Exclusive interview: Tencent's SY Lau (Part 2)

Click here for part 1.

Atifa Silk: What is your vision for Tencent?

SY Lau: There are areas where I see solid and realistic opportunities. First, it took 20 years for the internet to really take hold in China, so nearly 48 per cent of the total population are web users. Of the other half of the population who are not yet using the internet, a lot of them are elderly, young children, or those who cannot afford the necessary equipment. To plug those people into the web with easy and inexpensive access is our key mission in the near term. Mobile phones are the most viable option to achieve this goal. It’s about connecting the last billion.

Secondly, a fully inter-connected world — ‘the world of the mega web’ — will see the role of the media expand. Media is connecting users to content, and it will further connect us to many more things — more devices, more context, more people. When connectivity expands to that level, singularity will be triggered. The information that we have will become ‘intellectual’ as big data accumulates, interconnects and becomes available to even more devices. This expanded access to intelligence will become the basic information that we act upon, that machines act upon, that entire smart cities act upon. When data itself becomes both interpretive and predictive, and everyone is interconnected, we will be able to reach out to every member of society, in every remote part of the globe, and call for collective actions to solve problems both locally and globally.

Atifa Silk: What are the trends in consumer behaviour? 

SY Lau: The trend that I am seeing in consumer behaviour is that change is no longer a one-off occurrence, but a constant. On a macro level we are seeing new users, apps and applications and the concept of the ‘internet of things’ becomes ‘internet of everything’ in China. This will mean people’s lives are broken into smaller fragments of time, but the use of that time has become a necessary cost to lead a highly efficient life. 

Today, you can pay a parking ticket with our WeChat Instant Messenger App. You can take five minutes to check the traffic status to avoid hours of traffic jams. Our lives are becoming more efficient as we effectively utilise those fragments of time. 

Our analysis of user behavior contradicts the prevailing thought that the internet provides too much useless information, resources, and too many choices, leading to indecision and unpredictable behaviour. What may once have been seen as indecisiveness we can now interpret as empowerment to try alternatives to find the right ‘fit’. This also means redefining brand loyalty and the business logic of catering to developing more brand loyalist by staying true to a single brand proposition.

Atifa Silk: Where will we see growth in mobile internet in China? 

SY Lau: We see opportunities at three different levels: the consumer level, the industrial level, and extending to the whole economy. A McKinsey report pointed out that people in the fourth-tier cities of China spend almost the same amount of money online as those in the second and third-tier cities; and it is actually a larger proportion of their income. So consumers in these cities are the bigger market in China now. And while there are only four first-tier cities, there are 36 second-tier cities. Combine the third and fourth tier cities and it adds up to more than 140. These numbers represent tremendous opportunity for growth.

There is industry transformation taking place as the internet offers a direct person-to-person, real-time, on-demand method of communication. Can you imagine selling an automobile built by Mercedes on the internet? At Tencent we sold 388 of them in just three minutes! No dealers, no showrooms. That is a transformative use of technology.

Finally, the mobile internet expedites the liberalisation of the national economy. By its nature the internet supports the free flow of information and independent actions, making it an effective tool to expedite the process of economic liberalisation.  

Atifa Silk: How are traditional businesses adapting to mobile?

SY Lau: In China, we call it ‘Internet Plus’ — internet plus the retail industry, real estate, manufacturing, and, of course, media. Take personal finance as an example. Tencent’s online financial product accepted deposits of more than Rmb 800 million (US$128 million) on the first day of its launch. Half a year later, the amount grew to nearly Rmb 80 billion. Later, online banking, 3rd party payment, corporate loans and financing all started to thrive. 

In China, mobile apps like Dr. Ding Xiang and Dr. Chun Yu make it possible to make medical inquiries online. Now, up to 40 per cent of patients’ consulting needs can be dealt with online, which reduces the number of patient visits to hospitals. In addition, the agricultural industry has also started to ‘plus’. In rural areas, farmers have started to use the internet to sell their produce. Fujian Province, for example, where many villages have problems in getting their fine teas distributed to markets nationwide, are selling their tea on the internet where marketing their products is done without incurring restrictive cost. One village managed to sell Rmb 30 million (US$4.8 million) during the first half of 2014. The per capita income of this village skyrocketed to Rmb 13,800, which is higher than the average income of many villages in the wealthier provinces of the country.

Atifa Silk: What is your content and video strategy?

SY Lau: For quite a long time, content creation has been the strong suit of traditional media while content distribution is the main advantage of internet media. But that is no longer the case. For example, a pop music variety show called ‘The Hit of China’ secured 200 million video views, which was equal to that of all the TV shows broadcast on our website. 

Clearly one future direction is in increased in-house production of content and we have invested in production studios and established cooperative relationships within the movie industry. We are producing web-ready series, including those that use crowdfunding to cover production, and there are variety shows that are heavily interactive with the audience. We use big data to learn about our consumers. For the video industry, both TV and the internet, advertisements and subscriptions are the main sources of revenue. But we are exploring new sources: the economic power of the users themselves. Call it, ‘The Fan Economy’. This actually links back to Tencent’s most substantial advantage: its deep ties to social media. By combining social and video platforms, we are able to connect the fans to their idols directly, thereby increasing fan loyalty to both the entertainment personalities and to Tencent. It is also creating substantial revenue for our video platform.

Atifa Silk: What is your biggest fear in China’s competitive digital market?

SY Lau: The biggest challenge is not staying ahead. What [I am most concerned with is] if we are headed on the right course. We have developed two important strategies for Tencent [to ensure this]: 1) The Open Platform Strategy and 2) The Micro Innovation Strategy. We have found that it is much better to make small and swift innovations instead of allocating large amounts of time and resources to big and long-term projects, which don’t sync with the rapid changes in the market. We believe in China that survival depends on adaptability.