The concept of ecosystem building is emerging as the latest trend in business development.

Chinese corporate giants like Tencent and Alibaba are increasingly using closed-loop data to drive better insights and engagement to create a massive online empire.

In the future, the companies will integrate all their consumers’ attention into an array of services to monetise it.

Chinese Tech giant Tencent has been building a mega internet ecosystem which consists of social networking, e-commerce, payment, and cloud services over these years.

Tencent’s office building.

It hasn’t been an easy year for Tencent as the company faced an onslaught of negative news by the press.

As the company faces a regulatory crackdown on gaming in China and recorded first profit drop in at least a decade, the internet giant had experienced significant value losses this year with a 38% drop from a closing high in January, according to Bloomberg.

This is now the deepest decline in the company’s stocks since Tencent’s 2004 triumphant listing in Hong Kong.

Source: Bloomberg

The revamp of some Chinese government departments has effectively frozen the commercial launch of new games.

Besides, the government pulled another game — Monster Hunter: World, having deemed its content too gory for public consumption.

This comes as Chinese netizens increasing concern over rising violence, gambling, addiction, and what Chinese authorities fear as a violation of core socialist values in games, websites and video content.

As a result, Tencent found it harder to monetise its online gaming business in China.

Tencent reported a 19% quarter-on-quarter drop in income from video games in its Q2 2018 results annoucement.

Tencent’s PUBG Mobile. Image via www.androidpolice.com

Yet Tencent’s compelling growth story is far from over.

Instead, the company is aggressively expanding its ecosystem by what it terms as organic growth and new investments.

In fact, the company is increasingly diversifying itself from the highly competitive online gaming industry into China’s social networking, e-commerce, payment and cloud services.

Looking back now, Tencent’s strategy seems better with the passage of time.

While Tencent currently dominates the global video gaming industry, its future is certainly much more diversified.

As its social media ecosystem, streaming video content and cloud computing divisions ramp up, the company seeks to become a diversified tech-based conglomerate.

WeChat Will Monetise Its Tremendous User Base

Super apps are the next big shift and creating a major life change.

Tencent is still in the early stages of monetising its WeChat user base, and this all-in-one super-app may become the company’s real crown jewel.

Cautious to avoid flooding user timelines with ads, WeChat currently allows a maximum of two advertisements a day to appear on its social platform ‘Moments’, which is “extremely conservative compared to our global peers” said Tencent’s Chief Strategy Officer James Gordon Mitchell in a May conference call with analysts.

That said, Tencent yet made the most of its advertising potential.

WeChat has grown into the most popular mobile app in China with over 1 billion monthly active users who chat, play games, shop, read news and articles, make payments, as well as post their thoughts and pictures.

 Image via barcelonatechnologyschool.com

WeChat’s ecosystem is further tied together by Tencent’s digital payment system —WeChat Pay.

With hundreds of millions of daily users, WeChat Pay is used not only within WeChat, but also by third-party apps and even physical retail stores.

Also, in WeChat, Tencent added the Mini Program feature last year where they effectively operate apps that are attached to the service.

That means the users can bypass Google Play or Apple’s App Store and install apps from WeChat.

This gives Tencent an excellent way to monetise WeChat’s massive user base and a powerful means by which to further extend the app’s already enormously vast reach.

Reducing Dependence on the Gaming Industry

According to its 2017 Annual Report, the revenue contribution of value-added services (VAS) dropped to 65%, compared to 71% in 2016; although the value increased by 43% to RMB154.0 billion.

These services, including online games (which accounted for more than half of the VAS revenues), social network and digital content services such as video streaming subscriptions and live broadcast services.

However, revenue contribution from other business (mainly in payment and related financial services, as well as cloud services) has increased from 11% to 18% with exact value was spiked 153% y-o-y to RMB43.3 billion.

Online advertising business was accounted for 17% of total revenues, which has slightly dropped from 18%, but the exact value grew by 50% to RMB40.4 billion.

If this trend remains unabated, Tencent’s growth curve will be a meteoric one indeed.


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