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Facebook (USA) v. Tencent (China): A Tale Of Two Mega Platforms

These two Internet giants share similar goals and scale, but different approaches that largely reflect the differences between how the Internet functions in the West and in China. Still, both have much to learn from the other.

Bo Wang, Tencent business development chief (GDC)
Bo Wang, Tencent business development chief (GDC)

*NEWSBITES

So Facebook has filed an initial public offering, aiming to raise $10 billion. The $100 billion market flotation value for an Internet company breaks the record set by Google in 2004.

Now, it would seem, is as good a time as any to compare this web giant to a Chinese counterpart whose ambitions – and scale -- are no less ambitious. Tencent, an online communications portal, is currently the world's third-largest Internet company, behind Google and Amazon. Founded in 1998, it went public in 2004. Now it is Facebook's turn.

Facebook has a total revenue of $3.8 billion and $1.5 billion profit for 2011 whilst Tencent, China's largest internet service portal, expects to tally total revenue of $4 billion and $1.4 billion profit for the same year. The primary source of Facebook's revenue comes from advertisements; only 11% comes from the sale of virtual goods. Tencent" s revenue mainly comes from internet value-added services, and the advertising counts for less than $300 million.

The two companies have certain similarities. Both have a very loyal social network after drawing in a sufficient number of users. But they are also very different in certain key ways: Facebook constructs a community without building up its own industry in this community, though it is considering starting up a bank. Tencent does exactly the opposite: it possesses a huge number of its own businesses and is now providing an open platform.

The price of "pirate culture"

Facebook has attracted 800 million users in a relatively short period without relying on having its own industry. This could not possibly have happened in the China's Internet market. Facebook depends on an open platform and partnerships to provide user services that require a user-friendly environment and basic rules of competition. Meanwhile, the wild Chinese Internet firmament would have swallowed up a company like Facebook; only a giant like Tencent could emerge. We'll call this a regional characteristic.

In China's Internet market, if you consider making your platform open right from the beginning, some may appreciate your efforts, but you risk not getting invited to the ball. Pirate culture is the mainstream on the Chinese web. An enterprise has to identify with this culture to survive. Some firms accumulate their users and brand name in the name of cooperation with others, but will quickly burn the bridge once they have passed over.

Nevertheless, China's environment and the rules of the game are improving. User consciousness and a sounder legal system will all help to establish a better environment in the Chinese Internet sphere.

Facebook has up to now built up an enormous community with super user stickiness. Its huge traffic is what the advertiser is after. And if it learns from the Tencent model in increasing its value-added services, its profit will soar even further.

Meanwhile, there's also plenty Tencent can learn from Facebook. Currently Tencent's community structure includes QQ.com, an open microblog, and a QQ instant message service as a paid service on smartphones. On its community platforms, it offers services like e-commerce, online games and a search engine. But it has not yet achieved substantial growth in its advertising revenue. On this front, it can learn from Facebook.

As different as their approaches may seem, these two Internet giants have very similar objectives: scale, scale, scale.

Read the full original article in Chinese

photo - GDC

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