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Executive Summary
This report focuses on studying how Facebook’s status quo of is being challenged by Tencent’s rising
global position by analyzing Tencent’s dynamic business model and its disruptive innovation.
To better understand the situation, this report will first analyze how Tencent has disrupted the vertical
chain of certain industries and how the disruptive technology helped to concrete its dominance in China.
After concreting its social empire in China, Tencent was expanding to the global market by building its
global empire through alliances with global games companies, acquisition and global payment gateway.
With a dynamic business model and expansion to global market, Tencent has quickly risen to a global
position which can face off against Facebook. The report will analyze the potentials of the two
In a word, both Tencent and Facebook started off as a social media entity, but they enhanced their
business model when time goes by, of which Tencent is diversifying its revenue stream and Facebook
seems to continue focusing on its advertising profit. Tencent and Facebook are heading in different
directions and the real competition between the two giants is not a head to head contest, instead, it is
how they can guarantee its global position and sustain its growth by implementing the most adaptive
1. Introduction
Facebook and Tencent are the most dominant social giants in the West and in the East. Tencent’s
financial result was nearly on par with Facebook's for the first half of 2016. Tencent reported revenue of
$10.21 billion and a net profit of $3.04 billion, compared to Facebook's $11.82 and $3.57 billion.
Analysts often attempt to compare these two companies and imagine a competition. Both started off as
a social media entity, but is Tencent leverage gaming industry and other channels to support itself, while
Facebook: Facing off Against Tencent
Facebook is still relying on advertisements? How Tencent’s business model has literally turned it into a
2. How Tencent acted as a driver of innovation in China disrupted the vertical value chain of industry
Tencent has taken lead in driving technological in China and one of its notable examples is the mobile
payment system. It has become a phenomenon that in many of the developed cities, Chines people no
longer need cash to live a life but a mobile. Mobile payments have become a part of people’s daily life in
China, they can pay for taxi, buy a train ticket online, order food takeaway, you name it. The mobile
payment system has expedited the Chinese users leapfrogging from desktop to mobile, skipping the
laptop phase and from cash to digital payments, skipping the usage of credit card. Nowadays, people
can even use WeChat pay to buy breakfast from the small breakfast stall. Tencent accelerated the
innovation and moved towards “innovation commercialization” progressively, which the Western
3. Tencent expanded its global footprint by becoming the global payment gateway provider
Due to rapid economic growth and the implementation of the Reform and Opening-up Policy, there was
substantial increase in people's personal income and living standard. Chinese people are having more
disposable income for consumption and they become more eager to travel to other foreign countries.
According to a research conducted by Ogilvy in 2014, the China tourism spending overseas has
skyrocketed from USD$36 billion from 2008 to USD $164 billion in, with an incredibly increase of 356 per
cent in 6 years.
With a tremendous outflow of Chinese tourists, the WeChat Pay International has been introduced as of
February 2016 to meet the demand. In order to better serve the Chinese tourist, the overseas
merchants not just plug into the payment system, but also to set up the WeChat official accounts for
advertisement and communication of promotion offers. This has helped Tencent to expand its footprint
Facebook: Facing off Against Tencent
to countries which are popular among Chinese tourists, while in the past many of the countries were
reluctant to use Chinese social media platforms due to the privacy concern. But now, Tencent can
capture the transaction data of overseas vendors which they could hardly get it in the past and they are
able to draw insight from the data to plan for its next step in global markets. Other that the capturing its
share in the West through gaming business, Tencent has greatly leveraged the payment system as an
export gateway of its own platform to connect itself with the globe and meanwhile to expand its user
Tencent’s accelerated innovation approach in China has built the cornerstone of success in domestic
market, but they still have a much more to work on its international expansion. Though Tencent has
been actively trying to export its domestic success to global markets, i.e. We Chat and We Chat
payment, in order to capture the share in global market, it requires large investments in western
markets which mostly have already gravitated to Facebook and it has to tackle with a lot of regulatory
issues, especially the protection of personal data. Tencent has taken a straight-forward approach which
was to extend its global footprint by acquisition strategy. In the following session, there will be a
Revenue composition
The two social giants have very different business models: Tencent generates it profit by gaming and
multiple industries while Facebook is focusing on its major source of revenue from advertising
Facebook ranks as the world’s largest social network platform by having over 1.7 billion of active users
and Its WhatsApp is available in over 128 countries, making Facebook has the world’s most widespread
social software. The enormous user base provides Facebook with infinite opportunity to generate
income from advertising, and the advertising revenue accounts for 97 % of its total business. In
Facebook: Facing off Against Tencent
comparison, Tencent have a diversified revenue stream. Mostly coming from games and services. These
services were in-App purchases from Tencent’s gaming ecosystem, and also its WeChat services and
online payments are becoming a growing contributor to Tencent’s top line. The business model of
Tencent is sustainable and profitable by providing services and payments which they can generate
growth by adding value to end-users. Also, the multiple stream of revenue has helped to disperse the
risk of business especially in this fast-changing technological era. On the other hand, Facebook’s growth
is vastly at the expense of end-user’s experience, and at the benefit of advertisers. Even though it is the
case, due to its dominant global presence and user base, all marketing companies have to gravitate to
Facebook, and it becomes an essential investment if the companies need to succeed in the digital world.
The other key difference between Facebook and Tencent is their expansion strategy. Facebook focuses
more on products and technology, while Tencent relies more heavily on its business model. In other
words, Tencent invest in a lot of overseas start ups and companies so as to extend its global reach and
leverage its geographical influence. Even though Tencent has been doing wildly success in China, they
are facing a lot of issues in global expansion, i.e. government relations, regulatory issues and Western’s
perception towards Chinese social media platforms which are always considered as a spy software.
Therefore, the acquisition strategy that Tencent is exercising has successfully helped to brought its name
Facebook has a different approach, instead of building alliance or expanding territory dominance, the
acquisitions are usually meant to eliminate potential disruptors, absorb talented teams or enhance
existing products’ functions. The acquisition of Masquerade by Facebook to enhance the video
5. Recommendations
Facebook has been doing successful across the globe, which could help it defend its dominant position
where WeChat failed. At this moment, Facebook and WhatsApp are still the most commonly used media
apps and its presence is almost everywhere on earth, but not China, Iran and North Korea. Other than
accelerating pace of innovation, Facebook may consider expanding its footprint in China by acquiring or
having joint-venture local start-ups as well as more established players. In exchange, Facebook can
utilize its knowledge and strong user base to help Chinese entities to enter Western markets
By being the largest digital gaming company in the world and having partnerships with other global
game developers, Tencent shall leverage this competitive advantage and explore how to integrate the
WeChat function with the games, i.e. offer WeChat payment gateway to top up. Also, Tencent can also
explore to have joint venture with other telecom giants like Huawei to expand its global footprint.
6. Conclusions
Tencent and Facebook have been evolving from a social media entity to a global internet giant by having
an enhanced business model in the past decade in order to adapt to the fast-changing technological era.
The dynamic business model of Tencent has successfully brought it to a global stage which has no way to
shy away from global tech giants like Facebook. However, instead of aiming to take share from each
other, both companies know what they want and how they want it, they are not in a confronting
position, but more likely to learn from each other. Therefore, by comparing their business model, no
Reference
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