Why Tencent could become a source of advertising like Facebook


The growth of Tencent Holdings Ltd. in a $ 500 billion company was driven by a culture of internal competition, where teams competed with each other to make ideas work. To become an advertising power like Facebook Inc., internal barriers are beginning to diminish.

The seven major business units of China's largest company are working to synchronize data and study more than one billion users to deliver precision and predictive ads, according to Lau Seng Yee, the executive in charge of leading the charge. . This is counter-intuitive for a company where ideas are generated from the bottom up, and the divisions that encompbad games and video transmission to finance are encouraged to compete with each other.

Tencent has its user data: the music that people play. the news they read and the places they go to, to offer specific advertisements and capture a larger portion of the online advertising market of 350 billion yuan ($ 53 billion) from China. Success in games and social networks has meant that the company has not had to rely on ads, a business that generates only [19659006] 17 percent of its revenue compared to 97 percent for Facebook.

"The outside world knows our core DNA is internal competition, but it has to be healthy," said Lau, who took on the newly created advertising role in March. "We spent a lot of time solving our silos, setting our equipment on fire and integrating the so-called team strength."

Read more: Inside the cannibal culture of the most valuable Chinese company [19659004] The ferocity of the competition is exemplified by the fact that Tencent's businesses really compete with each other, with their services WeChat and QQ social networks that have about one billion users each. Its operations are not even located in the same cities, with much of the WeChat team and its head in Guangzhou, the online news business predominantly in Beijing, while a large part of Lau's team is in Shanghai. Tencent is headquartered in Shenzhen.

Alibaba Group Holding Ltd. now dominates Chinese digital advertising, but investors are betting that part of Tencent's future growth will be derived from social media marketing. That helped Tencent more than double this year, and briefly Facebook went on to become the fifth most valuable company in the world. and – cementing its position with Alibaba as standard carriers for China in an increasingly digital global economy.

Tencent's advertising revenue could more than double to $ 11.4 billion in 2019, according to researcher eMarketer. It is estimated that the company will increase its market share in China's digital ad space to 15 percent, from 9 percent, eMarketer said. The company's shares fell 1.1 percent in Hong Kong.

"If you think why advertisers like Facebook social ads, it's because the data they have about users allows for more accurate targeting," said Alex Yao, a JP Morgan Senior Analyst at JPMorgan Chase & Co "Tencent has more data about users than Facebook."

Social advertising, which depends on the information of a user's network, is still an incipient business in China. Facebook alone accounts for about 10 percent of continental digital marketing with e-commerce and search ads that still carry the bulk of it. Lau expects that to change.

"Social advertising can play a more important role," said Lau. we are a pioneer in the categories "of that.

Lau talks about digitization and the global economy.

Lau, a graduate of Rutgers University, has been with Tencent since 2006. Before taking on the advertising role , built the media bu becomes a giant with content that includes news, entertainment, sports and video on demand.

At that time, the company's WeChat became practically ubiquitous in China, although Tencent remains largely non-existent outside the continent, especially in the United States Europe.

For Lau, the construction of the advertising business requires a delicate balance between the monetization of badets and the avoidance of setbacks of consumers who already suspect of giving too much information Private.

Facebook. With the goal of increasing revenue, increase ad impressions for users, with an increase of around 50 per cent. last year. But the advertising load was such that executives of the US company have warned investors that can not maintain that pace without alienating people.

So Tencent has opted to moderate, usually showing only one ad per day on WeChat "Momentos", a feature similar to Facebook news, which limits inventory by intention. That's why he earns only $ 2.10 per active daily user on WeChat, compared to $ 30.10 on Facebook, Morgan Stanley estimates.

The Chinese company can afford to take a gradual approach because the online games division is buying time. More than 40 percent of the revenue comes from the business and the hit Honor of Kings was the highest-grossing title in China's iOS store for a year, driving the strongest quarterly revenue growth in seven years . The two new first-person shooter games of the company have accumulated more than 20 million players in a matter of weeks.

"Seriously, we're all WeChat users, you do not want to be overloaded with unnecessary information," Lau said. "I'm not saying we're not in a hurry, I think we're in a hurry to try to make sure we understand our users well."

To do that, an army of more than 250 computer scientists was enlisted to expand on artificial intelligence, focusing on natural language processing, image recognition and prediction of user behavior. That investment is showing up in some areas: Tencent worked with BMW to target high-level users based on their friends and location records, by sending them WeChat ads through which they could book trial units. The end of the game is convert advertising into purchases, so the company is also exploring hotels, restaurants and properties, said Lau.

With its frantic growth, Tencent has hired at a rapid pace and the average age of the employees is 29. That's why making sure the teams line up has become more important.

"When the ultimate goal is to win, there are times when people simply win all the time," Lau said. "The administration is trying to figure out how we can make sure we can encourage the tasks of building trust."

– With the badistance of Lulu Yilun Chen and Tom Mackenzie

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