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March 27, 2008

For Chinese IM Portal Tencent, The Money Is In Micro-Transactions

Erick Schonfeld

37 comments »

tencent-logo.pngIn China, the money isn’t in Web advertising. It is in micro-transactions. At least that is the case for Tencent, which operates the largest instant-messaging network in China and is one of the largest overall portals. Tencent—which includes the QQ IM service, QQ Show (an avatar social network modeled after Korea’s Cyworld), and QQ Pet (virtual pet portal)—is the No. 21 Web property in the world and the second largest in China after Baidu (the two keep switching the No. 1 and No . 2 spots). According to comScore, it attracted 66.2 million unique visitors in February, half a million less than Baidu and about 10 million less than all the sites run by New York Times Digital (which includes NYTimes.com, About.com, Boston.com,and a bunch of other newspaper sites).

Tencent is publicly traded. In 2007, it made $523 million in revenues, and $224 million in operating profits. That gives it a 43 percent operating margin. In contrast, Yahoo’s operating margin is 10.4 percent.

A big reason for the difference in this profitability is that advertising makes up only 13 percent of its revenues. The rest are in micro-transactions for digital goods, online games, and other services that Chinese Web surfers gladly pay for, as well as mobile services. Here is how Tencent’s revenues break down:

Internet services (digital goods, games, micro-transactions): $344 million (66%)
Mobile services: $110 million (21%)
Online ads: $67 million (13%)

Total Revenues: $523 million

Digital goods are a big revenue driver for Chinese Web companies and are extremely profitable. In the U.S., with a few exceptions (the virtual economies in virtual worlds and online video games), Web surfers don’t really like to pay for digital goods. Is this a cultural thing, or can it change? It is important to remember that there are other ways to make money on the Web besides advertising.

tencent-vs-nyt-chart.png

CrunchBase Information
TenCent
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This entry was posted on Thursday, March 27th, 2008 at 9:55 am and is filed under Company & Product Profiles. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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  1. RealityCrunch - It’s like in Superman 3, Peter

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  2. TechCrunch Japanese アーカイブ » 中国のIMポータルTencentにとって「金は少額取引にある」

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  4. +8* | Plus Eight Star | Mobile and Internet business consulting in Asia, mobile consulting in China, mobile consulting in Japan, mobile consulting in Korea, Internet consulting in China, mobile consulting beijing, mobile consulting tokyo, mobile consultin

    March 27th, 2008 at 9:34 pm

  5. Out to Pasture » Blog Archive » Virtual Goods panel at VWC this Friday, 1pm EST

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Comments

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  1. 113.com

    March 27th, 2008 at 9:58 am

    Very true.

  2. PaulShafft

    March 27th, 2008 at 10:12 am

    Finally, someone is talking sense. Lack of a decent micro-payment infrastructure is costing US business - big time. Below a certain level (e.g. 15 cents), consumers do not even regard transactions as purchases. They do not go through the psychology of buy/no buy because it’s cheaper than buying a packet of bubble-gum.

  3. Yakov

    March 27th, 2008 at 10:40 am

    It’s quite comparable to Mail.ru in Russia. That’s may be why they are with Tencent share one investor Naspers

  4. Harry Wang

    March 27th, 2008 at 10:55 am

    That names reminds me of a stereotypical joke.

    Harry “can’t shake this man of Asian persuasion” Wang

  5. 113.com

    March 27th, 2008 at 11:35 am

    Their names’wise, Tencent rhymes with their Chinese company name (the 2 Chinese chars on the right of the logo)..

    and QQ, had been kinda more of a blessing in disguise in restrospect, for Tencent started their IM biz with OICQ, but gotton into trademark disputes with ICQ.. so they changed their brand to QQ (at the time when they didn’t own qq.com, nor, if memory serves, qq.com.cn, which were later purchases for a fortune)… but QQ is much much more cutie and sounding more natural to the Chinese users, particularly the teens and 20somethings…

  6. 113.com

    March 27th, 2008 at 11:38 am

    OICQ, for the curious, originally meant as “Oriental ICQ”.

  7. big

    March 27th, 2008 at 12:20 pm

    interest

  8. Matt

    March 27th, 2008 at 12:53 pm

    ing

  9. Frank Church

    March 27th, 2008 at 12:54 pm

    Good additional info 113 dot com. Helpful to gain deeper understamding.

  10. Chun

    March 27th, 2008 at 1:03 pm

    The “micro-transaction” is quite a Chinese version. One payment infrastructure is the cellphone billing. The other more popular one is the “coupons” purchased at local convenient stores in physical world for a few Chinese dollars (good for kids). The coupon code is used to redeem the virtual goods like avatars.

    You make your own judgement whether or not it’s really the micro-transaction if all 7/11 and gas stations are selling Facebook $1 gifts in $10 bundle.

  11. QQ is no good

    March 27th, 2008 at 1:05 pm

    QQ is really a crappy software. It is used by people in lower level of society in China. The newer and more educated internet crowds in China uses msn messenger. If QQ doesn’t improve its software and service, it’s only a matter of time before it starts declining.

  12. hehehe

    March 27th, 2008 at 1:46 pm

    micro transaction will fix imperialist Yankee dog. Just after we extinguish these pest Tibetans

  13. TheHumanity

    March 27th, 2008 at 1:52 pm

    “The newer and more educated internet crowds in China uses msn messenger.”

    Oh god, that will be the turning point for the demise of a once great empire.

  14. Chris

    March 27th, 2008 at 2:26 pm

    What means”Chinese Web surfers gladly pay for”??
    什么东西翻译成英文这么别扭？

  15. Richard Chang

    March 27th, 2008 at 2:29 pm

    Glad to see that Techcrunch finally has Tencent featured in a blog posting. It is always good for people here in the Silicon Valley to be able to look at the things from a fresh prosepective.

  16. Phil

    March 27th, 2008 at 3:38 pm

    Aren’t all the US-launched micropayment outfits deadpooled now? Bitpass for example. I guess there’s more to micro-buy in China than there is to micro-buy in the US.

  17. chinchan

    March 27th, 2008 at 6:57 pm

    It is quite advance now in this new era. And this micro-transactions is better for the convenient of the people. But not all expect not all will adopt this kind of transaction but some will do. To make life easier.

  18. QQ is good

    March 27th, 2008 at 7:31 pm

    @11 : I guess you didn’t try the new QQ2008 or TM2008?

    Both are much improved. Also it’s not true that the ‘upper class’ uses MSN. Many people just have two accounts and with the improvements Tencent is making to their newest versions of QQ and TM, I think Tencent will gain market share. Especially since they now even have a Mac version.

    check this: http://im.qq.com/intl/en/tm/2008/

  19. Alex

    March 27th, 2008 at 7:49 pm

    TM 2008 is superior software - superior to MSN, to pidgin, to just about every other IM client ive ever used - and there are no ads. The English version is also very good. TM2008 has built in screengrabs that are very useful, as well as the ability to search through your contacts. its got logging, video conferencing. connections are apperntly encrypted (according to my coworkers). its got group chat and lots of other great features. if only pidgin were as good, everyone would be happy.

    As a side note. Many Chinese people use MSN and not QQ, and many use QQ and not MSN, and some use both. (I am not chinese, but i work in the software industry in china). I have an QQ, a MSN, a yahoo, and an AIM account and I use them all + IRC.

  20. shuaben

    March 27th, 2008 at 7:59 pm

    Yes, this is the popularity in the teenager in china

  21. Sze

    March 27th, 2008 at 8:18 pm

    @ Phil
    I don’t know about Bistpass, but Tencent offers several ways to pay.
    As mentioned by Chun, you can buy QQ Card (coupon) by convenient stores you can find everywhere.

    You can also pay using your ATM card, your fixed line account, cellphone account, broadband connection account. You can even use certain SIM card recharge coupons to buy the so-called Q points.

  22. Benjamin

    March 27th, 2008 at 8:22 pm

    We published a detailed research on Tencent/QQ covering its business models and strategy. You can get a free short version on our website.
    We also made a comparison of FB with leading Asian SNS and — FB is not #1.
    Presentations are on http://www.slideshare.net/plus8star/

  23. Jason

    March 28th, 2008 at 4:34 am

    Thanks Benjamin.

  24. QQ is no good

    March 28th, 2008 at 11:14 am

    @ 18, 19
    yes, I agree its a huge improvement and a huge ripped off of msn. but the new qq still inferior and look and feel like 1998. also you talk like you work at tencent…

  25. Jackson

    March 28th, 2008 at 12:00 pm

    Most of my contacts in China and Taiwan still use MSN Messenger—of course most of them are in the mid-to-late-20s so perhaps we’re the old crowd now?

    On another note, I’m surprised they haven’t registered their internationalized domain name…

  26. Leon

    March 28th, 2008 at 12:36 pm

    @24 How can you say it’s both ripped off MSN and say it looks like a product of the 90s?

  27. Christoph

    March 29th, 2008 at 10:35 am

    @ Benjamin

    Indeed a very interesting presentation.

    However, a comparision of Asia and Europe / US won’t work as cultures are too different. The best example is that http://www.cyworld.de was closed, the site is no longer up and running according to
    http://www.deutsche-startups.d...../#comments

    The site never took off in Europe. Adapting a business model from Asia might be difficult.

    Christoph
    http://www.youzoomr.com

  28. Cat Chen

    March 29th, 2008 at 11:11 am

    Tencent QQ is popular among Chinese university students, because most of them don’t have a second choice.

    Most universities in China only connect to CERTNET, which means China Education and Research Network. Accessing domestic IP via CERTNET is nearly free. I guess it’s around 10 yuan (less than 2 dollar) per month. But if you want to access foreign IP via CERTNET, it costs you much much more. So most students accessing the Internet via CERTNET just won’t choose foreign IMs.

    Remember, there’s no Internet in China. There are just some huge WANs. Bandwidth between these WANs and the Internet is very limited.

  29. aw

    March 29th, 2008 at 6:22 pm

    QQ is a monster in China.

  30. Benjamin

    March 29th, 2008 at 7:46 pm

    To Christoph: we tend to think comparisons bring perspective, and that culture is usually a “layer” on good ideas. Adaptation is certainly difficult, so it is usually better to adapt concepts than services themselves.
    As for Cyworld’s failure in Europe, we actually commented about it some time ago:

    :: Auf Wiedersehen! …au revoir, good bye, ciao, adios! | Cyworld closes in Europe ::
    http://www.plus8star.com/?p=106

  31. coven

    April 18th, 2008 at 10:28 pm

    QQ,is a shit compare baidu hi

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