Tencent creates $35B of wealth in 11 years

Our work is quoted on Tencent’s revenue models and our estimates on the virtual goods market. Of course, Morgan Stanley cannot cover Tencent in details (as we do in our “Inside Tencent” report) as their report tries to cover global trends with some local focus, such as China/Tencent for virtual goods and Japan for mobile commerce. Among interesting factoids, Tencent is recognized as having created $35B worth of wealth over the past 11 years – to compare to Amazon’s $58B over 15 years and Google’s $186B over 11 years. Tencent’s profit margin is 49% vs. Amazon’s 6% – guess digital goods have better margins than analog ones.

Five companies out of “Desktop Internet Winners of the 90’s” are no less than 5 Asian companies

Here is the list compiled by Morgan Stanley:

• Google
• AOL
• eBay
• Yahoo!
• Yahoo! Japan
• Amazon.com
• Tencent
• Alibaba
• Baidu
• Rakuten

If we categorize a bit:

• Search: Google (US), Yahoo Japan (JP – operated by Softbank) Baidu (CN)
• Portal: Yahoo (US), Yahoo Japan (JP)
• E-commmerce i.e. B2B, B2C, C2C and payment: eBay (US), Yahoo Japan (JP), Amazon (US), Alibaba (CN), Rakuten (JP)
• IM/Other: AOL (US), Tencent (CN)

Not bad for Asia. Ever wondered why we focus on China, Japan and South Korea? Strangely, NHN/Naver, Korea’s largest portal and search engine is not included in the list though it passed the $1B revenue mark this year. Naver is totally dominant in its market and pretty innovative: ever heard of “Knowledge Shopping”? It is the combination of “Knowledge Search” i.e. Yahoo Answers, copied from Naver in 2005, and online shopping mall).

Oh, did I mention Yahoo’s hidden treasures were in Asia? It owns large shares in both Yahoo Japan and Alibaba.

Enjoy the read!
@benjaminjoffe

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+8* | Plus Eight Star helps Morgan Stanley make presentations about Asia. Find us also on Twitter!

As mentioned in our quote on today’s Forbes’ column on VinaGame, Vietnam’s largest online gaming company, I believe some are already on their way.

Are there any clues? Here are three reasons to believe so:

• VinaGame already operates IM, portal, SNS and music services
• VinaGame has operational ties with Tencent
• Last, VinaGame purchased our researches on both Tencent and Cyworld from the first edition!

Surely, I am not the first one to suggest that – one commenter on this blog did that in October 2007. There are other companies on this track outside Asia: Mail.ru, the largest Internet portal in Russia, is also studying Tencent closely (and also bought our research). Mail.ru also has MIH as a major investor. If you don’t know MIH, it is a large South-African media group also known as NASPERS. It is the single largest investor in Tencent – they control 35.5% of Tencent, a share worth about 13.5 billion USD.

Another question ask by Rebecca Fannin, author of Silicon Dragon who wrote the column for Forbes, was the evaluation of the Vietnamese online gaming market. I did not have figures at hand but taking hints from an old interview exercise (a Google or Microsoft one I think) that was asking “How many gas stations are there in the US?” with no other information available (I heard another version about dentists), there is always a way to find an rough estimate based on a macroscopic view rather than go with a bottom-up measurement. If you ever wondered how research firms come up with estimates, this is as good a guess as many – and at least there is a methodology to it.

Here is how it goes:

Instead of looking at companies, you can look at market structure:

• Vietnam has similar structure as China in terms of income, GDP/capita, rich/poor (developing market).
• Around 20 million Internet users, so about 25% of the population (similar ratio to China).
• Several years behind China in terms of market maturity (2 or 3? IDG says 10 in the interview but that sounds exaggerated according to some conversations I had with various execs).

So doing just a very rough estimate:

• The China market was ~2 billion 2 years ago
• Vietnam has about 20 times less Internet users

Hence, I would say that Vietnam’s market is probably around $100 million, but has the potential to double or triple within 3 years as Internet spreads (note: this is confirmed by Vinagame’ growth rate of 50%). This number is surprisingly close to VinaGame’s own market estimate (since nobody seem to have a solid figure). The difference is: I know very little about the market and assumed nothing about VinaGame’s revenue. Is that cold reading?

Also, the market is heavily reliant on licenses from China and Korea, which cost quite a bit (also confirmed in the interview that only 5% of VinaGame revenue are from local games), so companies should be able to grow the capability to develop their own titles and potentially generate higher margins (cutting down on licensing + better cultural fit).

You can apply this method to any other developing market, then correct by a few factors like geographical barriers (Internet users don’t grow as fast in countries without densely populated areas), political instability (which harm business), etc.

So… is there a Tencent in your country? What is your market’s potential?

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+8* | Plus Eight Star looks in Asia and picks the best ideas to support your business. Find us also on Twitter!

We received nice coverage from:

• Virtual Goods News: “Asia Driving the Virtual Goods Marketplace“
• VentureBeat: “Asian Venture Goods Market is 7 Times Bigger than US“
• VentureBeat: “Video of Day Two of the VGS – Updates on Asia, Facebook and the iPhone“
• Inside Social Games: “The $7 Billion Asian Virtual Goods Market in PowerPoint“.
• Gamasutra: “VGS 09: Asian Virtual Goods Worth $7 Billion in 2009″
• Dave McClure: “Virtual Goods in Asia – The US Gold Rush Begins”

Key points:

• Virtual goods market in Asia over $7bln
• 9 Online gaming companies listed on Nasdaq and HKSE
• Total market value is $52bln, twice as much as Blizzard + EA + Ubisoft + Take Two
• With similar maturity as China, the US VG market could shoot up to $35bln
• Mobile already making hundreds of millions with virtual goods in Japan

To download the presentation, please fill in your contacts below.

Learn about:

• How Tencent compares to some other key SNS
• How Tencent compares to other Internet leaders in China
• Tencent’s revenue split
• Tencent’s key services
• The business models used by Tencent

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+8* | Plus Eight Star makes Asia’s best web innovations usable worldwide.

Following our post on Tencent’s 1H2009 results yesterday, the +8* team is delighted to announce the release of the 2009 edition of its “Inside Tencent” report.

Over a year has passed since the first edition and many things have changed:

• GROWTH | Tencent grew from US$500 million to over US$1 billion in sales. It is on its way to US$2bln in 2009 with a profit margin above 40%.
• COMPETITION | New competitors have emerged in the form of two Facebook adaptations: Xiaonei (now Renren) and Kaixin001
• GAMING | Online gaming is still very alive and well: 9 Chinese companies are listed on stock markets with profit margins between 20% and 70% and share a market of over US$3 billion. Tencent is #3 in gaming.
• VIRTUAL GOODS | Virtual items / Micro-transactions / Free-to-play / Digital goods – pick your favorite – is the name of the game (and 90% of Tencent’s revenue)

Complete report

Tencent has grown its sales by almost 100%, our research grew by 100 new pages.
The full report includes over 280 pages of information and analysis.

• Updated market figures
• Detailed analysis of key Tencent services
• Insights from 20 web experts
• Comparisons with other leading foreign social networks
• Comparisons with leading Internet and mobile companies in China
• Comparisons with competing social networks
• Comparisons with competing gaming companies
• Recent online social stars and phenomenon
• New legal stories around virtual currencies
• More details on virtual currency systems
• Updated information on Tencent’s online advertising business
• Information on Tencent’s mobile business (#1 WAP portal in China)
• And a lot more!

Order

Price for the full report: US$5,000 (PDF, 284 pages)
We have an early bird promotion for the first 20 copies with 25% discount.
Contact us at info@plus8star.com!

Some of the clients of the 2008 edition

Not sure yet? Get a free sample!

You can download a free sample of the report with close to 100 pages by completing the form below.

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+8* | Plus Eight Star helps companies worldwide become as great as Asia’s.