The story of Tencent’s Pony and Tony: China’s first internet moguls

After Tencent went public in Hong Kong in June 2001, Pony and Tony became China’s first internet moguls.

Tencent CEO Ma “Pony” Huateng started up China’s social media and gaming giant in 1998. It’s now best known for WeChat, a messaging app that has over 800 million monthly active users. Photo credit: GMIC blog.

The following is an edited excerpt from The One Hour China Book (2017 Edition): Two Peking University Professors Explain All of China Business in Six Short Stories by Jeffrey Towson and Jonathan Woetzel. You can buy a copy here.

Tencent Holdings is one of the top 10 internet companies in the world, typically listed right after Facebook and Amazon. However, it remains virtually unknown in the West.

Tencent was originally known for its instant messenger service (QQ) with its cute penguin. It is now most well-known for its WeChat mobile messaging application. There are over 700 million active WeChat accounts, making Tencent one of the world’s largest online communities.

But Tencent has expanded from a simple messenger to a very large and lucrative ecosystem of web portals, communication services and online multiplayer games. And Tencent dominates online gaming – not just in China, but also in the US and everywhere else. Think of Tencent for online games the way you would think of Hollywood for movies.

The rise of Pony and Tony

It all started in Shenzhen in November 1998. Twenty-six year-old Ma Huateng, also known as Pony, and Zhang Zhidong, also known as Tony, launched a simple instant messaging service named OICQ. It was a basic messenger service, very similar to Yahoo Messenger and MSN Messenger. The name was soon simplified to just QQ and a cute penguin was added as the logo. These were the earliest days of China’s internet.

The first commercial networks had been set up only three years earlier. The first Chinese internet company, China Pages, had just been created (by Jack Ma, later of Alibaba fame). And when Pony and Tony launched their service, there were likely fewer than 20 million people online in all of China. Fortunately, chat and messaging would quickly prove to be China’s most popular online activity.

But as we mentioned, most of China’s internet growth did not really happen until the last few years. So even five years after launch, the wildly popular QQ service still had only about 10 million users. Compare that to the hundreds of millions of noodle customers for Master Kong. Or to the billions of dollars spent on China Vanke’s apartments. The Chinese internet was a sexy trend that got a lot of attention.

But it was actually quite small for a long time. Tencent went public in Hong Kong in June 2001. And Pony and Tony became China’s first internet moguls. Note: Tencent was founded in November of 1998. That was one month before Jack Ma founded Alibaba in Hangzhou. So technically, they were first. Fast-forward to today and WeChat (and QQ) has exploded to more than 700 million users. For comparison, Skype’s audience is three times less on a daily basis: just 40 million active users. In 2016, Pony Ma was ranked as China’s third-richest person with a net worth of $24 billion.

The secret of their success

As we mentioned, instant messaging is the one of the most popular online activities in China. But Tencent has actually moved far beyond its popular instant messaging service. They have added software skins, images, motions, chat rooms, games, personal avatars, internet storage, internet dating services, gaming, web portals, and many other services. Their current service offering integrates all of these into an ecosystem that has no real comparable counterpart in the West.

According to Dean Takahashi of VentureBeat, Tencent is “a little like what you would get if you combined AOL, Facebook, Skype, Yahoo, Gmail, Norton, and Twitter under one roof.” The key is the customer progression within the Tencent ecosystem (note: this is a big simplification).

■ Users typically start with Tencent’s free WeChat or QQ accounts, which many Chinese teenagers use for chatting and for building and maintaining relationships. These have all the high switching costs that we associate with network effects.

■ Over time, many users grow addicted to Tencent’s free gaming modules within their service. These multiplayer online games have proven to be very popular, and Tencent ties these to their QQ network.

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