What is Tencent Doing?

By: Eli Levi  |  February 19, 2023

By Eli Levi, Business Editor

Tencent, a Chinese tech conglomerate, owns its super app WeChat, which has one of the most monthly active users, at more than one billion. WeChat combines payments, messaging in all forms, and services into one super-app. Unlike many American companies that monetize using ad revenue, Tencent has a different approach. It invests in companies it believes will do well, and then promotes them using  WeChat. When the company they invest in does well, Tencent makes money. Pinduoduo is one recent example of a company that Tencent invested in and then promoted on its platform. Tencent currently owns 16.5% of Pinduoduo which was only created in 2015. Today, Pinduoduo has a market cap of over $160 billion. Partnering with Tencent early on was one of the main factors in Pinduoduo’s growth.

This method is a much more effective way of investing due to the concept of incentive alignment. Both Pinduoduo and Tencent’s incentives are aligned, in the sense that both want Pinduoduo to grow at the fastest rate possible. Additionally, Tencent is also uniquely positioned to be in control of a version of the metaverse, should such a thing ever come to exist. Instead of having to cross between different apps and different usernames and passwords for varying services,  everything would be centralized and integrated into one super-app. To this end, Tencent owns 40%, the largest stake, of Epic Games, the creator of Fortnite and the Unreal Engine, which allows anyone to create high-scale graphics for video games. This gives Tencent a real shot at being at the center of the metaverse with the key piece being integration. By giving out the Unreal Engine for free, Epic Games, and by extension Tencent, are making all video games through the same engine and thus fully able to integrate with all of their other apps and offerings. The fact that the engine is free makes it the default for any creator or company to use. Beyond Epic Games, Tencent has the by far the largest footprint in the videogame industry (even if the Activision Blizzard deal goes through),  owning Riot Games, which makes League of Legends and PubG Mobile in addition to many other titles. There are only a few companies that can even have a shot at creating a fully integrated super app and Tencent is one of them. This is primarily due to their already existing super app WeChat, which already has payments, social media, and messaging in addition to their expansion and ubiquity in gaming which comes from their numerous acquisitions and the nature of the Unreal Engine.