Sorting Failure From Success in Social Networking | The Tencent Case

While the overall success of Tencent as a company is pretty obvious, our friends from Blogger Insight took the specific case of Tencent’s SNS properties Qzone, QQ Campus and Xiaoyou to see how they were performing. Their conclusion is that Tencent pretty much failed at SNS. Our take is less conclusive – comments are below with minor edits.

Pony Ma, CEO of Tencent, says in their latest release that:

“For our community value-added services, Qzone registered robust growth during the year and further consolidated its position as the largest SNS platform in China, with active user accounts increasing by 158.4% YoY to 387.8 million at the end of 2009. The key drivers of the strong growth were the popularity of SNS applications, especially social games, as well as the continued improvements in user experience and features. Xiaoyou, a real-name SNS launched in January 2009, gained considerable traction during the year and has become a popular service among university students and young alumni.”

Topics: Blogger Insight
Commentary: +8*

#1 Squandered Opportunity
Chinese internet giant Tencent was enviously positioned to dominate social networking, but blew its chance. Qzone does not reach any new demographics.

+8* | Considering Tencent is already reaching everybody with its IM service and Qzone started off as a blogging service, its revamping into a social network does not seem that bad – and they claim 305 million accounts if I remember. I am not sure what you would measure Qzone’s success or failure against but in terms of reach it seems fine to me. The business side of things is a bit more tricky: the revenue model with Qzone is avatar (QQ Show), social games and ads – they drive a huge number of pageviews in a way that advertisers are used to count (it’s harder with IM) but their huge inventory also devaluates the potential in CPM. The split of their SNS targeting different demographics is to focus the value and address market betters – similar to what RenRen does within its service at signup.

#2 The Site’s Design and Features are Lousy
The Qzone website is an unintuitive eyesore. Its applications are of poor quality and frequently inaccessible.

+8* | Agreed. I think this comes from the blog legacy and the “MySpace” style that has been prevalent – offering lots of customization opportunities. If you think of it, what about your Facebook page if you don’t like blue? You can’t change anything.

On Tencent’s SNS, applications are all copies or licenses or bought from social gaming companies, generally with terrible revenue share or poor valuation. Why? Because Tencent is a closed network and because they can. Problem is: operating social games is not the same as IM or MMOs and there is a learning curve – even for Tencent.

#3 Is Qzone Really No. 1?
Tencent’s claim of 305 million active users is highly suspect; even its classification as an SNS is questionable. Its competitors are encroaching upon its core user base of young teens.

+8* | Tencent’s number are no more suspect than others – at least Tencent is a market-listed company and they’d better not throw out too much exaggerations. What I suspect however is that many users might not even know they have a Qzone page, that would come with their IM account – or that any abandoned page is counted. We’re not talking about active users here since all SNS want to show off their highest number to claim to be #1.

As for classification, it is hard to say what is SNS and what is not. “Facebook” does not define SNS and I would count QQ IM as SNS depending on the context.

Does this mean Tencent soon collapse? Absolutely not. Tencent with Qzone is like Microsoft with Windows Vista: a near-monopolist that thrives despite a terrible product and lack of vision.

+8* | Tencent is definitely not the best in terms of products or innovation – similar to Zynga in that sense – but their ability to deliver a “good enough” mass market service and integrating it within their ecosystem is impressive. I guess those are two sides of the same coin.

For 2010, Tencent’s plans are:

“In 2010, we will focus on offering more SNS applications, including third-party applications, to enhance user value and better address the needs of different user groups in the market. We will also enhance the integration of our SNS with other platforms of Tencent to further extend our leadership.”

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+8* | Plus Eight Star gives its own take on digital things in Asia to make it relevant to you. BTW, we’re on Twitter too.