Tencent – A Must Win

Tencent has to become the agent of choice on Chinese smartphones

• Tencent has passed a crucial milestone in ensuring the durability of the ecosystem it built in China by becoming the most downloaded AI chatbot on Chinese iPhones.
• This is a must-win because if someone else supplies the agent by which users access their smartphones, then Tencent is almost certain to lose the ecosystem it has built and return to being just a games publisher and developer.
• One of the big themes in the smartphone industry at the moment is the idea that with high-quality chatbots being available that usage will migrate from interacting with many apps to simply talking or typing to an agent.
• It would then be the agent’s job to fulfil the request using apps and services on behalf of the user.
• I am yet to be sold on this theme because, in smartphones, the current user experience using touch is already very good and has been universally adopted across the world.
• Migrating to a voice or text-based agent will not necessarily deliver the big uplift in utility that will be needed to drive adoption by users given how good the experience already is.
• In the automobile, the situation is completely different as the fact that humans still have to drive makes touching screens a suboptimal and potentially hazardous user experience.
• Hence, using voice (as long as it is really good), represents a big uplift in the user experience that will encourage rapid adoption once users have gotten past their current scepticism.
• However, assuming that AI agents are the next big thing on smartphones, then the current digital ecosystems face a moment of dislocation.
• These moments are dangerous as they mean that the rules of the game change, allowing newcomers to dislodge the incumbents.
• The last time this happened in the mobile phone industry was in 2007 which resulted in Apple, Google and Tencent completely taking over the industry and forcing the legacy incumbents out over the subsequent 7 years.
• In 2025 it is Apple, Google and Tencent that control the smartphone industry and a move from a touch-based interface to an agent-based interface represents a change of this magnitude.
• This is because it is the agent that becomes the control point in the smartphone and, as such Apple, Google and Tencent must win the agent battle within their ecosystems to stay relevant.
• While I have argued many times that the barriers to entry for generative AI are becoming lower and lower with every day that passes, these three still have a big moat that a newcomer will have to overcome.
• This moat is their user base which for each of these players is already well over 1bn users which gives them a golden opportunity to distribute their agents to their users and set them as default in the devices and services that they already deliver.
• This is the power of default which has been demonstrated time and again to be a very potent tool giving the incumbent digital ecosystem a very good chance of maintaining their dominance if this transition comes to pass.
• The data from China is the first indication of this power being put to good use by Tencent and looking at the agentic AI strategy of Apple and Google, one can see the same thing.
• Here, Apple will only allow Apple Intelligence to control its devices while Google will embed Gemini in all of its digital ecosystem services that have billions of users and turn it on by default.
• Hence, I don’t think that agentic AI is going to result in a change of guard in the smartphone industry in China or anywhere else, but this is a dislocation in the market meaning that the best chance of disruption is now.
• The next potential (and much larger dislocation point) is the Metaverse, but I think that we are many years away from mass adoption and there is a high chance that it never happens at all.
• This would be a much harder fight as companies like Meta who have deep pockets and a determination not to be under the thumb of the incumbents, will be fighting hard in that space.
• The net result is that this is an important win for Tencent, and its agent must remain the agent of choice if the status quo is to be preserved.
• The initial signs are positive for the incumbent digital ecosystems should agentic AI become popular on smartphones, but this is something to keep an eye on as the risk to their supremacy is as high as it has ever been.