Internet Business in China: Life, Death or Tencent

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At the Global Mobile internet Conference in Beijing on May 10, the presence of a whole host of successful Chinese internet entrepreneurs showed it’s still a good time to start a web business in china.

But looming everywhere amid the success stories was the long shadow of Tencent, China’s social networking and gaming giant. The company has been so successful at growing its presence across the social networking space that it has spawned an aphorism among Chinese web entrepreneurs: “life, death or tencent.”

Translation: An entrepreneur entering China’s web market can either cooperate with Tencent, be crushed by it, or (less likely) scale so rapidly as to have some hope of competing with it.

That dynamic came to the fore in the morning session of the conference when Lei Jun, founder of smartphone maker Xiaomi and chairman of software maker Kingsoft, discussed the company’s rollout last year of its instant messaging service Miliao.

With Tencent chief executive Pony Ma looking on from the front of the room, Mr. Lei recalled wondering with others in his company how long it would take Tencent to come out with a competing service. “We thought maybe it would take six months,” he said. Instead, as he pointed out, it took only two months for Tencent to come out with Weixin, a wildly popular mobile messaging service that analysts estimate has already accumulated more than 60 million users since its launch last year.

To awkward laughter, Mr. Lei talked about how he used the rival’s more popular messaging service to study the competition.

In an interview on May 8, Yu Yongfu, the founder of the upstart mobile browser company UC Web, pointed out that in the very niche market of the mobile web browser, Tencent’s QQ browser was their primary Chinese competitor.

Mr. Yu said he was confident his company could outcompete Tencent CUC Web says it remains the leader in China market space for mobile browser users ― due to its focus on the single product.

Still, Tencent has proven over and over that despite its wide range of offerings, it can outcompete specialized companies.

Tencent’s primary obstacle could in the future be its own success, according to David Wolf, chief executive of Wolf Group Asia. “They’ll be facing some of the same challenges as Microsoft without the formalities of the Sherman Anti-Trust Act,” Mr. Wolf said.“There is a Chinese anti-monopoly law, and if this goes on long enough and they break the dreams of people and especially the wrong people, Tencent may find itself facing some challenges.”

As for those brave start ups seeking to play David to Mr. Ma’s Goliath, the key according to Mr. Wolf is to diversify away from China and move into areas where Tencent doesn’t compete.

UC Web has a presence in a number of other countries, and Xiaomi makes a low-cost smartphone, so both are for now holding their own. But just as importantly no upstart as yet seems to have the slingshot that could bring Tencent down.