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Can Tencent come in from the cold in India?

"On global markets, Tencent is still starting out. It will have its own business in India in ten years and by then its investment map will start to make sense.”

Dec 31, 2018 by Ruiyao Luo
Can Tencent come in from the cold in India?

Graphic design: Mengjuan Li / The Passage

PubG, a battle royale game, released as an online multiplayer game for consoles late last year, was made available for smartphone users in India in March 2018. The game caught on quick.

Rohit Kumar, 24, a gaming enthusiast working for a tech firm in Hyderabad, says he spends around three hours a day on PubG. He has been playing the game for almost six months. Unlike other games, there’s never a dull moment, he said.

“I get to keep in touch with family and friends who are on the platform and make new friends,” Kumar said. He has spent Rs 600 on Royal Pass once.

Neha Gudugunti, 26, works with Amazon in Coimbatore. PubG is her first mobile video game experience.

Neha said, “Everything is new to me. Before, I had zero knowledge about guns. Now I know a thing or two. I feel like I am in an action-packed Hollywood movie when I play PubG”. The game gave me insights into combat strategies and weapons, she added.

“I play, usually three to four rounds a day, with my relatives in different cities. PubG encourages a sense of community,” she said.

PubG is so addictive that Vellore Institute of Technology, a premier engineering institute in Tamil Nadu, has banned students from playing the game inside the hostel campus.

It’s no accident that PubG’s launch in India coincided with the videogame crackdown in China. Tencent has also invested in a local sports gaming platform Dream11.

Mumbai-based Dream11, founded in 2012, offers cricket, basketball, Kabadi and other games on its platform and claims to have 30 million users. In September 2018, the company received USD 100 million in Series D funding from Tencent.

Apart from Dream11, Tencent has made three significant investments in India this year: music platform Gaana (USD 115 million), news aggregation platform NewsDog (USD 50 million) and food delivery startup Swiggy.

Tencent’s attempt to invest in short-video app ShareChat failed after the Chinese giant and ShareChat couldn’t see eye to eye on the latter’s valuation. Tencent’s plans to bankroll digital loan platform Kissht also didn’t materialise. ShareChat has around 10 million daily active users.

Change in tack

A WeChat post (Has Tencent lost its edge?) of a former editor of a Chinese tech media went viral in May 2018. The author said, Tecent is morphing into an investment company and not developing own products.

“Tencent has not made great products in core areas such as search, e-commerce, information streaming, short video and cloud,” the post read.

Tencent debuted in India with WeChat in 2012. The social media app foundered in India and globally, despite spending heavily on marketing.

Tencent then started investing in emerging startups rather than rolling out own products in the overseas market like India.

Since 2015, the company invested nearly USD 2 billion in India’s leading startups across e-commerce, healthcare, edtech, mobility, foodtech and sports sectors.

Apart from Dream11, Tencent’s portfolio includes Practo, Flipkart, Byju’s, Ola, Gaana, Hike, Newsdog and Swiggy.

Founded in 1998, Tencent went public in 2004. The launch of Weixin (WeChat) in 2011 was the inflection point for Tencent. In two years, WeChat clocked 300 million registered users with a market capitalisation of USD 100 billion.

Flush with funds, Tencent began investing aggressively in China in 2015-16.

“At that time, Indian market was starting to flourish. Tencent looked at India and said, why not, and invested in a handful of good Indian companies,” a former Tencent employee said.

“Tencent’s investments are independent of its business whereas Alibaba adopts a hand-on approach,” he added.

Tencent is a passive financial investor while Alibaba is a strategic investor.

The rise and fall

Tencent targeted Southeast Asian and Indian markets to take on Facebook and Google.

Naspers Ltd - a South African firm with 31% stakes in Tencent- used one of its investee’s (Ibibo) resources to promote WeChat in India.

Tencent roped in football legend Messi, Bollywood actors Varun Dhawan and Parineeti Chopra, to endorse the product. The company spent a fortune on marketing. WeChat was the first mobile app to launch TV commercials in India.

Kunal, who had used Wechat back then, told The Passage that he took a shine to WeChat after he discovered the dating potential lurking in ‘Shake’ and ‘People nearby’ features. WeChat was a sort of precursor to Tinder, he added.

Though WeChat acquired 20-25 million users in India, the dream run did not last.

WeChat quickly lost to WhatsApp (owned by Facebook), which has a simple interface.

"WeChat's best product managers are all in China, not in India. For them, the Indian market was less important," Blume Venture's director Sajith Pai told The Passage.

Tencent failed in optimising WeChat for the Indian market.

“In China, internationalisation probably means to provide an English version of the product. But in essence, the products were in tune with the Chinese culture and wouldn’t work elsewhere," said a former WeChat Indian executive.

Graphic design: Sujith Sukumar/The Passage
Graphic design: Sujith Sukumar/The Passage

The Hike fiasco

Tencent joined forces with Foxconn to lead the USD 175 million investment in WeChat’s India rival Hike Messenger in 2016. Hike, founded by Kavin Bharti Mittal, was a rising star in instant messaging space and had the potential to take WhatsApp heads on.

Tencent president Liu Chiping then said, "Hike has a deep understanding of the Indian market, which is highly diversified with many nuances. With Hike, we will be able to leverage our deep expertise in instant messaging to deliver more value to its users in India."

WeChat’s user base in India drastically fell by 70% while WhatsApp users doubled.

In 2017, Kavin Bharti Mittal, in a blog post, admitted to fault lines in company’s strategy. But the moment has already passed and, Tencent lost the game in India.

According to App Anni, Hike's monthly active users halved (from 37 million to 18 million) in the past 18 months, and daily active users went down by two-thirds (23 million to 8 million).

Graphic design: Sujith Sukumar/The Passage
Graphic design: Sujith Sukumar/The Passage

In early 2018, WhatsApp hit 200 million active users mark in India.

Irons in the fire

In May, Walmart acquired India’s e-commerce giant Flipkart for USD 16 billion. Byju’s became the world’s leading edtech company and Ola kept the competition alive with US giant Uber in the taxi aggregator space. Tencent invested around USD 700 million in Flipkart in April 2017 and made USD 1.2 billion selling its 6% stake to Walmart. Tencent also put money in foodtech leader Swiggy to rival Alibaba invested Zomato.

Till date, Tencent’s most successful investment is in edtech unicorn Byju’s. In July 2017, the Chinese conglomerate injected USD 40 million into Byju’s. Currently, Byju’s has 15 million registered users, including 900,000 paid users. Byju’s chief financial officer said the average repurchase rate for paid subscribers is around 80%.

But like China, India's fledgling online education industry has not locked down a solid revenue model. Byju’s might face competition from Reliance’s Embibe. The experts believe the company is spending too much on marketing.

Founded in 2008, healthcare platform Practo monopolised the sector in five years. In 2013, nearly 100,000 doctors were on its platform. After Tencent came on board as an investor (USD 90 million) in 2015, Practo went on an acquisition spree. Practo shelled out USD 12 million and USD 50 million respectively to acquire Insta Health and Qikwell. Practo also acquired tech company Genii and fitness platform FitHo.

The insane expansion led to a management crisis leading to massive layoffs. The company’s losses tripled to 2 billion rupees (USD 28.6 million) in 2017.

Market outlook

Tencent rival Alibaba follows a crystal-clear strategy in India. Alibaba bets on the holy trinity: e-commerce, payments and logistics to build an ecosystem in overseas markets.

Graphic design: Sujith Sukumar/The Passage
Graphic design: Sujith Sukumar/The Passage

Alibaba bought Singapore-based online shopping platform Lazada, is pushing own payment wallet Alipay, backed Paytm, online grocer BigBasket and logistics startup Xpressbees. Alibaba also invests in sectors like foodtech (Ele.ma in China, Zomato in India) and transport (Didi in China, and indirectly in Ola) which tie in with its ecosystem.

Alibaba’s big bet Paytm exceeded 300 million users in 2018 and got investment from Warren Buffet’s Berkshire Hathaway.

“Tencent built an ecosystem around WeChat in China. But in India, WeChat didn't make a dent. Tencent’s investments in India are built on sand," Pai said.

However, some experts beg to differ.

“Tencent and Alibaba are diametrically opposite in their investment strategy and philosophy. Tencent is certainly not on the back foot. Perhaps, companies like Ola and Byju’s maybe worth USD 20-30 billion ten years from now. And that’s the time Tencent would reap the benefit,” a source said.

In the Hong Kong stock exchange, Tencent’s stock has fallen by almost 42% after a peak in the beginning of the year.

In June 2018, according to Bloomberg, Tencent’s investment arm reported a loss of 1.9 billion yuan (USD 275 million). In the last two years, Tencent listed 17 technology startups, and according to data compiled by Smartkarma analyst Arun George, two-thirds of these are currently trading below the IPO price.

Nevertheless, Tencent has high hopes on the Indian market.

“Chinese companies have seen the story of economic and Internet growth play out in their home country. Their world view is very different from that of Americans today. They are not here to make money tomorrow. They understand the benefits of being patient,” a Sequoia investor told The Passage.

"On global markets, Tencent is still starting out. It will have its own business in India in ten years, and by then its investment map will start to make sense,” he added.

Ruiyao Luo

Ruiyao Luo is a Beijing-based tech reporter. She focuses on emerging startups and tracks the trends in the startup industry in India and China. She can be reached at Ruiyaoluo@thepassage.cc.

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