Introduction: From defeating NetEase's email service in the early days, to later defeating Weibo, Alipay, and Toutiao, and now pressuring Douyin, Zhang Xiaolong, who has always been extremely low-key and focused on user value rather than competition, has quietly defeated almost all of his strongest competitors, earning him the title of the true "War God" of China's internet industry.

LEESTONE | Author LEESTONE Business Review | Produced

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Recently, Tencent released its financial report for the second quarter of 2024, which included numerous surprises.

For example, Tencent's total revenue for the quarter was RMB 161.1 billion, an 8% year-on-year increase. Gross profit was RMB 85.9 billion, up 21% year-on-year. Non-GAAP net profit for the period was RMB 58.4 billion, a 51% year-on-year increase.

Across all core business segments, Tencent also achieved growth across the board. Specifically, international game revenue increased 9% year-on-year to RMB 13.9 billion; domestic game revenue increased 9% to RMB 34.6 billion; social networking value-added service revenue increased 2% to RMB 30.3 billion; online advertising revenue increased 19% to RMB 29.9 billion; and financial technology and enterprise services revenue increased 4% to RMB 50.4 billion.

In the current context of severe economic downturn, it is quite remarkable for Tencent's various businesses to achieve such impressive figures. In addition, during the earnings call, Tencent President Martin Lau revealed a key detail that was overlooked by many but carries significant implications.

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Readers familiar with China's internet industry will know that there are three core business models: internet advertising based on traffic, membership-based value-added services, and e-commerce based on merchandise transactions. All core enterprises in China's internet industry rely on these three models.

For Tencent, it has already achieved a leading position in internet advertising and value-added services, but it has struggled to make significant breakthroughs in e-commerce. However, e-commerce represents the largest market for revenue and profit in China's internet sector, giving birth to giants like Alibaba, JD.com, Pinduoduo, Meituan, and Vipshop. Even short video platforms like Douyin and Kuaishou are increasingly reliant on e-commerce revenue contributions.

The key detail mentioned by Martin Lau on the earnings call relates to Tencent's e-commerce layout. He stated, "We have recently repositioned WeChat Video Account live-streaming e-commerce to integrate more closely with the WeChat ecosystem, including official accounts, mini-programs, and WeChat Work, to establish a more systematic WeChat e-commerce ecosystem. This ecosystem will not be solely based on video accounts or live streaming."

Recently, Tencent has made adjustments in line with this strategic move. For example, in May of this year, the WeChat Video Account live-streaming e-commerce team was merged into the WeChat Open Platform team to prepare for the launch of WeChat e-commerce. On August 12, Tencent announced that starting from August 25, merchants will be able to upgrade their Video Account stores to WeChat stores, simplifying the onboarding process, lowering barriers and deposit requirements, and enabling the circulation of store and product information across multiple WeChat scenarios such as official accounts, video accounts, mini-programs, and search.

Martin Lau also said, "To some extent, this approach to building WeChat e-commerce is similar to how we have built mini-programs over the years. Patiently building an ecosystem may not generate significant revenue initially, but when it starts to unleash its full potential, user engagement is very high, and both online and offline merchants and content providers derive great value from it, simultaneously bringing unexpected revenue sources to Tencent."

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From Martin Lau's statement, we can see a significant shift in Tencent's e-commerce strategy. Previously, Tencent's e-commerce layout was fragmented and scattered. For example, many merchants used Youzan's platform to establish e-commerce stores through official accounts; others developed their own mini-program e-commerce stores; still, others opened video account stores; and through WeChat Pay, WeChat also provided independent product entry points for e-commerce platforms like JD.com, Pinduoduo, and Vipshop. Tencent also experimented with various models such as Xiaoe Pinpin and Brand Discovery within its e-commerce division. These models were independent attempts by Tencent's various sub-business teams without a clear top-down design to form a cohesive force.

This time, however, the "WeChat e-commerce" based on WeChat stores will integrate various e-commerce projects within the WeChat ecosystem and be upgraded to a strategic project for the company, led personally by Zhang Xiaolong, Tencent's legendary product manager and the "Father of WeChat." In recent years, Zhang Xiaolong has been virtually unbeatable within Tencent, first reversing the fortunes of QQ Mail against NetEase Mail in the PC internet era; then, during the transition from PC to mobile internet, he created WeChat, a phenomenal product that successfully contained the momentum of Sina Weibo and solidified Tencent's position in the field of internet communication and social networking; and after WeChat's success in communication and social networking, Zhang Xiaolong further evolved the platform with innovative products like official accounts, WeChat Pay, mini-programs, WeChat Work, video accounts, WeChat Reading, and WeChat Audiobooks, helping Tencent achieve success in areas such as text and image information, financial technology, enterprise collaboration, short videos, live streaming, reading, and audio.

Especially in the field of short videos and live streaming, where platforms like Douyin and Kuaishou had a significant first-mover advantage, Zhang Xiaolong personally led the development of video accounts after Tencent had long struggled to catch up. Currently, video accounts have demonstrated strong momentum, far surpassing Kuaishou in terms of users and traffic and posing a serious threat to Douyin. Their value lies not only in generating significant incremental revenue and profit for Tencent but also in providing Tencent with a weapon to counter its biggest competitor, Douyin, while also opening up new business opportunities.

It is also worth mentioning that Zhang Xiaolong has refrained from allowing video accounts to fall into the vicious cycle of traditional short video platforms, where low-quality content drives traffic and fake ads squeeze revenue, instead striving to balance content quality and traffic from a user value perspective, which is particularly commendable.

After conquering the important fronts of short videos and live streaming, Zhang Xiaolong has turned his attention to the fiercely competitive e-commerce arena, where he will face some of China's top entrepreneurs, including Jack Ma, Richard Liu, Wang Xing, and Colin Huang. How Zhang Xiaolong will shape the final form of WeChat e-commerce is a topic of great interest to the industry. Based on Zhang Xiaolong's past style, he is unlikely to simply imitate his competitors' existing approaches but will instead abandon industry norms, return to user value and business essentials, and adopt innovative methods based on systems thinking to achieve overtaking.

From defeating NetEase's email service to later defeating Weibo, Alipay, Toutiao, and now pressuring Douyin, Zhang Xiaolong, who has always been extremely low-key and focused on user value rather than competition, has quietly defeated almost all of the strongest competitors in China's internet industry, earning him the title of the true "War God" of the sector. Now, as he ventures into e-commerce again, Zhang Xiaolong, with his industry-leading product values and methodologies, is worth continuing to watch. Additionally, WeChat's significant lead in user base and traffic, as well as its closed-loop advantages in Moments, official accounts, mini-programs, video accounts, and WeChat Pay, provide a solid foundation for Zhang Xiaolong to explore new e-commerce models.

Currently, as China's internet industry reaches the ceiling of user and traffic growth, the sector has entered an era of Stock competition . Tencent has deep moats in social networking, gaming, content, and financial technology, making it difficult for competitors to challenge. However, Tencent has struggled in the highly competitive e-commerce sector, where giants like Alibaba, JD.com, Pinduoduo, Meituan, and Douyin are locked in fierce competition. With the entry of WeChat e-commerce, the competition is set to intensify further.

Thanks to its more stable business fundamentals, Tencent currently leads China's internet industry with a market value of nearly $450 billion, approaching twice that of Alibaba Group, which once stood shoulder to shoulder with it. If Zhang Xiaolong successfully cracks the code for WeChat e-commerce, Tencent's lead will widen further, while other e-commerce giants will face an even more passive situation.