Tencent – Golden opportunity.

A quiet integration should be going on in the background. 

• In light of recent issues, Tencent has announced a re-organisation that I think offers a golden opportunity to fix a number of the issues that have been hampering its long-term potential.
• Tencent’s “strategic upgrade” includes the formation of two new business units and the merging of others to create business lines more focused on where its opportunities lie.
• At the same time, I think that this is a great time for Tencent to let go of some its older ways of doing things and position itself to return to growth in the increasingly mature Chinese market.
• 7 business lines go to 6 with the scrapping of Mobile Internet Group (MIG), which is now almost irrelevant seeing as almost everything is on mobile now, Online Media Group (OMG) and Social Network Group (SNG).
• These will be collapsed into the new Platform and Content Group (PCG) and a new group called Cloud and Smart Industries Group (CSIG) will focus on opportunities for Tencent to offer its services to the enterprise.
• CSIG is a new line for Tencent which will aim to compete against Alicloud as well as seek opportunities with Chinese companies with its existing services.
• For example, the customisation and usage of Weixin the enterprise would be a good example of just such an opportunity.
• The Platform and Content Group will focus on integrating Social Media and Online Media and it is in integration I think the biggest opportunity lies.
• This is because I have long believed that to be really successful, the different services across Digital Life need to be integrated such that usage can be understood as a user profile rather than a series of discrete and independent services.
• This is one of the key ingredients of Google’s success and is something that Baidu and, increasingly Alibaba, are beginning to get to grips with.
• Tencent, on the other hand, has been quite far behind in terms of grasping the importance of this.
• Over last few years this has not been a big problem, but as Tencent’s growth slows and it becomes more bogged down with regulation, it will become increasingly necessary for Tencent to bring its assets together in a cohesive way to keep growth going.
• This is how Tencent can really begin to monetise its ecosystem beyond the sale of content and games and become a place where users live their Digital Lives.
• This reorganisation puts together a couple of the key digital life services (Media Consumption and Social Media) into the same place making it much easier to begin this task.
• The one hold-out remains Weixin / We-Chat which will still be in a division of its own (Weixin Group (WG)) and there are no signs of this being put together with the rest.
• This is a problem because some of the most engaged relationships Tencent has is with its Weixin uses and it needs to integrate these relationships to try and cross-sell its other services as well as improve its understanding of its users.
• It is this understanding that is essential for Tencent to be able to optimally monetise usage of its ecosystem and for it to see a recovery in growth once the shorter-term issues (see here) have played out.
• Hence, keeping Weixin separate remains an issue for Tencent to make the most of its assets, but I hope that this re-organisation will also include a quiet integration of Weixin into the other Digital Life services despite remaining a stand-alone group.
• I am looking for an opportunity to get back into Tencent, but the next three quarters look like they will be difficult, and so Q2 2019 looks like the right time to act.
• I am staying on the sidelines till then.