Tencent's Chief eXploration Officer, David Wallerstein on WeChat, QQ, and Gaming | Transcription

Note: This transcription is split and grouped by topics and subtopics. You can navigate through the Table of Contents on the left. It's interactive. All paragraphs are timed to the original video. Click on the time (e.g., 01:53) to jump to the specific portion of the video.

Introduction

Intro (00:00)

Well hello everyone, thank you so much David for being here. I want to introduce David Ballerstein who is the Chief Exploration Officer at Tencent. David joined Tencent in 2000 when the company had only 45 employees and today you have about 38,000. I believe so. We'll have to check with our head of HR. Give or take a thousand. Okay. Something like that. A few thousand here and there. Well it is clearly one of the world's largest internet companies as well as the largest gaming company in the world and as many of you know Tencent is also the creator of Vchat. So thank you David for joining us today and also for speaking at our private event. So why see anything?

Journey And Growth Of Tencent

How did you first come across Tencent? (00:43)

Thank you. So let's go back to even pre-2000. You grew up in the US. What took you to China? That's a very long answer and I'm going to try to make it short. But it kind of relates to my work today. I was always pretty deeply concerned about the world and trends in the world and I felt that going back to I guess the early 1990s as a student studying global trends and studying global history I felt China was destined to become a very important country that the economy was going to continue to grow. It had been growing in the early 90s but China was not a popular country for at least Americans back there. At least myself the way I viewed the world. It was kind of like on the side and other countries like Japan were a much bigger deal. I actually had spent time living in Japan. You went to high school in Japan. In high school there was an exchange student. I lived with the Japanese family and yeah I was a Japanese person basically for the time I lived there. I've lived in Japan on and off for about four years and that made me very comfortable just speaking a foreign language, an Asian language and being the only non-Asian in the room has always seemed very natural to me even since before I was 16 but then when I got interested in China I kind of redeployed this skill set that I had developed to kind of survive in Japan as a kid which is like you just have to learn the language super fast. So you went from Japan to China and I know you also talked about NASPER's sort of exploring in fact potentially acquiring Tencent pre-2001. Talk about how did you first come across? So I was doing management consulting in China so take that all that background I totally about and I ended up having a passion for getting foreign companies into China. Again, oh the theme I was talking about with China is going to be very important for the rest of the world. I was thinking the theme in my mind really from the mid 90s was how do we help China integrate to the rest of the world. So China is a productive member. All the great international institutions out there work for China as they do America and the other countries in China is just part of our global community in a very proactive way and I thought the best way to do that would be to integrate the Chinese economy with the rest of the world and to accelerate that. So I was very interested in the 90s to bring US companies to China. I was working as a management consultant predominantly for telecommunications and what we called IT related issues back to this pre-internet. And then I started helping these different companies and in 1999, very early, I think it was February 1999, I came across a company called Naspurs who became my client. I was very young at the time. It was like 20 something, 21 maybe and they wanted to enter China's internet market and they had recently done a NASDAQ listing and had quite a bit of capital to back their plans. So we started working together to invest in different companies in China. Social networking companies, we didn't call them that. They were dating sites back then or chat sites or blogging sites. Although that wasn't a word either posting sites. I was very fascinated by these kinds of websites because they created a lot of traffic and the users seemed to want to spend a lot of time there and that made a lot of sense. It was more like page views. It wasn't a trend back then. Yeah. It was about page views and I was always interested to find engagement like deep user engagement. But something happened when I was doing this kind of M&A, investment type work for NASPurs in China and that's that I noticed all the entrepreneurs tended to use this tool called OICQ at the time and often they wouldn't include any method to contact them like email or phone other than this tool and one day it kind of hit me saying, "Wait a second. This seems really important. I was totally overlooking it. I was looking for websites basically and instead I could see that the whole Chinese internet seemed to be kind of connected or somehow structured by everyone's use of this tool. We later changed our name to QQ in the year 2001. But in the year 2000, I had this idea that I should go down to Shenzhen which seemed a little far for us foreign type people back then. We were pretty much all living in Beijing and Shanghai and that's kind of like where the hipsters used to all aggregate Beijing, Shanghai and we're having a great life there partying at night and stuff like that, feeling really good about ourselves and we didn't really tend to get out of those cities very often. So I remember kind of feeling proud of myself getting on a plane to go see Poni Ma, Ma Quatang, our co-founder and there's a team of five co-founders that started Tencent and running the company as the executive team. At the time I went down to Shenzhen to go visit them and that's where the whole relationship with Tencent started is middle of June 2000. June 2000. I went down there to propose to Tencent that we should try to acquire them. And what was their response? Yeah. I had a lot of different kinds of meetings over the years and trying to do it being a consultant. It was pretty accustomed to having those meetings go well. Generally people were happy to see me and wanted to find a way to work together. I think the Tencent folks pretty politely told me that it wasn't going to work out. Thank you for coming and goodbye. And I was kind of shocked. I'd never really had that experience quite in that way before but in the meetings it was clear to me that these were some of the smartest people I'd ever met in my life. Chinese, American, whatever. I was just completely blown away by how strategically they were thinking about their business, how realistic they were in having this discussion with me. And I didn't want to just have the meeting end on a sour note. You didn't give up, right? You actually ended up like NASPERS left the investment in Tencent a year or two later. We did later. That's where things ended up. But it started off pretty difficult. Ultimately I felt like we had to demonstrate that we could bring some unique value. So I started, well first of all I invited everyone to dinner and we proceeded to get I recall things that we got pretty drunk that night. I do not recommend this for the children at home but it did happen. And then the next morning I went back to the company just to see if there's anything we could do together.

Alignment (07:12)

And I remember bringing in some ideas from the US, from the foreign market that seemed to actually be pretty interesting, Tony and the other guys. And I said that's it. I think the way to actually have a relationship here is to see what kind of value we could bring to Tencent from the outside world and how could we help Tencent with expansion. Even from those early days like mid-2000s it was pretty clear that was going to be the basis of a viable relationship. Ultimately it took about a year to buy effectively half of Tencent as NASPERS. And really the day after we signed the deal I did a few things but the most important one was I said I'm moving to the US. So we're going to leave you guys alone entirely. And this wasn't just only my idea up to the top of NASPERS. Everyone very much supported this kind of structure where okay we may have a meaningful share in the company but to make this thing work we absolutely have to never do anything to bother this company and be good shareholders and really get out of the way. And so to make that very clear I moved to the US really immediately and at the same time I said I'll be back in two weeks. And I did that for until maybe a couple years ago I was going back and forth between the US and China.

17 years (08:28)

And they were in time two weeks or so. When did you become an employer? Yeah that was June of 2001. Like really as soon as we signed the deal even before we signed the deal I was spending a lot of time with the company and we were working together on different ideas to build the company. It was kind of like as if like I know this deal is going to happen let's not worry about these papers and documents all this frustrating legal stuff. Let's just get to work. Meanwhile we're sitting around here let's build the company and therefore it was very clear what the relationship would be like after the deal closed because they know what it's like to work with me. And then the other person who worked with me on the deal Steve Charles Serrel he went on the board of Tencent. We're still here to this day. So here we are we started the deal together 17 years ago we're still doing it today.

Complex Shareholder Relationships (09:15)

Charles is on the board I'm still on the executive team and there's been this really wonderful continuity between NASPERS and Tencent where the principles that I just described you have remained true all of this time. And I think that's a great guideline in general for complex shareholder relationships by the way for this may not be exactly the thing with the YC crowd right now but it's a model that could come up later for founders you don't necessarily just have to go public or get acquired. There's this other model where you could potentially sell a big chunk of your equity to a third party and have this more nuanced relationship which could actually be an interesting outcome because you could sell a lot of shares but still retain a lot of shares and you can even ask for more shares over time like more options and things like that it's not unheard of. But but we actually find the model can work really well with the right teams and we always thought this would be a very common model in business and it turned out that there aren't so many of these types of deals being done.

When to expand a company (10:00)

Yeah it's a very unique model. It doesn't matter. In fact like not a lot of investments work their way even to this day in the US as we see with companies. I would love to do more of them but it's hard to find that team that is willing to do it and it's helpful if the company is profitable because then you know how to value the company going forward based on profits versus like just only user growth or some other metric. So you know it works better with profitable companies but it's a great option. Yeah let's talk about that a little bit. So you joined the company in 2001. Yeah. Pretty much when they had only 45 employees and maybe just QQ. Yeah that's right. Today Tencent to the outside world feels like they do a lot of things. They are also known as the biggest gaming company. They also have V-Chack probably one of the best muscle draws. One of many teams though but it's an important one but yeah there's so many things. So talk about you know it's broad from 2000 to 2017 is almost like you know I'm talking about 17 years but how did you, you know what, how did Tencent decide to evolve from QQ to all these other products and what sort of motivated the decision making to move these ideas. Yeah so it's a great question. I hope I can do justice to it. How do you cover you know 17 years in a few minutes right? There are a few important things to understand about Tencent that inform the product strategy. So when I first met the company in 2000 we had a couple key things going for us. One was pretty much most all of the Chinese internet was inside QQ. So the strategic question for the company and us as investors myself you know getting involved would be like okay we seem to have pretty close to 100% market penetration. Can we maintain that going forward? What could possibly make that go wrong? But we were starting kind of with the wind at our backs and I think that situation was true roughly from early 2000. The company by the way QQ started in February 1999. And QQ just for the audience is it just like a message address. Well we started as a PC based instant messaging service. So think of it. I know the media probably makes too big of a deal of this because they always think Chinese companies copy everything but they'll say it's the Chinese version of ICQ or AIM or MSN messenger Yahoo messenger. So Yahoo messenger is the Yahoo version of ICQ I guess you know but it was the IAM client. Got it. It still has a lot of users today. And so that was really usually for Chinese users back then when they would get on the internet they'd start their session with QQ and often they were logging in via an internet cafe a shared PC and then you know at the end of their session doing their stuff in the internet cafe they would log off QQ. So our average usage times the second factor first was like having this ubiquity in the market like almost everyone using it. The second thing was the users to attend the same about four hours a day. So what was the day? Yeah. So we had an average aggregated time for users. Yeah. Which is a long time. And so we started thinking okay things could go wrong but so far they're going really well. Almost all users are in here four hours a day. So how do we build? The four hours a day because they're chatting with someone or? Yeah they're kind of they're logged in and QQ is actually it did two things. It did instant messaging and it did something called presence. And presence was basically just a way to indicate by lighting up your avatar if that you were online. So if you're offline your avatar be black and white. If you're online it would be in color. And that was very valuable back then because people would want to talk to each other and be in touch with each other in real time and you want to know if someone there or not. And then you could start adding subfields to presence like you could add a little like a tweet kind of like I really said today I'm really happy today. Got it. Or here I just did this. You know like it's kind of like the precursor to Twitter and all kinds of bundled in with your messaging. All nicely packaged in this app. Okay so that's how we started. So we we face this question.

We needed innovation (13:56)

We've got a great situation going. How do we continue? What could get in the way? And we felt pretty early on the answer is like well we have to keep innovating and we have to really deeply understand our users and what they need to anticipate the next thing that they want. Now we did find something that worked really well in the early days from early 2001 we started doing mobile instant messaging what we call mobile QQ. And this is really how we went public on the NASDAQ in 2004 was on the back of this mobile service which connected the PC based QQ application to your mobile phone. So you could send a message between your PC to a mobile user and back and forth to enable that service on your mobile phone. A mobile phone you would have to pay us five RMB a month about 60 cents. So if you didn't want it then who cares? You don't have it but if you wanted to be able to on the go with your SMS back to later it was all feature phones, wasn't smartphones. If you wanted to be able to text back and forth to QQ you would pay us five RMB a month. And there were so many users on QQ and this feature became sufficiently demanded that it really drove our financial performance right up to the IPO in 2004. So based on this it's important for everyone to know that we became profitable as a company in June 2001 and we've never not been profitable since. So this is pretty much the time when NASPERS closed the deal. They're closing a deal on a company that's profitable. Cashflow positive based on rolling out these mobile QQ services across the country. And we would bring the service to maybe Guangdong and even have nice growth. Then we'd bring it to another province like Hunan and we're saying okay what's going to happen in Hunan and the next day it's like ooh you know get a big explosion of users and it's like great now the revenue is coming in and then it became really a battle in the first few years 2001-2002 to make sure we had ubiquitous presence across all of the mobile networks in China. China mobile, China Unicorn, so on and so forth and each deal would drive more cash with the company because the users were there. So we had cash, we had profitability, we had this engagement with users, we had the four hours roughly plus minus on average logged into QQ. And I don't think I fully answer your question. People would do other things on the internet. They would just always have QQ logged in in the background and then they might go in and start having multiple chats with different people, sharing information, whatever they're going to do. But then they might also do other things on the internet. But QQ is just kind of always on the desktop somewhere.

Monetization (16:22)

So we felt like we had this late opportunity. So we started to do more experimentation to drive products for our users. Both for user value perspectives and also like we had to make money because okay something to clarify, very different than the US market here is that the ad market from our perspective has always been pretty challenging in China compared to the US. And particularly for us, we found our users did not like ads in their messaging experience. So they would go through great links to develop software and these kind of hacks. So they wouldn't have to see the ads in the software. We felt like that was kind of endangering the user experience. So we did always have an ad team and we're getting much better at it. And we have different kinds of inventory today, but the ads in the messaging window was never really a viable option for us. Unlike our friends at maybe like Google or other companies. Even Facebook. Yeah, they've just driven these massive businesses. So how did you monetize that? Right. So I want to make that clear because Tencent historically, like the rule of thumb, things are changing over time. We've traditionally made 90% of our revenues. That's like the rule of thumb historically in my mind from our users paying directly for our services. And we call them value added services. And then the 10% would be like ad related revenues. And what are these value added services? So starting with the mobile QQ service, the 5RMB a month. So we'll have very, hopefully strong dedicated product teams thinking about nothing other than how can I get users to convert to mobile QQ? What more value can I add? And these are subscription services. So you have to keep your turn rate very low. You really have to understand why someone values it and then what might cause them to leave. And then we have to build all these features around the service to discourage someone from ever wanting to leave it. We want to have them forever. That was the first major value added service of Tencent. And we launched something around the same time, which also grew pretty significantly. It would be kind of like our number two big service, which we call premium QQ. So I was always kind of dumbfounded that we didn't really see many US companies build at least our peers in social networking, build a premium version of our service, especially when it's been so successful and so important to our product strategy. Premium QQ is kind of like how it sounds. It's just a better version of QQ. We have to put more types of value added services in there. And in the early days, I remember a key aspect of premium QQ was you could choose your own QQ number. What does this mean? Okay, so have to explain these things. Yeah. It's a different market, right? The QQ number before was your identifier. It wasn't like David@Tencent.com that we didn't use email identifiers. We used an actual number. And we did that because we wanted to have the numbering system of QQ work with the telecom network.

Numbers in China (19:08)

We never really pushed that far in that direction, but we always thought maybe the QQ number is your telecom number, the future. And it'll just map really nicely with the switches in China. We did different things around that. It never really took off, but that was like the thinking. Like numbers are better than names because you can just punch it into a keypad. So you could choose your own. And in China, numbers are very important. For example, some of the people watching may not know, eight is a very lucky number in China. So if you're going to deal with China, remember that? Eight's lucky. If you got some eights in your phone, it's a good thing to have, a phone number or whatever. It means "fah" to get rich, I think, like prosperity. So if you're a user and you want to kind of stand out from the crowd, I mean, what young person doesn't want to have a little edge out there, right? Get some eights in your number. And then maybe when you show up in the chat room, your name shows up in a different color, like a red color, and you kind of quickly establish yourself as a bit of a high roller. And you've kind of emerged from the crowd. So the other thing I need to tell you is there was a lot of dating going on in QQ back in the day. I don't know what happens in there today. That's true for most social workers, even in the US too. I mean, I think when Yahoo Messenger and, you know, other instant messages that launched, I mean, there were rooms that were really dedicated, chockrooms dedicated for dating. Yeah. And that was probably part of the experience.

Free products (20:23)

Not that I would know personally, of course, but I just heard from a friend of a friend of a friend that that's the case. So if you can kind of get an edge in such an environment by having a premium service that gives you more status maybe, but in a fair way, and then more like kind of functionality, maybe we'd give you more storage space. I know storage kind of like became less of a big deal with Gmail and all those things later on. But we would continuously be building out our premium services package to make it like the ultimate thing to reduce churn. And we'd have very dedicated teams very committed to just thinking nothing about nothing other than the premium service package every day of the year.

Local Service As a Defense (20:49)

Which draw well to the monetization. Which draw monetization. So these were kind of like, I'd say, really two of the key pillars of our monetization leading up to the IPO. But we had to diversify. So now I'm going to get into like the whole diversification discussion because we felt as a pure IM company doing mobile instant messaging on one side, that's like kind of, you have like PC in here, then you got like mobile kind of sticking off here, and then like this premium top of the pyramid here, like service. And maybe both are only getting like 10% of users. So of 100% you only get 10% paying. We felt like as a company, we could just get taken out overnight by like we mentioned Yahoo Messenger, MSN Messenger, AOL, ICQ. In fact, we were particularly concerned about Microsoft. I think no discussion of Tencent's history is complete without a serious discussion about Microsoft because around this time, 2001, 2002, I believe Microsoft did something very important for us. They bundled Windows Messenger into the operating system. So you would get your Windows PC and all of a sudden you got Windows Messenger just popping up and we thought, this is absolutely going to kill us. And they were there, I know they're a competitive company today. Like then they really scared the hell out of us, excuse me. It was scary time, so we figured what can we do to be competitive against this kind of such a powerful like no resources or a limit type company like Microsoft. We really did two things. We went very local and we started building more value out of services. So let me talk about the local part. We said, our products may change over time. This really informed our strategy and the kind of customer engagement and products respectively. So as our core value, we absolutely need to know our users better than anyone else in the world. We have to at the most fundamental level know like everything we can about them in terms of their product preferences, what kind of features they like and don't like, what kind of colors they like and don't like. And how do you do that? The Tencent especially Star is very unique for really understanding the value of the customer versus just looking at metrics. In fact, you coined the term CE, customer engagement. So can you talk a little more about what methods do you use to really understand the customer? That's taken to that and then you'll have to remind me to do the product. I think it's something that's really about the people who run Tencent in the culture of the company and it really goes to why caring about users really goes to why we exist. And ultimately every business is established for some reasons. It's often not apparent to the employees sometimes or the users sometimes because you say this company just says X and I love X but you don't really know why. And it's often a very personal story or there's a personal journey that takes you there. I think for our five core founders, they always just struck me as being very, they care a lot about people. They're really people, people people, they care a lot about China. But you have to remember like in 1990s China was very poor and China was, it didn't have a lot of people in China didn't necessarily have a lot of confidence that they could even build a good company or that the company could even have an international presence. I spent quite a few years trying to unpack some of those ideas because I felt they were false but you know China came into the world having been totally cut off until 1978 and then gradually kind of opening up and kind of trying to figure out what's been going on outside of China for all these years. And now it seems crazy talking about that but that's really where the world was like 20 years ago. So I think our founders really were always very interested to spend time with the users online like on the bulletin boards responding to users directly, responding in chat rooms or making friends. I mean they were power users of QQ themselves. Some of them might even be guilty of being power daters in there like they're just meeting people and they're like they're making the service for them. They're just as much users of the service as other people are and they're inherently curious about people in very good nature. So I think what happened to the company is it started with an idea but it quickly became successful and we got a lot of traffic and the way our founding team and executive committee responded to that was by actually feeling like a sense of responsibility for the users and a deep curiosity to figure out what more kid we do and what do these people really want. And back in China, you're just actually triggering a memory right now. China had a lot of fundamental needs then that are maybe surprising to people now because in like the late 1990s, early 2000s there was almost no investment in private media in China. All television, all film, most all the magazines, certainly all the newspapers, I think even to this day, most of them were state funded. So you had this big gap with respect to like just private media by everyday people and there were so many services, it was clear that people needed back then just because they're human beings, they want to laugh, they want to tell dirty jokes, they want to date, they want to play games. You are filling in this gap and I think as a class of companies, the internet companies in China, this is the role we've played. We've really led the role of bringing private capital and entrepreneurship to media and connections and services for consumers in China.

A chat with the team 007, James Bondsavid, Dun Spook Tony Rosak Peveto from Tencent Every Little Bit (26:23)

But it really filled a vacuum where there was nothing there before and I think that was very much in the minds of our founders that this required, this entailed a lot of responsibility if you're going to manage all these users.

Understanding Users Different Ways (26:38)

So when they were maybe to tie it back to the local point you said, so how did they figure out what the local needs were to diversify? Right, so okay, like the methodology, right? And I love answering that question because it's a pretty simple one. Basically, from a pretty early point on, we knew that it's essential to understand our users as deeply as possible and we should use basically any methodology that we can learn about to deepen that understanding. And we didn't settle on any preference for any kind of methodology because each situation seems to need its own methodology. But we got very fascinated by what we were learning about what was happening overseas. I remember I did a specific trip, probably in 2005 or 2006, to learn about things that like Intuit was doing called like, "Follow Me Home." Like how do you kind of go crazy with respect to like really getting into users' heads? And I thought that's a really cool idea. I can just remember that example very specifically so we wanted to learn from Intuit and others. Like, how do you do a "Follow Me Home" session? Like how do you actually work with someone? I don't know if you've heard about that, but like you can go into their house and you can see, I want to watch you using internet services in your home. Oh, got it. Oh, so pretty much like a person. But I want to see your home and I want to see like how it fits in to your life and maybe you're having an argument with a spouse on the side or some kids just got home and the TV's on. And where's the computer sitting? Is it in the kitchen? Is it in the bedroom? Is it, and why did you put it in the bedroom? You don't have space, is that it? Or like, you know, we wanted to get into the deepest possible narrative behind the user's use of our service. We wanted to understand their entire lives, their broader needs, like at the most fundamental level and then how internet services we're playing into those needs. And we started having very difficult conversations with ourselves. So I guess if I skip forward a little bit, a few years down the road we built something called avatars. And the avatar service would grow for a while then it would kind of like recede and have high turn rates and we're kind of wondering why. And I think it was very important for us to ask these deeper questions like why do people really like avatars? Because you could have a service that's working, that's earning revenue and maybe getting a lot of recognition. But even the product director, the other person who came up with the product themselves, they weren't really very clear why people liked it. They didn't ask deep questions, they just kind of got lucky. They threw it out there. People liked it and you kind of did new things and some things worked, some things didn't. But we started going to a more fundamental level really in the mid 2000s. I think we always had the thinking going early on.

Product Strategy And Integration

Product Strategy Using Working Theory to Enhance While Leveraging Things. (29:17)

But I think we've been getting better and better at these like the kind of deeper almost existential questions. Like when you say people like avatars because well they want to look better online, they're like well why do they want to look better online? Because they're meeting other people, why do they care about meeting other people? Because they want to make friends, why do they want to make friends? You know, they just keep going down, down, down. Like the users in their desire. As to what's what they're getting there. Yeah, maybe they're lonely or they say they want affirmation. Everyone wants to feel appreciated. And so if you came to that kind of conclusion, if that was like the conclusion of a sort of like everyone wants to feel appreciated, you would say okay, interesting. How can we deliver a sense of appreciation to our users through our product? Like how can those values somehow be captured through the user interfaces and the structure of the product? And maybe we don't even get that right and maybe we were wrong about some of our conclusions but we're constantly like trying to iterate at that. So what was the next big thing that came up to mobile Q? Yeah, thank you. So we did some of these services. I remember avatars probably came out around 2003. We built our portal around 2003. What we were trying to do, let me explain it again. I'll get to the specifics but at a strategic level, we wanted to offer, I thought about it in my mind anyways, as like a spider web type configuration of value. Here's what it is, you have QQ at the center, then you have like mobile QQ here, you have premium QQ here. Now if we can add something else, let's say it's like music. The question is how can music not only add value between users in QQ but also add value to mobile QQ have a premium QQ offering like okay, if it's premium QQ then maybe there's a new album that's going to come out next week that only premium QQ users can listen to for like two weeks, something like that and we constantly like find an opportunity. And then how can the music service not just be about streaming music but maybe the ring tones inside QQ, like when you send someone a message, the notification could use the music service. It's like give us any kind of resource and we'll try to find like the most efficient way to like distribute it intelligently in different kinds of iterations and ways throughout the network. And then you add something else, you have a fourth service and a fifth service and then you're going back to the other ones and you're trying to like see how they're all going to strengthen each other. Like an exponential network, you're driving the value of all users.

Building & Integrating Products & Thinking of Unique Integration (31:31)

Yeah I mean that's what we did as a company, between users is that you see how users are connected and each one might have 150 friends and then you get these like amazing relationship grids between friends but we also kind of felt that way about the services and the value themselves. I guess it's just habitual thinking because we're always thinking in that mode. You add something new into the network and how can it like basically from a business perspective, a value perspective, connect to all the other aspects of the service and what I found we did over time is we started to build like these really intricate webs of product experiences that like our competitors just weren't doing and it's hard to replicate and we thought this would be very valuable to differentiate us from other typical instant messaging companies. The more kind of value added services we had around QQ and the more complex ways we could integrate them for user value, we felt like that would be very defendable and be very unique versus like other services where they might bring in music but like when another service brought in music they might say click this button and stream the music. Yeah. Okay that's cool, kind of sounds like iTunes but can you do a little more like? You're done after listening to the music. Yeah like how could you make that more interesting and we would be challenging ourselves to do that and working with those product managers like in the music team to make sure they had that mentality that they were kind of pushing the boundaries to say how can I maybe work with another product team. Oh got it. And where the executive team would often get involved because we have to do something other than just the general managers like what are the executives supposed to do is like we're looking out for those opportunities. When are there disagreements? When is it that one team really wants another team to work with them but the other team isn't willing to because of deadlines or they don't like the idea. Our goal would be like saying what to like reduce the friction and come to quicker decisions like okay you guys really should be working together. We've heard the arguments work together kind of a thing or yeah this doesn't make sense like okay we totally get it back down. How do you decide when to accelerate a certain kind of integration or to just let it go? And then we have some sometimes some okay ideas ourselves we're like oh we want the company to do this sorry everyone do this thing but really kind of driving that strategic integration between products that was this is something that we established I think very early on like 2002, 2003 we kind of really started driving these integrations when we did our portal I remember shortly after we have a like a CNN.com news portal we started doing these I thought were fantastic news updates in QQ so when a major global event happened you would just get a pop up on your desk from QQ and that was another great example of the integration that happened fairly shortly after and now I see it in like iPhone you get these like yeah news alerts and things like that. I was like oh kind of remind me what we did like back in 2003 with QQ. Yeah almost 14 years earlier but I think that's very unique that you mentioned which is it was not just about building different products and even though it looks for the outside world that you know Tencent is you know has a lot of things it's about that real integration across each of these products and services that increases the value. It's like an ecosystem of value and it's like the question would be how can music fundamentally like transform the whole QQ experience top to bottom and other value added services that we have like the premium service. Remember that example I said okay there's new releases coming up maybe there's a concert coming in town but because we work with the music label we can inform them of the concert and then also that premium group can be a helpful group for the music labels to work with too in some cases so we're like constantly kind of trying to drive these webs of value in all these different ways and it becomes a thought process and an operating system for the company and I think we've become pretty good at it and it let us like scale and then so now if I just fast forward to WeChat it's really hard for people outside of China sometimes to understand WeChat first of all it's in Chinese I understand but it's also a pretty complex product there's a lot of different things happening in there. Actually I had a question before you jumped into WeChat you started off as an IM service QQ and mobile and premium so why acquire WeChat?

Acquisition (35:38)

Oh well no WeChat was developed internally. Oh that's why we acquired Foxfield team. Yeah that's right. Yeah Allen's company I think this was in 2005 and he joined us and he worked on mail for many many years and then he had the idea for WeChat I recall it being around 2010 and he went for it and it was pretty successful right out of the gate and we really wanted to foster a mobile first IM service even though QQ was very successful on mobile. It's time to have a mobile service. Yeah but we had been doing mobile since I think late 2000 and we had always built QQ mobile QQ for all the different operating systems like Symbian or Java or whatever it was going to be but we felt like things were pivoting so much to mobile that we also had to have a mobile first messenger while still embracing QQ and QQ still has a very healthy audience today. And that is something very unique to Tencent because you know we had Yahoo messenger we had AOL but actually none of the PC messengers went to mobile first year but Tencent was the first to do that. Yeah for us we had to it was the only way we could think of making money at scale back then and our users demanded it they wanted they were on the move they wanted to be able to text back and forth and so we did that. The WeChat point we can talk about WeChat more but I feel like just in a nutshell it's kind of like as an executive team and as a company we learned so much from building QQ over the years. When we got to WeChat it was a new platform but also you know had some great organic growth and all this really important core interaction around it. When it came time to building value added services around WeChat it just came to us very naturally because we had learned so much over a decade you know probably like 12 years of learning by the time we got to WeChat and we had also matured as people too before we were very focused on games and more like Avatar like QQ services and WeChat has plenty of that too but we also started thinking more about the economy more about financial services about e-commerce about how do you really transform a business or a hospital or a government using WeChat and I think we had so much experience with platform services and tying services together in a seamless way that when it came time to WeChat it was like okay good fresh platform but let's get everything right this time or let's do some things that we couldn't pull off the last time around in QQ I feel like that was part of the thought process. Do you want me to talk a little bit about gaming I think?

Gaming Story Explained (38:11)

Yeah I was wondering how did Vtenson decide to do gaming? Because part of the story. I think it's a really good example for people to think about for us because the thing I love about the gaming case is that the first four years of our gaming attempts were characterized by utter failure. And why did you decide to do gaming? Yeah so around 2003 what we call massive multiplayer online games started becoming very popular in China. Have you ever played World of Warcraft before? I have heard about them. You've heard about it but you know you get kind of really deep into this experience. It's got a big software client usually a couple gigabytes that you download and then it's kind of this whole world. And these kind of games were becoming very popular in China and we started thinking it is possible that users like to interact with each other so much in these worlds that they're not going to want to interact with QQ anymore. This could be potentially like an existential threat to us. QQ was really text driven at the time. The interaction with the text there was some voice, some video you could do, video instant messaging, things like that but it was predominantly text. And therefore it's pretty black and white. You would go into these worlds and you could feel like you're really deeply interacting with someone. So we felt like this is an existential threat for the company. We have to find ways to integrate QQ more with games or else we could just be like out of the picture. So I think that was before we had the idea that this could possibly make money. It was more like if we don't do it our users might just go into all these games and they're like why do I want to talk to someone in QQ when I can be dressed up as an avatar and I can have like a deep rich environmental experience.

Trying Counter-Strike, first failure, WeChat (39:53)

You know it's a software environment. So we started trying to license games and build games ourselves and pretty much everything we did for the first three or four years were spectacular failures. I thought you were going to say we're spectacular. We're spectacular failures. Well I mean whether or not we liked what we did it doesn't really matter because the users didn't so that's all that we can hear about. That's a very important thing for Tencent. I think we can pivot fast as a company because especially when we went into the gaming area there's a lot of artists and designers in games and they have something that they want to do. They want it to look a certain way. They want to have people experience a design a certain way and that's like their goal. And for us we've always been like we want to find what users love. We want to find a gaming experience that they love. So if the colors need to change, if the artwork needs to change, if the design needs to change great, we'll show you a bunch of options, we'll test those options but show us the way. And that's kind of in the gaming world it's a bit of a different philosophy than some others that kind of have a top down beautiful vision for an experience and then they have to realize it. We were always like very practical like oh that doesn't work let's pivot it. Like no worries about it. But you did try gaming for four years. Yeah well so what did work was our casual gaming experience. That's like really simple card games and things like that and we found quickly that that was a very nice compliment to QQ because you'd be talking we'd be chatting on QQ. Hey what's up? Yeah nothing much. Hey let's go play a little pool you know let's go play some whatever blackjack. Okay you know now we've now we've found something more fun to do because typically we just be texting but then it's like hey I haven't seen you for a while. Let's do something else in here. You know it gave like the users kind of like a playground and added a depth to the interaction but for a long time that was the only thing we could claim that was working and I have this I was very involved with our gaming strategy particularly on the international front. So there's nothing more exciting than going to like a gaming company in the US and saying hey we'd love for you to come to China. Would you like to work with us and I'm saying like no like like there's not going to be any market there it's clear like how big is your market and we'd be like well we think this is going to be big we're not too sure yet exactly how fast it'll take but let's figure that together and be like yeah I don't think so. I was I was kind of I had a frustrating period as a professional for a while trying to find any Western companies to work with us. I love saying that because the moral of the story is we're the largest gaming company in the world for quite some time now. I think it's been at least five years. Yeah that's true. We've held that position so it's kind of like wow how quickly the world can change right. We're not new to Silicon Valley but you know. But at that time I lived through it. Yeah so what happened? Well we had all these kind of licenses that didn't go so great games we built that didn't go so great but we signed a game called Crossfire. It's a first person shooter game okay you know like shooting game okay and it just took off and when it took off it started making a lot of money and that's all most people need to see like they don't want to hear your argument they want to hear philosophy. The whole reason why QQ is amazing and China is amazing they just want to you know show me the money and yeah it just took off and then we signed up another game called Dungeon and Fighter and that took off too. It did really well and I think with those two games those were both licensed from Korea by the way.

Integration of Services (43:16)

With those two games it became clear like okay 10 cents a player we hadn't really become a leader yet we became maybe like number four or number five in the gaming industry but it was clear there's something going on in the game and then these games just kept growing. There's still very popular games these are probably over 10 years old in the market they're still doing very well. Yeah I mean I think that's what's really phenomenal about Tencent. The core of it now people recognize it as a gaming company yet you have this amazing product called Vchat which has actually got a lot of international attention over recent years and QQ is still strong and you have this integration of services that just increases I have value to the users so I think it's very unique to see a company that was founded in 2000 or 2001 to constantly evolve as trends have changed. That's what we do. But we still embrace the old stuff like QQ is still operating. Yes that's right. Hundreds of millions maybe many hundreds of millions of users. It's a little smaller than we checked now I believe but it's not that much smaller. It's a little smaller but not as much smaller because we checked itself as 800 and 90 m a year so it's a million a million a year. A little more than that. A little more now. Okay the last time I checked was two months ago. This isn't that kind of discussion David. Yeah so we manage to and we keep moving on and I think we have I can't even explain it some time. We do have this interesting ability to like scale quickly like when we see a few games that are working we can build a model for how we forecast the performance of the game how we license the game the templates all the contracts and things like that and then we can just like replicate it really well quickly yeah because what's our games became profitable it's like okay great let's invest in great game licenses from around the world and then it's just about the pipeline and the amazing thing about the China market especially with respect to games if I think about race specifically is that there's a lot of users there and a lot of users mean there's a lot of different needs for games and we haven't found a situation yet where it feels like all the needs have been met even though there's big successful franchises and new things coming out all the time there's always there's always a niche there's another five million or ten million a group of five to ten million people that want a certain kind of experience that when you deliver it to them yeah there's a good business there. So switching gears a little bit you know your current title is the chief exploration officer what does the chief exploration officer do? It's a good question I wanted a title so I've been with the company for a long time I wanted a title that deliberately is always gonna make sense no matter what I'm doing and it can suit my needs whenever it was I wanted it to be serious but at the same time I just wanted it to be like kind of a crazy title deliberately and it actually started because I said I want to be called to see something we had this discussion a few years ago I was always senior executive vice president I thought it's like like no one thinks I'm like a sea level guy this is really frustrating because I don't care about titles at all but I found other people cared even inside the company they cared like I was always puzzled by that so I kind of like about two or three years ago I said okay just give me some kind of c title I said well what should that be should be like cx something I said that's it see the x the x is cool like people like the x I think it's cool yeah and then and then it'll be exploration which is what I've always tried to do so I've really always wanted my role in Tencent to be going back to those days when I left Shenzhen right after our transaction with Tencent and I became part of the executive team and I said okay I'm moving to Silicon Valley we're only 45 people we're gonna have 46 people now one of them is in Silicon Valley like we're gonna be a global company and we're gonna be a global company because we're gonna be part of Silicon Valley we're gonna be working with all our peers here we're gonna be exposed to technology trends we're gonna

Innovation And Global Issues

Become the Leader (47:02)

be contributing we are a global company from the early days and that was not in people's minds for Shenzhen based company in 2001 like not even sure if they're gonna survive or not not even sure if they could handle the China market and you know like feeling a little outgunned by the Beijing and Shanghai players because you know Shenzhen didn't have a lot of technology yeah it's like to say like we're gonna be international it was it was kind of a new idea it was a new idea at the time yeah so I've always tried to just what I consider you do which like pushing the frontier at Tencent in any way like just I always want to like shake things up over there now they're gotten a point 17 years now I've been with the company about four or five years ago one thing we talk about in Tencent is we want to use technology to improve people's lives we want to use the internet to improve people's lives and hopefully we're doing some of that with everything we do I personally always felt a little bit like there's a lot more we can do like I think we've in some ways we've kind of become very adept at

Getting Ideas Out of Your Head (47:59)

understanding people's emotional needs what the brain needs information entertainment games education all that you know music art all that kind of stuff I think we're we lead in those spaces in China but I was always kind of thinking about our mission like looking at the entire human being right and when you start thinking about the human being a couple ideas really started to resonate with me and I couldn't get them out of my head one is that you know I want to see people living healthier lives how can technology help everyday individuals live healthier lives I just felt like there's so much happening with technology they can contribute to that and if we did it as a company even if like I'm kind of driving some of the stuff on the cutting edge we can't be wrong even if we get it wrong we can say we tried and I think that's good for our users it's good for our employees it's a good use of of our some aspect of our profits right you know so it's always the right battle to be fighting right so I felt even though it's risky like I can I can just push this forward and like just everyone better get out of my way kind of a thing the other thing is when you think about an individual though and you want to have them live healthier lives you can understand like their body their blood do they have cancer all those kind of things but then you also have to think about the ecosystem that the individual living in and and you know if you think about cancer for example you have to be very sensitive to like thoughtful about environmental circumstances air pollution water contaminants and water food I mean what are the causes of cancer there's so many of them that are traced to be like somehow environmental in nature so I started thinking more about ecosystem impacts on the individual and and that's how I kind of really started thinking about this title and this role and and kind of trying to encourage the company to go in like a very new direction which is really thinking about how can we use technology to create a more resilient planet I call it planetary resilience it's a bit of a mouthful I want to find a better way to describe this quickly to people it should be something that everyone's talking about now so when I I just started with these baseline concerns based on things that I knew at the time what when I started doing more systematically with a small team that I have I have what's called an exploration team based on how it's about five people yeah I like I believe small is beautiful yeah and we have a lot of people at 10 said that can support us with any specific initiative but at least for myself and like working with a team every day for me it has to be like maybe no more than eight or something like that we we kind of thought we'll be like VCs okay and VCs look for great entrepreneurs and great technologies and great products and traction right I thought we want to do that too we love that discipline it's something that we feel like we know pretty well and we can do a good job at always can improve but but I thought we should do it with a twist we spend about half our time roughly speaking thinking about the problems in the world okay that might be a little different and not really thinking about markets that's different than saying where are the markets you know where's the next movie ticket you can

Orienting yourself around the earths problems, applications for common sensors (50:56)

sell or something like that I'm talking about problems like we try to forecast what are the biggest challenges the world is going to face in the coming years as as like a strategic trajectory and and then you'll start looking at factors when you ask those questions baseline factors like what does population growth look like on earth human beings when I invested in 10 cent in 2000 2001 the planet had 6.1 billion people it was a different planet then now we're at 7.4 7.5 roughly so in just that period of time yeah and then the forecast which looks pretty likely to be realized will be to add another billion people in 13 years so if you can just track and understand these types of fundamental trajectories it gives you a lot of power to forecast the future because you know all these humans we're all going to need to eat yeah we need some fresh water we like when our air is clean we need to get around we need energy right and we want to actually distribute these benefits to all even if in an undistributed world there's going to be a lot of demands for these resources let alone improving the world right so when you start thinking that's what we really do as as the CXO as the chief exploration officer in our team we spend a lot of time thinking about problems on one side then on the other side we're kind of acting like a VC but with a little bit of a twist so we're interested in all the latest trends and we think what 10 cent is well suited to do is work in kind of with new technologies mm-hmm things like artificial intelligence new types of sensors like satellites or you know there's so many

The agricultural Landscape, Meat Addiction, Genetic Engineering (52:43)

kinds of sensors coming out now genetic engineering advances in like energy or transportation so we're interested in all those things but we want to see those technologies when our team works on these things we want to see those technologies being applied to the world's biggest challenges so it's taking us in all these kind of new directions which makes every day very exciting we started just thinking about agriculture maybe a year or two ago and not really knowing anything about agriculture but just like when you learn about the problems and the stresses on a planetary scale let alone local scale you know for agriculture it's just completely amazing and then you discover that the agriculture industry is it's fairly antiquated you know and there's a lot of trends that um that suggest that like world agriculture and food security is going to get more difficult over time whether it's like problems with fertilizer top soil erosion water scarcity um like just loss of land arable land and things like this i mean you can just go on and on right yeah um the world's addiction to meat i can go on i can get a little political about it um right like and so and so so we'll start with a problem and then we'll we'll look for companies that we think are going to tackle uh that thesis and we might meet with like dozens you know hundreds of companies that um don't really do it for us or you know we'll meet with a lot of companies and then finally uh you know we hope we can find as many as possible but finally we'll find a few that that can work out and then we just want to keep building on on our um experience and what we've learned and what we're continuing to learn in these areas so um so it's an area where um i think by focusing on the problems where we're very willing to go into like some like an air like agriculture where we knew nothing about it and we're kind of applying these skills i feel like at least myself i was applying the same skills when we were trying to get in the gaming in 2003 so i think i left this out of the story about gaming but we started in gaming we were complete nobodies yeah like we didn't know what questions to ask we didn't even know how a game was built yeah i didn't know that you had

The Learning Curve & Exploring New Areas, $200m 3 Year-Old VC Unicorn Called Guild Origin (54:39)

to have art or designers and i thought this was really cool like like i'm kind of artistic person myself i get to work with artists now in the gaming area well it was like i didn't even think about that when we started getting into um games and and it's amazing that with a lot of determination you can learn a lot in a short amount of time maybe like to get to 50 percent it can be pretty quick and then like getting the last 50 percent is why you have to have so much mastery and artistry and like going to school and whatever you have to do but like getting up to speed like half the way you know for a lot of areas can be pretty quickly if you just want to do it and i think this is a really important skill set that Tencent has across the board is that we've been down this road so many times like going into new business areas yeah like gaming and the types of gaming that when we do the next one like a lot of the management in the company a lot of our executives they have experience doing the exact same thing so we kind of all share this operating system like oh you're getting all across from now like okay what are the key questions to ask and unit economics and all the um and i'm not saying it takes time to get good at it but at least in terms of a willingness and a culture of being like um excited and curious to get up to speed on a lot of issues quickly i think we have that in the company so everyone's very supportive and um it does together almost like you know that has been the theme of Tencent it is not known as one company it is a company which does you know really good things in many areas and now here you are you have an exploration team yes trying to solve you know real big problems so i would say and what i want to do in Tencent with this position is say people in Tencentix are thinking yeah like we should be doing stuff in agriculture we've got our cloud we've got all this we chat so many farmers are using we chat like why don't we do that early i want to be catalyzing those moments and finding those opportunities where these things that seem to be far off actually can rather quickly kind of merge into the broader ecosystem and become part of the ecosystem but the intention of why we're doing is very important we're not just seeking profits although i think agriculture is very profitable yeah if you're playing in it in the right way that's why everyone's getting fed for the most part at least yeah from the most part right so so that's really the idea there um in what we're doing so we act as a vc we have about roughly 70 companies that i'm and my team are

Analysis Of Chinese Investment Trend

Company Analysis: Why Chinese Investors are Investing in Y-Com & Guild Origin? (56:49)

managing directly we have more that we kind of manage with other teams and then we also have other Tencent teams doing investments in other areas sometimes also in these kind of resilience related areas i tend to think my team is driving most of it but i love it when other teams at Tencent also do these investments especially in China and so yeah there's quite a few teams at Tencent doing investing by the way it's not just only my team yeah we have what we call the m&a team they're also that's just the name from from the past um they're also doing investments so there's you might a company could get contacted by one of many different investment teams at Tencent and that's also kind of part of the philosophy of the company that we want to be very market driven yeah we want to make sure that we have multiple teams uh approaching multiple strategies um in an area like we have QQ and WeChat and we have multiple teams doing investments for different reasons and and a different team might look at it from a different perspective and and either get excited or be less excited but in a way it's it's it allows our executive team to have a lot of different strategies in play in the market yeah and that way we kind of have a lot of optionality that all together yeah and what's actually going to happen yeah going forward thank you so much David thanks for joining us for the Q&A and yeah really appreciate you appreciate you speaking of events thank you thank you