority of revenue came from virtual products, games and entertainment, and subscription services.

It is difficult to determine if Tencent would remain the market leader if Facebook were to re-enter the China market. Facebook is the largest social networking company in the world, generating profits of $27.6 billion in 2016. In comparison, Tencent produced earnings of $23.2 billion while only operating in China. While Tencent offers many more services than just social media, it is the leading social networking provider with several of the biggest social networking applications in the world. While Facebook has the advantage of being the biggest global provider, Tencent has the advantage of being the first mover in the Chinese market.

Also, Tencent offers more value to customers offering an interconnected platform that includes gaming, payment, chat, and entertainment. It is important to note that when considering the core business strategy, Tencent offers value through value-adding services while Facebook is primarily focused on revenues from advertising. In 2016, Tencent obtained 42.9% of profit through online advertising, while Facebook's obtained 97% of its revenues from advertising. There is much more room for growth for Tencent in revenue generated from ads, while Facebook remains stagnant in the diversification of profits.

While Facebook enjoys the position of the global leader of social media, Tencent enjoys a diversified position of the market leader of many platforms in China, with its primary market in online gaming. It would be strategic for Tencent to ally with Facebook, rather than investing in competing directly with the global leader. By allying, Tencent can continue to maintain its position as a multi-service online service provider leader, without competing directly with Facebook, while Facebook is able to benefit off the large amount of user-data Tencent has acquired throughout the past ten years.

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