Tencent Tells its Story at Virtual Goods Summit

David Wallerstein of Tencent began the Virtual Goods Success Stories panel at the Virtual Goods Summit with a presentation, mostly to demonstrate what Tencent is doing in China: Chinese Internet penetration is only 10.5 percent. Wireless is 35.2 percent. Roughly 40 percent of Internet usage in China takes place in Internet cafes. Tencent currently has more than 4,000 employees, with roughly 30 percent R&D staff. Tencent has five leading online platforms:

• QQ.com is the #1 portal in China
• QQ games portal is the #1 mini casual games portal in China
• QQ IM, #1 IM service provider in China
• They also have a leading wireless portal
• Qzone, the #1 blog site / MySpace in China

Revenue has grown from RMB250 million in Q1 2004 to RMB750 million in Q1 2007. The largest share, 65 percent, is Internet value-added services. 25 percent mobile, 10 percent advertising.

Target demographic is 15-30 year old users. Users are primarily interested in entertainment. Tencent tries to serve anything they might like: IM, email, games, news, information, music, video, eCommerce, etc.

QQ avatars follow users throughout all parts of the service. There’s a games application integrated into the IM client, as well as a pets application. Virtual goods that Tencent sells includes premium instant messaging, which is very popular in China. For about $1.25 a month, you get more storage space, bigger photo albums, etc. Qzone is a MySpace-like experience, but the users have to buy the wallpapers and other things that they use to decorate their pages. Tencent makes all the items themselves. Items are discounted if you’re a subscriber to the premium service ($1.25 a month).

QQ Pet service launched in May 2005, a pet penguin that runs around on your desktop and is integrated with the IM client. There are 54 million pet penguins so far. One of their most successful business drivers. You can take it into a virtual world where it can be educated, go shopping, etc.

Three kinds of online games: mini games (casual games), which are all multiplayer and client-based; ACGs, or advanced casual games; MMORPGs. Together they’re one of the most important business drivers.

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