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Welcome to the New Normal for Big Tech in China

P.ERHAPS NO COMPANY It epitomizes the ups and downs of China’s Big Tech better than China’s biggest tech companies.TencentTwo years ago, the online empire seemed unstoppable. Over a billion Chinese used its ubiquitous service to pay, play, and much more.this is video gamesIt became a global hit such as “League of Legends”. Tencent’s market cap surpassed his $900 billion mark and the company was on track to become China’s first his $1 trillion company.

The Communist Party then said: sufficientChina’s supreme leader, Xi Jinping, has warned against teenagers’ distraction, semiconductor, was not accepted. Tencent, along with other once-thriving digital industries in China, has been embroiled in an 18-month sweeping crackdown.

Tencent’s new title was blocked by censorship after regulators declared video games “spiritual opium” and banned anyone under the age of 18 from playing them for more than three hours a week. I was forced by Trustbuster to tear down the Super App wall and let in other payment processors.Last year, it sold all $36 billion worth of stock. JDOffering .com and Meituan as dividends to shareholders is arguably both to boost share prices and to allay regulators’ concerns about their ubiquity. To make matters worse, Mr. Xi Jinping’s draconian zero-coronavirus policy has resulted in bad frugality for Chinese consumers. His Tencent revenue in the third quarter of 2022 fell 2% year-on-year, its worst performance ever. By October, its market cap had slumped to less than his $250 billion.

Recently, the situation for Chinese Internet companies has taken a turn for the better. shoppers say,revenge spending” How to get out of the darkness of Corona Zero.Government crackdown on tech appears to be over: regulators ease From short video entertainment and cloud computing to artificial intelligence (AI) chatbots. And Tencent, whose market cap has doubled to nearly his $500 billion mark in the past three months (see chart), once again embodies the changing mood. If you want to understand the new normal of Big Tech and what it means for the future of China’s digital economy, look no further than its humble champion.

There is no equivalent of Tencent in the West, or anywhere but China. It’s part of Meta, PayPal, Epic Games (which Tencent happens to own a big stake in), with a bit of Amazon and Softbank thrown in (Tencent, like the American giants, has e-commerce and cloud services. (and has made hundreds of technology investments around the world, similar to Japan’s). Despite a disappointing third quarter, March is expected to surpass his $80 billion in annual sales last year. About a third of each comes from games, business services (including payments, e-commerce and cloud computing), social media and advertising. The company’s pre-tax earnings are expected to easily exceed $30 billion. Excluding banks and energy companies, which performed well in 2022, only a handful of companies in the world performed better.

The cornerstone of Tencent’s wealth is the WeChat super app. For years, companies around the world have tried to imitate this clever blend of pay (the transaction economy) and play (the attention economy). Few companies have succeeded as seamlessly as Tencent, and few others on the same scale.last month lunar new year celebration is a good example. During a week of festivities, a WeChat user sent her 4 billion digitals to loved ones Hongbao (Red envelopes with cash in the real world), those who attended the annual New Year’s Celebration were more interested in WeChat’s new Channels video platform than TikTok’s popular Chinese sister video app, Douyin (130 minutes). (190 minutes) was more frequent.

New Year’s blast hints at where the company is headed. Douyin’s rapid rise Western TikTokelevates your digital life to sharing short videos. Over the past year, the average Chinese spent more time on these platforms than anywhere else online. These platforms overtook instant his messaging in 2020. Short-video apps are becoming central to China’s high-profile economy and digital advertising business, where he generated $35 billion in sales in the third quarter of 2022, according to broker Bernstein. From July to September, he said, the short-form video platform charged about a quarter of the ad spend. The company’s advertising sales increased him 34% year over year.

Tencent seizes its chance to capture that growth slag. The company says the number of users on Channels has tripled in the last year. It doesn’t disclose the total number, but it’s now in the hundreds of millions, according to the New Year’s gala streaming tally. The company could bring in an additional 30 billion yuan ($4.4 billion) in ad revenue within a few years, Bernstein’s Robin Zhu said, mainly Kuaishou (partly owned by Tencent but offloaded ) at the expense of another similar service, Bilibili.

Like Douyin, they sometimes hire big names to attract new audiences (for example, the Backstreet Boys, an American pop group that entertained 44 million fans at their Channels concert last June), but Tencent takes a more ecumenical approach to talent. Content her creators with as little as 10 of her followers can earn a portion of the platform’s advertising revenue. With Douyin, he needs 10,000 fans to make money this way. Tencent hopes its strategy will attract more up-and-coming creators, more viewers and more advertisers.

The company is also reorienting other parts of the WeChat economy around channels. Most notably, it is equipped with a platform that enables “social commerce”.this Chinese consumerismCombining live-streaming entertainment with shopping . Again, short-video apps are taking market share from incumbents. JD.com and China’s largest electronic emporium, Alibaba.

Tencent had previously shied away from the business, perhaps fearing its entry would destroy the value of its lucrative stock. JD.com. Tencent, which no longer has its shares on its balance sheet, appears to want to try its luck in e-commerce. The company did not disclose the amount of transactions on its e-commerce platform. But by 2022, he says that number will be nine times higher than the previous year. And most transactions on WeChat involve his WeChat Pay, despite government decrees to introduce competing payment systems. Tencent and Alibaba, which runs other popular services, have made cross-platform payments possible, but it’s a hassle.

The shift to channels is especially important for Tencent. The government’s anti-gaming stance makes it urgent to look elsewhere for growth. Tencent founder Pony Marecently described the channel as “the hope of the company.” Recent successes suggest this hope is not hopeless, with Tencent’s share of revenue from non-gaming businesses slowly increasing. But to thrive in the new normal, which is poised for even more regulation, Tencent must address three challenges.

The first is ensuring an agile corporate culture that can adapt to new realities. As the tech founder would say, Mr. Ma is low-key and laid-back. This has empowered WeChat’s creator, his subordinates such as Allen Zhang, and has led directly to Tencent’s many successful businesses. But when those subordinates have different ideas, it also creates friction. For example, Zhang has long resisted commercialization of the app, fearing it would compromise his user experience. As a result, WeChat’s home screen hasn’t changed for him in 10 years, and he has to tap twice to access the channel’s videos. Not exactly a chore, but his ability to start streaming clips as soon as a user opens the app is a drag compared to Douyin. Clifford Kurz says the same resistance to change explains why e-commerce businesses are rolling out too slowly. S.&P. Global, research company.

Given the increasing competition among tech companies, limping can be a problem. This is her second assignment. Government crackdowns on technology are crippling the playing field in the digital economy. This forced leveling is creating new competition. From his initial patch in food delivery, Meituan has expanded into ride-hailing services and e-recycle stores, which until now he has been dominated by rivals such as Pinduoduo. Douyin’s owner, ByteDance, will soon launch its own food delivery service and is experimenting with a messaging app that looks a lot like WeChat.Alibaba, Tencent, China’s biggest search engine Baidu are all in development AI chatbots similar to chatGPTits human-like conversational powers have baffled Western Internet users these days.

Politics is where Tencent and its rivals are least likely to stumble. Regulators have declared the tech crackdown over, but the party remains a ghost. The country has small stakes in subsidiaries of the biggest tech giants, including Alibaba and reportedly Tencent. Amid heightened tensions between China and the West, state ties could put foreign earnings at risk, such as Tencent’s lucrative international gaming business.

Meanwhile, domestically, cyberspace, the media and antitrust agencies are gaining new powers, which the University of Hong Kong’s Angela Chan says is actively seeking to wield them. Censorship, always part of the Chinese online experience, Xi ruled by strongmen This means that the launch of Tencent’s games may be further delayed. And there is always the danger that the Party will paralyze corporate growth. Chinese stocks on February 9 AI The company fell after state media warned that “some new concepts” (such as chatbots) were getting too much attention.

So far, the short video has spared the party rod. Crucially for Tencent, there are fewer restrictions than games. But if Xi concludes that sticking to his Douyin and Channels, where young gamers of old spent two-thirds of his time, won’t help form a good communist, the situation may change.

In his public statements, Ma has repeatedly emphasized how Tencent’s app universe has “served society” and “supported the real economy.” Such words should be directed at President Xi and his executives. Investors are also purring. However, increasing competition and a capricious government could constrain Tencent’s prospects in the years to come. China today has no room for the winners of consumer technology, only the survivors.

https://www.economist.com/what-tencents-rebound-says-about-prospects-for-chinas-big-tech Welcome to the New Normal for Big Tech in China

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