Season 3, Episode 10: Tencent

0:00 Also, I did have Tesla. uh that they invested in Tesla and I have one other that uh is kind of surprising that they own a good bit of or owned a good bit of. Excellent. Do you know that one? Snap.

0:14 Snap. Yeah, oh yeah, there's uh there's Tencent is everywhere. Welcome to season three, episode 10 of Acquired, the show about technology, acquisitions, and IPOs. I'm Ben Gilbert. I'm David Rosenthal.

0:40 And we are your hosts. Today we are covering a company that Wikipedia describes as a Chinese multinational investment holding conglomerate founded in 1998. Of course this is ten cent. All of that and so much more. And a bag of tips.

0:56 And a bag. And a twelve percent stake and snap. David. Yeah. Well, so what is Tencent besides that very long definition that feels conglomerate y? Well, first off, they're they're notoriously bad at PR and they they actually talk about this as a company. You probably don't have them in your mind as one of the world's most important companies unless you're in gaming or maybe social media.

1:21 So starting off with that first, Tencent is the world's largest gaming company. They are a game publisher and they take most of their money from games. It's where they make mo most money as a company, but they certainly didn't start this way, and and we'll dig into that in a minute. Tencent rivals Facebook for the world's largest social networking company by by market cap. It is the world's largest music service that actually IPO'd this week uh with over eight hundred million monthly active users. Uh

1:50 that m music company that just IPO uh on the New York Stock Exchange On its own has a twenty one billion dollar market cap, of which Tencent owns most of it. I mean they they raise like one point one billion dollars in their IPO. So you know Just a little blip on the radar of all that is ten cent. Uh last year at one point before their their stock fell, it had a market cap of half a trillion US dollars.

2:14 In this year's WPP brand rankings, it has the fifth largest brand in the world, even ahead of Facebook, David. Well, the brand stock in one of those is falling right now. The other is I don't know if it's rising, but it's not falling as much, but This company is a juggernaut, and I could think of no better way to to wrap up not only our Tina miniseries, but All of season three. There's gonna be so much back and forth, uh, through this episode between Alibaba and its founder, Jack Maw, and here now Tencent and its founder Pony Maw. They're they're very different, as are their companies, as we shall see.

2:51 Well, listeners, we wanted to let you all know about our latest limited partner bonus show topic. So last week on the LP show, the topic was the art of pitching your company for investment and how to craft the narrative. Um so we had a a a blast doing this. We got to share a bunch of personal experiences. Super fun, David, to be able to kind of branch off of the the standard uh uh format and dive into topics. If you want to listen, you can become a limited partner by clicking the link in the show notes or going to Kimberlight.fm slash acquired. Which is of course also on our website, acquire dot FM, along with our Slack. Whew. We we're turning into ten cent. We have a uh we are a

3:29 Media empire of properties here. My gosh, I know. I know, we gotta s we gotta start sub brands. We need a uh WeChat to our QQ. Yeah. Or maybe a penguin mascot.

3:44 All right listeners. Now is a great time to talk about a new partner of ours here on Acquired, Lagora. The agentic operating system that is redefining how the world's best legal teams work. Yep. It's sort of obvious that AI is gonna completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. Ligora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry? So the founders did exactly what great founders do.

4:17 operate with obsessive customer focus. They embedded inside a massive law firm. For months. They sat with the lawyers just watching how the work really gets done. And that's how you get features that customers love, like tabular review, where you drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Legor's Bet Here is interesting, since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work.

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5:37 to a hundred million in ARR. In about. Eighteen months. truly insane numbers. And that is the real test.

5:45 Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in-house at a company, you can learn more at Lagora.com/slash acquired. And just tell'em that Ben and David sent you. Well, before we dive in, David, I think we have a little bit of follow up from the Netflix episode. Do we have a glaring omission from our Netflix two parter.

6:17 So do you do you want to do it? We're we're keeping everybody in suspense here. One of the coolest things about our our little mini Netflix series was um learning about the the spin outs from from the company, um, of course, of Redbox and and Roku. And uh several listeners wrote us uh after they listened to part two and said Guys, I was waiting for the third

6:42 Spin out, quote unquote, quasi spin out, and and it never came. Not not in the shareholder perspective, but in the uh people that left and were instrumental in building Netflix and now we're building something else. And building something else. And of course, uh we were totally remiss. Movie Pass. How could we have missed it? Only like the uh the meme uh the company everybody love to love and hate on in twenty eighteen was founded and is run by Mitch Lowe. Who The one and only, not only original Netflix executive, but then Redbox president. And now uh CEO and founder of Movie Pass.

7:19 He's founding just keep getting worse and worse. So I'm thinking maybe uh this this should be a little bit more. Hey I Products market fit. I mean customer demand is there. Yes. Yes. Boy, uh you can sell dimes for nickels at

7:38 Insane rate. Insane rates. Insane rates. So we apologize for Leaving that fun bit out of the uh the history and facts for Netflix, but wanted to make sure to include it in the follow up. Right. So is it time?

7:53 I think it's time. Let's Get into Ten cent. Yeah, I think starting with a couple of uh of thank yous to really great sources that we found for the episode and actually some some from listeners. I have three thank you in particular I want to throw out.

8:08 First to Bernard Leong in the Slack, in the acquired Slack, who is the host of the Analyze Asia podcast. Also A great show. Uh recommend, especially if you've enjoyed our China miniseries, um, that you go listen to it. So he wrote us after we said and um we released uh an episode of our LP show last week, and in it we said we were gonna be covering Tencent. today and uh he said

8:35 you you really g gave us a couple podcasts to listen to. Also said the the canonical book on Tencent is called Tencent Story. It's by Xiaobo Wu. Unfortunately it's only in Chinese, but fortunately we were man we were able to find an English language summary on Medium by Julia Wu. So huge thank you to Bernard, uh, to Shabot for writing the book, and then to Julia for writing a a really excellent English language summary, which we will link to in the show notes. Then lastly on my end, the China Econ Tal podcast uh had a great episode with Matt Brennan, who's a WeChat expert and analyst. Uh he was he was a guest on the show and just gave an unbelievable sort of blow by blow history of the development of WeChat, um, which contributed to the the research for today. And lastly, friend of the show Brad Stone did an Awesome piece in Bloomberg Business Week on Tencent this past June.

9:29 He's uh he's A plus. He is a plus. Alright, so with all that Let's dive in.

9:36 So Before We get to Ten cent and it's Founder.

9:41 Pony Maw. I think it helps a little bit like Netflix to talk about the geographical place. where Tensen is located, and that is the city of Shenzhen, which is probably familiar to I would assume all listeners uh of the show at this point, the quote unquote Silicon Valley of China. Yeah, anyone who's uh had an iPhone shipped to them, um, have probably uh seen this on their their tracking. So in the China miniseries this season we covered Xiaomi, uh, which is based in Beijing. Uh Baidu is based in Beijing. We haven't covered Baidu yet. We covered Alibaba, which is based in Hangzhou.

10:18 Uh, but this is our first Shen Shenzhen company. So what's so special about Shenzhen and why is it the Silicon Valley of China? So it's in the south of China. It's the very southern part of the country. It's part of the Pearl River Delta. uh region uh named regional economic zone. It is located right across the Bay of Shenzhen from Hong Kong. Uh so this is super important. The history is really interesting. So Before the post Mao reforms in China and the kind of opening up of China and introduction of the capitalist market system, the legend is that that Shenzhen was just a fishing village. It was a little more than that. It was it was a market town, but but it it was very small, and fishing was one of the main industries there. The city itself had about thirty thousand people and during the cultural revolution, I mean, when things were

11:08 really bad, uh in China. People would go out to fish and they would just keep going in their boats and they'd go right across the bay to Hong Kong, uh, which of course was a British protectorate at the time, and never come back. Some people would even jump in the bay and physically swim across. It was right on the border, you know, of kind of like the the east and west, uh and capitalist and and Chinese communist uh partying in the sixties and and seventies. But after Mao, during the reforms, of course, Deng Xiaoping takes over the party And he starts, you know, this is Probably the most radical transformation in world history, you know, introducing capitalism to to China. He calls it socialism with Chinese characteristics. Um you could argue this leads directly to acquire doing this mini series, which is the most important, you know, outcome of all. Uh of course we just. So dang

11:55 When he wants to introduce Capitalism, he wants to do it very, very slowly and in specific areas, and he picks Shenzhen as the first area where capitalism is gonna be introduced in in China. This is so special. Like think about if we try to do that in the United States. Like, well, we're gonna change the s the economic structure, but we're only gonna do it in this state. In one city. It is only going to happen in San Jose or Bellevue. Like that is the equivalent here. It's pretty crazy. Yeah, it I mean it literally is like if you're familiar with the Seattle area geography, it's like Bellevue, right? Like there was Seattle

12:30 Hong Kong and then across, you know, a body of water, there is Shenzhen. And so it becomes the first special economic zone where where you know, capitalism in the free market is not only allowed, but encouraged now by the government. And Deng has this famous quote about this where his concept is, let some people get rich first. And that will kind of draw the rest of the country along. And that's what what starts Shenjun on the path from a thirty thousand person kind of marketing. fishing village to you know, people start flocking there from all over the country. First

13:02 Importing and exporting becomes a huge business there from Hong Kong and across the Bay. It's now one of the busiest container ports in the world, then manufacturing, obviously, which lots of people know about. And of course now high tech. So today there are over 12 million people that live in Shenzhen proper and then the Pearl River Delta region. Which I think has about nine cities around it. It's all one continuous urban area. It has sixty million people. It's the largest. Continuous urban. region in the world, which is nuts. It's like if you took all of California and you condensed it into like the Bay Area. Or or maybe the the Los Angeles area is probably more comparable. It's great. So so this is the soil that Tenseng gets planted in. So in nineteen seventy one, a boy named

13:49 Ma Hwa Ten Is born in a small city in the province of Hainan, which is an island south of Shenzhen in Hong Kong. It is the southernmost Chinese province. He eventually adopts the English name pony, uh, which is a reference to his last name Ma, which means horse, so he is pony. And when he's thirteen, Uh in nineteen eighty four, his father

14:12 gets a job as part of this great, you know uh rise of Shenzhen gets a job as a port manager uh at a shipping in Shenzhen and they move there. Now Ma is super precocious. He's like a great student Totally excels at everything. He graduates from high school in nineteen eighty nine. He does Knocks it out of the park, like

14:32 I don't know if he was technically first in his class, but like top of his class in his college entrance exams, he could go wherever he wants, but he and his parents choose for him to stay at home and go to Shenzhen University instead of going elsewhere to better schools in the country. Um, because this is 1989, and if you know your Chinese history, There's something else going on in nineteen eighty nine, which is the student protests and unrests and um They decide it's better for him to stay at home and stay in the special economic zone. So he goes to Shenzhen University, but again, he's super precocious. He he majors in computer science. Uh apparently he originally wanted to be an astronomer, um, but that wasn't offered at Shenzhen. So uh everybody uh the The sort of talk of the town is that uh just like

15:15 Jeff Bezos and Elon Musk, we might see pony as he moves into the kinda second phase of his life get into um space and rockets and uh be a a a Chinese uh uh version of these uh US tech billionaires that get into space. W it wouldn't surprise me, he's already he's moved million or I think billions of dollars into his uh uh private philanthropic work.

15:37 So Yeah. So instead he studies computer science. And while he's in school, he develops a little app and this company that he's interning for, Li Ming, ends up buy this pr side project of his for fifty thousand R M B, which is like three or four years worth of salary of a new college grad at the time. Not a bad way to enter the workforce. Contrast him already with Jack Ma, who's like doesn't do well at math

16:03 knows nothing about technology uh and uh can't code and is like making a living as an English teacher. Um he's already sold his first company, he's still in college. And and Jack Ma I don't think it w he had already done this by this point, but Another interesting contrast is was obsessed with Western society and ended up spending a lot of time in the United States. Pony Ma does none of this. I don't think he'd ever visited the the US or or gone to Europe, uh, doesn't speak English. So he graduates. Uh a bunch of his friends who are also at the top of his class kind of want to stay and go on to graduate degrees, but Pony is like, No, I want to get out into the working world. I've already sold, you know, kind of my first project. Um, I want to go make an impact and build things that people use. So he goes and he works for a company called Shenjin. Runtion uh communications. I may be buttering that.

16:53 But uh that's his first job and he works in R and D and they're sort of like a Telecom company. And uh so he's working in all sorts of advanced tech one of the main things that that they do is they make Technology for pagers.

17:06 Pagers are like really big in China at this point in time. They're big everywhere, but especially in China where like PCs aren't really a thing yet. Like lots of people are using pagers to communicate. And uh so that's kinda his first taste of like communications. Tech. Jack Ma

17:24 He has to like go on this crazy trip to the US to get exposed to the internet. Pony is getting exposed to it through his work. Uh, so he's one of the very, very few people in China that like even know the internet is a thing, let alone have access to it. So he gets really deep in the early BBSs on the internet, like the bulletin board systems and amazingly a whole bunch of Chinese entrepreneurs come out of this. So like Again, the the only people who have access here are like people who are super geeks working at

17:54 tech and communications companies in China. So Le Jun, the founder who of Xiaomi and the previous CEO of Kingsoft, um, who we discussed in our Xiaomi episode, he's on there on the bulletin board systems. Pony's hanging out with him. Also Ding Le Who would go on to start Netties, which is another huge Chinese portal that we've talked about on the Alibaba episode, he's there as well. And so all these guys, they're all like starting companies as they see the internet coming. Talking about what planes they're gonna buy, you know, how many rockets they're gonna build. Um nineteen thousand square foot homes. Yeah which uh I think you're referring to uh Pony has a current uh Very private, secluded mansion.

18:40 In in Hong Kong, yes. Ma is like super inspired. He sees Ding start net netties and like he's like, Man, I gotta get in this game. So nineteen ninety-eight, remember, he graduated in ninety three, so he's five years out of college. He reunites with his old college friends who had stayed and done graduate degrees. And uh they're finishing up their studies and he's like, Guys, we gotta We gotta do this. The time is now. We gotta start a company. And the initial idea that he pitches them on, remember, he's working on pager technology. Well, he's like, We're gonna develop Internet services for pagers. So like all these people in China, they have pagers. Uh we're gonna provide like a a

19:19 better like mobile internet on pagers. Ben, I don't know if you remember in the early days of like quote unquote smartphones, uh before, you know, before Blackberry, before the iPhone in in the US, like there was this mobile internet. Oh yeah, dude. Yeah, WAP, exactly. So I think this is what the idea is. WAPs required sort of like a I guess not necessarily a color screen, but some kind of like actual dot matrix thing that you could display almost HTML on, right? It was like some janky images and really low quality GIFs and text that you could scroll. So I think like it's it's like a slightly more primitive precursor to WAP. Uh so they start the company, they need to choose a name, and they come up with uh

20:04 Tung Shun. uh I believe is how it's pronounced, uh Tengtion Tungshen, which literally in Chinese means galloping message. His name is Pony, Pony Pony Martin. I think message that Yeah. And uh I was I was doing all this research, I was like, Ten where does Tencent come from? And I've always wondered that. It is the westernized version of Tang Shun. Uh wow. Galloping message. There you go. Dude, we should uh I'll send you a galloping message after the show and we can talk about how we thought it went.

20:33 Uh yeah. On uh On our many Communications platforms. You you can you can page me. Perfect. Well two other things about the incorporation of uh Galloping message. One Pony Ma was twenty six at this time.

20:49 So multi hundred billion dollar company founded by by twenty six year old. Not exactly the sort of Mark Zuckerberger, Evan Spiegel, you know, crazy early, but still pretty pretty pretty young dude. Still pretty young. And his co founders, of course, had just finished their, you know, grad degrees. Right, right. Uh the other interesting thing that I caught was it was uh incorporated in the Cayman Islands. I don't know if this is exactly the same structure, but if you remember from the Alibaba episode, Yahoo couldn't invest in a Chinese company.

21:19 I think it was that the Chinese company couldn't have it uh major international shareholders. So there was a Cayman entity set up for Yahoo to invest in that then had a contractual relationship with the actual entity of of Alibaba in China. It's interesting to see, probably a slightly different thing since they actually f started it as a a Cayman entity, but um sort of interesting to see that structure here. I assume they did this because they intended on raising venture capital. It's kind of like how you and I always start these Delaware corpse. Yeah, exactly. It's the it's the Delaware Corporation of the Cayman's is the Delaware of uh

21:56 We'll just call our registered agent down there and have him spin something up. Yeah. So they do this. They're working on the pager software Meanwhile This is nineteen ninety eight, late nineteen ninety eight, going into early nineteen ninety nine. What's going on?

22:11 In the rest of the world on the internet. It's like the first wave of real consumer internet and social, quote unquote, although people didn't call it yet that is blowing up. So you've got Napster in the US. And of course you've got AOL and then MSN and all sorts of other kind of portals and early

22:30 instant messengers are popping up. And so the first the first instant messenger was this company called ICQ. Israeli company. Oh man, I used to live in I CQ. And that was that was the first PC based instant messaging Client. ends up getting by AOL in nineteen ninety eight, so right before Tencent is started.

22:50 And and really starts taking off. Entrepreneurs see the power of the the network effect in these communications businesses. And now there's an exit uh in ICQ. And they're like, okay, great, we're gonna start building these things. So it's like, you know, the first example of what we would see later, you know, with messaging apps on on mobile and ride sharing. It's like you have they start popping up all over the world. And so Pony and his co-founders see this and they're like, Okay, forget this Pager software thing. We're gonna go clone I think. Send the galloping messages over instant message. Yes, on a computer. And again, to be fair, like the Peter thing wasn't totally crazy because people had them. And what people did not have in China were their own, you know, personal computers. But what was starting to emerge now was internet cafes. And people would go and spend tons of time in internet cafes on PCs there. And so they realized we can still get distribution into consumers' hands, even though they don't personally own PCs. We just get it into these internet cafes. People installed.

23:51 uh our version of ICQ, which they call open ICQ, very creatively, OICQ, on the internet cafe PCs, and and we're gonna access a huge amount of the Chinese market, which they do. Just to drive this point home about like when we say people in China didn't really have PCs at home. So in 1999 There were fifty desktop computers for every one hundred people in the United States. It's about, you know, half people as you would sort of expect if you rewind it to nineteen ninety nine and you think about that and you know what you were observing around you. Well in China at that same time it was one home computer for every one hundred people. the internet and, you know, even computing really hadn't come to China yet. particularly at home.

24:34 But These internet cafes had and And it works. And uh People start spending a ton of time. Uh, and I remember reading about this at the time, thinking, like, this is crazy. Like I use the computer in my house, but in Not just China, but Korea and uh

24:48 I don't I don't think it was as much in Japan, but definitely in Korea. This whole internet cafe thing became a huge meme. The birth of the PC bang. I've been to one. Have you been to one? No, I haven't. I've read way too many articles to have not been to one. It's cool. Depressing, but cool. When I was at Stanford in business school, we did a um everyone has to do like a international

25:10 trip experience and mine was to South Korea. And uh it was funny, uh, P C Bang was not on the official itinerary. So it was like one evening when we were free, I was like, I cannot not go to a P C Bang. So I just wandered off by myself and like Is it like just everybody playing Starcraft? Yes. That is exactly what it was. So within nine months of this pivot to O I C Q to copying and it wasn't just copying and and and Pony M actually he talks about this.

25:41 Because Ten10 has a reputation for copying others' ideas, as we will see multiple times throughout this episode. But he's like, it's not just copying, you had to adapt it to the Chinese market, like ICQ wasn't gonna work. or or any of the competitors in China. Uh A because it wasn't, you know, in Chinese. But also B like the the the way that like the the market operated was different. Again, people didn't have PCs. They went to Internet cafes. And so you just had to do a bunch of stuff in the with the product to adapt it to the local

26:09 Market. You couldn't make assumptions around this user is always logged in and stuff like that. Well stuff like mailing a C D to your house, you know, that AOL, of course, so famously used for distribution. Distribution was different. Yeah, it makes sense. Yeah. Like that's not gonna work. Um So within nine months of the pivot, they have a million users, um, which obviously is a drop in the bucket compared to the whole population in China, but still like huge and huge enough that AOL notices them and notices this Open ICQ that is taking off in China that they do not own when they thought they owned ICQ. Um

26:44 So they serve them a lawsuit and uh demand that they Take down the uh service. or at least change their name. So now they're they're kinda up a creek without a paddle. They they have no business model. They're giving away all this for free. Um they're presumably having to Pay.

27:01 something or at least, you know, employ a lot of people to go get this uh service installed in internet cafes around the country. They have ballooning server costs. Yeah, I was gonna say you actually have to build data centers and buy servers and rack them and have IT people that are, you know, maintaining all that. All this stuff. So they're like, okay, we're gonna do a dual track process. We're going to try to sell the company. Uh, we're gonna be, you know, we're the ICQ of China, or we're going to raise venture capital and we'll we'll see what happens. This this flexibility was shocking to me. The fact that Pony Maw's like, look. I have a clear vision. We're gonna bring messaging to China. And like it's not as important to me to do it in a way where I, you know, maintain control the whole company and uh like I just wanna see my mission through. And of course I'm I'm sure everyone had a profit motive there, but like it was really about like

27:46 we have an opportunity that makes this th this thing huge and I'm open to whatever process gets us there. Just like Netflix, right? Like, you know they tried to sell Netflix I think what, three times? Uh yeah, once to Blockbuster for two hundred million dollars or something. Yeah. Well first to Amazon and uh It was like I think Bezos offered like nine million or something like that and it was too low. Anyway. Listeners, it's amazing how quickly David and I have about a nine hour span where we can actually do an episode where we have enough of the information in our heads and like the notes collated in such a way where we can actually do the episode. And then it all just like jumbles after that. So it's good that we get them out when we do. Yeah, totally. It's the problem with getting old. So

28:25 Nobody wants to buy the company. Um But in two thousand they do have two people who are interested in investing. So one is IDG venture capital, which is um one of the most prolific, at least kind of first wave VCs in China, um is a US VC, I believe IDG, I believe it's a publishing group. I think it was like a

28:47 They did a lot of the early trade shows and kinda like computer trade shows and sort of like Internet one point oh um and they had a venture arm. uh that was very successful in China. So how do you do you want some investing in this particular fund, I believe was quite small. think about it like a much, much smaller than you would think about a seed fund today. Which will be be important in a moment.

29:10 Which is probably why they need to bring in extra capital. So they bring in one of the companies owned by Lee Ka Shing, the very famous uh Hong Kong based billionaire investor, uh telecom investor. So the two of them as a syndicate are willing to invest and they are willing to invest two point two million USD uh for forty percent of the company. So five point five Million dollar post money valuation. uh for a business that has a million users. Uh and a million users back then.

29:41 There are harsh terms, man. That's a lot of the company to give up. I know, I know. Well, you know, the VCs they want their twenty percent, and in this case they both want their twenty percent. Yeah. Yeah. But Pony and Ten cent. They kinda have no choice. They take the money. They sell the forty percent of the company.

29:58 immediately afterwards they lose the judgment in the in the matter with AOL. I don't I don't know exactly know what jurisdiction it was in. It was international law, um, but they're ordered to stop using the open ICQ name. And the story is so so they're trying to figure out like how can we rebrand this thing. Supposedly a ten cent employee is on the bus one day in Shenzhen. And he hears uh a couple users who use the service just talking about it on the bus, and they're referring to it as QQ. as a like uh acute kind of diminutive of O I C Q, as QQ.

30:30 And he's like Hey, we need something. A star is born. So not only do they rebrand O I C Q Q Q. They re fully embraced the cuteness.

30:41 And uh they design and adapt the cute little Cuddly penguin that uh if you're familiar with Um with Tencent and with Q Q you probably know of as their mascot. Which I didn't know about till doing this research. Thank God I did, because then I got your penguin jokes earlier. Well, and I think um well that means probably most of our listeners didn't get the penguin jokes, but now you get the penguin jokes. Um Now I think I wasn't totally able to confirm this because like, you know, the uh internet way back machine doesn't really, you know, work in China. But I believe not only before this switchover were they using o ICQ uh as their name and ripping off of that. I believe the default avatar images for users on the service before were straight up ripped Disney characters like Mickey Mouse and Donald Duck. It's like way, wait, we should get away from this trademark infringement with ICQ. So bring in Mickey Mouse.

31:36 I heard they're not litigious. No, that was that was before. I think now they're afraid of international litigation. So like we gotta clean up everything. So I think this is also where the penguin comes from is we gotta replace Mickey Mouse and Donald Duck. Uh, let's use uh Let's design our own. Cute furry little animal. Phenomenal. It is worth noting at this time, so d doing a little bit of research on IDG. So I thought I knew the name from somewhere. They they run Macworld. So they own Macworld, Computer World, PC World, all those things. They

32:07 also I I they're really old. They were started in nineteen sixty four. Like this has been a a publishing group for a long, long time and they you know run all these expos and um Skipping ahead to tech themes, but how how often we see these, you know, immensely successful sort of spin off funds of companies such as SoftBank, um or IDG getting in and on the ground floored of uh uh of something huge. Like this is the global instantiation of uh our theme from I forget what episode uh it was probably a year or two ago now, about like How at this point in time in tech and on the internet, there were like eleven people in the whole world working on it right now. Uh it's crazy. You know, and a bunch of characters uh the who we uh have seen before are gonna pop up.

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34:42 Okay, so they raise the money. They changed the name to Q Q, they've settled uh the lawsuit. But they still have a problem, which is that they don't really have a business model. They're giving away the software for free. They're making some revenue from telecom carriers for delivering Q Q messages to Pagers. So like the pager thing is still part of the company. Um and uh which actually makes sense. You know, you're not in an internet cafe, somebody sends you a message, you want to know about it, you get it through the pager, like, okay, I get it. The other thing that happens in 2001, of course, is the dot com crash happens in the US and that cools, you know, the

35:19 venture financing market uh globally, the company's still growing like a weed. They're adding five hundred thousand users a day and In two thousand one, they surged past a hundred million users. Like this is crazy. And again, remember Internet cafes like nuts. They're beating the bushes, though. They're they're they're they're still trying to sell the company because they're like, Okay, great, we've got a hundred million users, we're super valuable to somebody. Um, you know, we've cleaned up all these legal issues. Somebody's gonna have to wanna buy us. And from a shareholder's perspective, IDG doesn't have any ability to do follow on capital because they're in that kind of very small fund. They syndicated just that two point two million dollar round. And uh IDG is starting to feel like, you know, this company that we have that is growing, that's great, but wrong skittish post dot com bubble. Like let's Let's liquidate some stuff.

36:09 As is Lee Cashing. Now, I I don't know. I didn't do enough research to know here for sure, but my understanding of Li Cashing is his He made his fortune in the telecom industry. And the one industry that was hurt harder than tech and the internet in the dot com bubble bursting was, of course Telecom, he's probably hurting and needs liquidity, so he's looking to get out of his investment as well. So they meet throughout this process, the Tencent and Pony meet and Pony's co founders.

36:34 Meet the most incredibly random group you could even think of. They meet the investment arm. Of Naspers. which is a big South African media conglomerate. This is like the like the newscorp of of South Africa. So like they're you know, a Shenjian based Chinese company uh that stole their original name and product from an Israeli company that's being affected by the US dot com crash.

37:03 Sure. South African Media Company. Why not? And there are people out there who are listening who have definitely heard of NASPERS in this day, like in in in nineteen ninety nine when this is all happening, you would not have heard of NASPERS. Like it's it's not something where you're like, Oh yeah, no, I don't know much about it, but it's kind of this big international thing. Not a big international thing yet. No, no. And uh yeah, now well known tech investor because of what they're about to do here. So they say Like We don't want to buy your company.

37:30 But We've got capital. Uh we're looking to diversify out of the media, I believe I believe mostly print media business in South Africa. We will invest and w not only are we We want to invest, but we want to invest. We want a meaningful ownership stake. We're willing to buy out your existing investors. So like echoes of the Alibaba uh episode here. We'll take that forty percent. The Goldman investment that gets bought out. Yeah. So

37:57 That not only are they willing to buy out existing investors, they're willing to do so at a 60 million dollar valuation. So remember. Just a few months ago, this company was valued at five and a half million dollars post money. The existing investors are trying to get liquidity. They're like, Great, eleven X, sixty million dollars. I'll hit that big. I mean, gosh, couple of years. That feels really good to me. Let's do it. Yeah, well let's do it. Ten X er, ten X returns. Oh boy. Oh boy. So Lee Cushing sells his entire twenty percent stake.

38:28 Fortunately for I DG, they sell only twelve point eight percent of their stake, so they retain seven point two. percent of uh ownership in Tencent. Naspers acquires Thirty two point eight percent.

38:41 of Tencent in total, just under a third for twenty million dollars. Who we're gonna get to grading uh in a little bit. Uh and we'll this will come back up. But uh this was to say this was prescient would be the understatement of the century. Yeah, and listeners, just to plant the seed now, we're not gonna be grading like the we called this episode ten cent, like we called Tesla Tesla. Or like Alibaba Alibaba. This this isn't really gonna be about sort of the ten cent IPO because it's part of a much longer journey, but this is acquired and we have to grade stuff, so we're gonna end up uh uh grading this particular investment against other sort of very successful investments. You might imagine which ones. Okay, meanwhile though. The company is still not really making any money. Yeah, but David, they have a lot of eyeballs. So I mean take your pick. Exactly. And not only that, but this transaction that happened.

39:33 The company didn't get any money. Like the investors just cashed out. Funny thing about second bigger sales. Yeah. Funny thing. Um So they gotta figure out a way, you know, to survive here. In two thousand two, a PM who's working at the company Here's about this Korean company uh that is selling quote unquote digital goods for their users to customize their, you know.

39:57 avatars on this, you know, digital service And uh yeah, I have people are like laughing about it. Well people aren't even laughing about it in the world. People don't even know about this yet. But apparently it's doing pretty well. And so Tencent's like, Well, we gotta do something. Let's Try that. So they once again copy this business model and they launch

40:17 what's called they call QQ show as part of the QQ platform. And it's basically a customization for your avatar on QQ you can buy. Digital articles of clothing, digital avatars, uh hair, you know, all all sorts of stuff. to make you have a different appearance.

40:34 And it takes off like wildfire. So within six months, they have over five million users. on the QQ platform that are paying an average of five RMB a month. So that works out to a Three hundred million. R M B annual run rate. So that's about fifty million dollars uh in USD.

40:55 Within six months. And this is two thousand two in the like, you know, the nuclear winter of the internet. Yeah, and so fascinatingly, I mean, American companies won't catch up to sort of microtransactions for you know, a while. There's portal games like on on MSN and AOL, which we use it a little bit, but it's not really till you get into sort of the Facebook and Zinga world and then really the mobile world in sort of two thousand eight to twenty twelve. Mobile and Riot Games and League of Legends, which's right. We're gonna come back to in a little bit. But here Tencent is understanding the power of this super early. They're not a gaming company yet, but they understand the power of of microtransactions and of virtual goods. And it's two thousand two. And I wanna just flash forward to something that that I read today is a Wall Street Journal piece about the Tencent music um IPO.

41:42 And they they mention the sort of differences between Spotify and TenSet Music, and they say Tencent Music's main revenue source isn't actually music streaming. Instead it generates billions of dollars from selling virtual gifts with which users can tip entertainers who stream live performances in its apps. And so Tencent, like this is a completely formative moment for the company that will dictate future business models across verticals. Totally. And this is the business model of Tencent. As we'll see, Tencent grows into having

42:12 so many different products and and portfolio of things that they're in, but this is the common thread. that they've figured out and they know more than than anyone. And I I didn't have time to actually read the full Wall Street Journal article, but my Uh, from what I did read, I I think they were sort of dismissive of this as like, Oh, well, Tencent Music isn't as you know, isn't as good as Spotify'cause people don't actually pay. It's this and it's like It's like

42:34 No, come on, like this is a better business model. Like if you guys heard of Twitch, like, you know, have you seen Tencent Like this is how it works, you know, it's a better business model. It's at least it's at least different and powerful and and uh could could be better for different yeah. You know, this isn't as egregious, but this is it reminds me of uh you know the seven eleven blockbuster CEO coming in and being like, I don't believe in internet businesses. Like I don't believe in microtransaction bus no, like, yeah, they work. Deb you played Fortnite. Fortnite, which somebody might own most of. Oh. Who would that be? Um Spoiler, it's Tencent. Everybody around the table is like high fiving now, and especially Naspers. Lee Cashing is not high fiving. Eleven X, baby, what do you want? Yeah. Nasper's pays twenty million dollars.

43:19 And then within like a matter of months, they own thirty two, thirty three percent in a company that is at a fifty million dollar revenue run rate and growing like gangbusters. And not just Fifty million dollar revenue run rate. Like, think about the margins on this. Like there's no cost of goods sold when you are selling digital goods. Pretty good business model. Okay, two thousand three, the next year, they do over a hundred million USD in revenue. They start thinking about Two things.

43:47 One. Going public. And Two. What else they can apply this?

43:54 new business model that they've figured out of freemium goods and digital goods and microtransactions, what else they can apply this to around their core kind of communications and and I am platform that they own with QQ. And before they're they take the plunge into doing what what I think you're about to say, they really enter the portal market. Like if you look at what AOL was doing, what MSN was doing, what Yahoo was doing, you know, there there's all this content that flows through them. Like they get to own distribution to customers. And QQ has blown up to the point now where they say, You know what? We're now a portal too, and we're China's portal. Mm-hmm. Yep. They're thinking about a portal, they're thinking about what else can we add to the QQ platform. And they're well one thing that the company is really good at to this day is like they are a very, very good product organization. And so they go and they spend time with people who are using QQ with users, and they realize that

44:43 This segment of people Are using Q Q to chat with each other. In these internet cafes While they are playing games. On the PCs.

44:53 playing online games, uh of all types. Uh And They're like, That's interesting. What if we added games to our platform, to our portal? Uh it's kinda like, you know, Discord like finally figures this out. Well, Discord figured out like this. product uh insight, you know, many, many years later in the US. Like it's amazing how far behind we are here. Like this is the ten cent

45:18 business model. Um like games. Okay. They start adding games to the platform. They go out, they start acquiring some games, they start uh studios in house developing their own games, adding them to the QQ platform. within the year, it adds another fifty million dollars of revenue to the company. So huge success. Not just success like the core virtual goods business on QQ is growing like crazy.

45:44 Now they have an even faster growing games business that's also part of the portal that they've added. So in the process of realizing all this, they're like, Okay Couple things. One, we gotta get public'cause this is like a great business. Two You know, all the founders are computer scientists, there's one founder who had some sales expertise, uh, but it was s kind of from the telecom world. They're like, we need some like real

46:05 you know, business folks and and Pony, like is great. He's a total visionary, product visionary, but like As you said, Ben, he's fairly reclusive. He doesn't speak English very well. They realize now they need to be going out doing deals around the world, acquiring these games, bringing them to China. They need their equivalent of Alibaba's Joe Cyber. I mean in addition to sort of the business development skills, you really need someone here who's a great capital allocator who sort of understands like'cause by putting all these games on their platform, some they're buying, some they're investing in, like they're already sort of starting to take a a a conglomerate form. Though all of the things do feed into this portal they've created. So they look around and they're like

46:42 Well. We kinda have somebody who fits that bill. who's been hanging out with us a lot. And that's our banker from Goldman Sachs, who's working on taking us public, whose name is Martin Lau. Martin is is super interesting, just like Josai uh in in Alibaba. He's a TMT banker at Goldman in Hong Kong.

47:01 His parents are Chinese, but he was educated in the US. He went to Michigan for undergrad, studied engineering, got an engineering master's from Stanford, did an MBA at Kellogg, uh, then worked at McKinsey, and then moved to Goldman over in Hong Kong. And so Pony, uh is like Dude, Martin, you gotta like forget this banking thing. Like this is where the this is where the future is. You gotta come work with us. Martin declines at first. It's sort of similar to uh you know, it uh reminded me of when Jose uh you know declined the first offer from Alibaba and it's it's like I gotta have my wife come over and meet you guys. Uh Very similar. He declines he's like, This is kind of a conflict of interest. Like I'm your banker, I'm working on taking you public.

47:39 He's like, Let's get the IPO done first. They get the IPO done in June of two thousand four. They go public on the Hong Kong Stock Exchange. Uh they raise 180 million dollars. And pretty shortly afterwards, Lau is like, Okay, this is a really special company. I'm gonna I'm gonna leave Goldman and I'm gonna join. So he becomes the chief strategy officer in charge of investor relations and importantly, MA. Uh, which is like kind of a like there are not many

48:06 Chinese internet executives that are in charge of MA at this point. Lau's really like blazing a trail. He does really well, totally gels with the team. Two thousand six, he gets promoted to president of the company. And he's really the one who starts driving this idea that like Tencent is now this platform and Tencent is this business model that can go around and bring all of these types of various types of content and experiences into the both the QQ platform and and use this business model to create, you know. Amazing businesses.

48:37 So they launch Q Zone, uh, which is a kind of a more even more full fledged social network. By 2011, so a few years later, Tencent now operates four of the five top games in China. And they do a pretty important thing that we will come back to in twenty eleven uh deal. They acquire a majority stake in Riot Games based in LA. Maker of

49:02 League of Legends. Little little game of the esports world. But not super well known in twenty eleven. in the West, but enormous in China. And uh I mean a big around the world. I think Tencent was their publisher in China where they were able to Riot didn't really have the capacity to reach customers in China, though the game was going to be beloved, so partnered with uh with Tencent to be the publisher there.

49:25 Yep. So they're the publisher already in China. They're seeing and and of course Uh for listeners who aren't familiar, League of Legends It was natively built with the with the Ten Cent business model. Um so it's free to play. Cost nothing. Anybody can anybody can play in the way

49:42 The game monetizes is through people buying digital goods for their characters, both both characters and then goods to put on the characters that have no effect impact on gameplay. So the playing field is level for everyone. Um, but people just want to customize their their characters. And it works amazingly well in China. Just a couple days ago, uh, Riot released the um

50:04 twenty eighteen League of Legends esports by the numbers. They had ninety nine point six million unique viewers. just watching the world's finals. the world championship finals. I mean, this is uh forty four million viewers tuned in concurrently at peak. Like this is one of these really insane global phenomena that was not quite like this when when Tencent bought them. I mean this is we may be foreshadowing that uh it'd be fun to do an episode on this at some point and Dave and I are smiling at each other. Nodding in agreement. Yeah. Most of the growth of League of Legends has happened in China and under Tencent's watch. And so they're really sort of to credit for the the growth of this global phenomenon. I think we will have much more to say on a future episode about this, but I believe they paid three hundred million dollars, is that right? Three or four. Yeah.

50:55 Three or four hundred million dollars for like a ninety percent ish stake in in Riot Games, the maker of league at this point. Absolutely. Crazy. Crazy pressure and investment. The other thing they do the next year in twenty twelve, and then we're gonna take a step back from the gaming part of Tencent for a minute.

51:10 This is gonna come up. They acquire a forty percent staker in North Carolina based epic games. Which made this like unreal tournament, which was beloved by a small group of people, the unus the Unreal Engine, which was used by a a bunch more people. But It's not not a global phenomenon. It was more of like a more like an infrastructure play and like Uh, who knows what they were thinking, but they're like, maybe this is a way that like we can start to compete with Valve and Steam. Anyway, let's park that to the side for a minute. The other thing, let's let's move back to the core Tencent.

51:44 platform and and QQ and kind of the engine that makes all this possible is all the attention and uh um communication and network effect that they have of their users. Yeah, because remember, Tencent is a social media company or a social networking company that started with the the messaging platform QQ. And of course their their most profitable area is gaming, which we've sort of caught up on. But there's a thing that happens at at Tencent in the social networking world and the uh communication world that really dominates them today that we haven't talked about. Well so

52:16 IPO happens in 2004. Basically from 2004 till 2010, 2011, like growth is rampant, QQ is dominant, they're like unassailable, growing to hundreds and hundreds of millions of users uh throughout China. But as twenty you know, we get to this time frame. There's this thing called mobile that's happening. Uh, and people are starting to realize this is not just like the next big wave in tech globally, but like particularly in China. And we talked about this a bunch on the Xiaomi episode. And uh remember Le Jun, the founder of Xiaomi is is Pony Ma's old buddy from the Bulletin board days. Uh Xiaomi's already started at this point. Leijing sees like he realizes that mobile. Like

52:58 China internet users are going to jump directly from using PCs in internet cafes and not owning PCs to owning mobile phones. And this is gonna be a complete product and and business model paradigm shift for the way Chinese. users interact with the internet and their their personal relationship to it. As you'll remember on other episodes of acquired, such as the Facebook IPO, um, there were companies that had an existential moment where they either missed mobile or almost missed mobile, and it was company defining. Um and for Facebook, it was actually sort of uh behemoth creating. And so a Tencent is about to hit this very same cliff where they have their moment where they go

53:36 Oh, we need something on mobile because QQ, you know, for all of its greatness, it's uh for those of you who are big on AOL Instant Messenger, do you remember when the AIM app came to the phone and how it was kind of garbage and how it wasn't made for the phone and native to that platform? Well, they need an answer to that. This is happening. And and they realize this. Two years ahead of when Facebook realizes this. So they do they have the the whole management team at at Tencent. They they they know they have to deal with this. They they call a big off site strategy retreat for the top management.

54:09 They call it the Conference of the Gods. Unclear if they call it this themselves or if the other employees of the company call this the Conference of the Gods. They come out of it. They decide that like, yep, this is war time. We gotta go all in on mobile. We have to solve this problem. Like we need our equivalent of what Facebook two years later would get with Instagram. So what do they what do they look at? What do they decide to do? What's the landscape here? If we w rewind a little bit. In summer two thousand nine at WWDC, Apple launches push messaging. And this is what the moment that really enables this. So like before this you could have apps on the phone, but like there was no way to know like

54:46 that something happened in the app. So a messenger app was useless. I'd have no way to know that, you know, somebody had sent me a message. With push messaging, now you get the little red, you know, notification badge and I know like, oh, there's something here waiting for me to check. So a group of students in Canada at the University of Waterloo, they see this and they're like, Oh, cool. We'll build a mobile messenger app. And they call it Kick. K I K Uh still around today. Raises a series A from

55:12 Fred Wilson at Union Square Ventures. gets a bunch of traction, starts adding users like crazy. I I wanna take a pause just'cause one of the things that's heralded is added users like crazy. It's you know, th it's almost like virtuous how fast they grew and how this great product market fit. Do you remember the first time you installed Kick on your phone? What happened, David? Like did you ever go through this this user experience? I remember being a total early adopter, loving it. It was so much better than text messaging and getting all my friends and family to sign up for it.

55:43 Well, that's the thing is I didn't intentionally get all my friends and family to sign up for it. They like far worse than LinkedIn. Uh no seriously. Like way worse with your phone book for the first time before Apple had requesting permissions. And I remember this thing where I sent a an invite unknowingly to every single member of my contact list inviting them to kick. Like they they they were the the champions of the sort of exploit and abuse and then apologize later strategy. All your professors at OSU are getting kicking by but the the good news was there were several other people that like it like I got that same spam from lots of people, so I was like ah I see what's going on here, but Oh man, I d I forgot about that. Shoot well, actually, maybe I never knew. Maybe I spammed a bunch of people and never knew it.

56:28 David alone invited millions of people to kick and it grew at an unprecedented rate. Well Unfortunately for Kick, they basically become the I CQ of the uh of the mobile messenger market. Again, they're still around, they're doing but they're they don't win because a lot of other people around the world see that like this is the future. Kick his own. shown us, you know, the blueprint of step one.

56:53 And we're just gonna go do the same thing for our local market. And this is this is like the heyday of Chinese cloning era. The theme on Acquired this season is very much about sort of like how a lot of these companies innovate in their own way and how the these Chinese companies are created sort of China native and have a different strategy, but famously like this was not yet the case. No, this was a straight up clone. But as we'll see, as you know, as as the pony ma quote from earlier in the episode, like It's cloning, but it's also like cloning in a way like if Kick had just come to China, like it would not have worked.

57:25 So Tencent realizes they need to hop on the bandwagon that they're gonna build a kick clone as well. They have the perfect person to do it. So back In two thousand five. Tencent had acquired a product called Fox Mail.

57:40 And Fox Mail was this product in China created by this incredible, incredible engineer called Alan Jong. is a uh supervisionary, fantastic uh engineer, like I said, in in Fox Mail, it was a webmail client. And

57:54 Like one of the biggest in China. And and at the time, even like Hotmail and Yahoo Mail and the US internet portals, they were copying a lot of their feature roadmap from what Fox Mail was doing in China. Tencent acquires this thing. Late 2010, now as this, you know, kinda like uh we're at war, we're shifting to mobile is going on, Alan is still working at Tencent. And he emails Pony and he's like

58:19 Let me Let me handle this. Like this is like your like, you know, most like your most trusted lieutenant is like volunteering to like go to battle here. I don't know where in the timeline this happened, but wasn't there a competing group within Tencent also looking at mobile messaging? Yes. I I believe I don't know all the details, but What I believe is that yes, there coming out of this like conference of the gods, there was like a task force, you know, working on this. Um And and I believe uh it could be wrong here, listeners correct us if you know otherwise. Alan is he just emailed Pony one night and he's like

58:54 Let me do this. Give me the resources. Give me yes. Give me the power. And uh apparently Ma likes to stay up really late at night and he sees the email he writes back right away and he's like Do it And uh so supposedly the Allen takes a small team. They go lock themselves away in uh I think Pony refers to it as like a black room. It's like a room with like blackboards and like no light and like they work for two months straight. And they build

59:25 An app. And then they take it out and they show it to Pony and to Martin Lau and they say they're gonna call it We send. Which in English translates to We chat.

59:35 And they're not the only ones doing this. I mean, we mentioned the cloning. There's uh also debuting right around this time is Meetalk from Xiaomi, which is before Xiaomi made phones, which is the craziest thing. Remember when we were saying they were doing all this research by doing mobile software and an OS before they they built Meetok. So WeChat has a billion users, that's that's a huge lock-in component for Tencent, that could also be Shoomies. But that's not how history played out. And Meetok's adding a ton of users, like they've got a head start, like they're off to a really good start in the market. Like lots of people are going after the Chinese kick opportunity. Another company that's doing this is a Hong Kong based startup right across the bay called Talkbox. Uh that's going to come back in in a minute. So they release WeChat

1:00:22 Uh And it f it does well. They import the social graph from QQ, so that's like, you know, major layout cheating. It's like, oh, you know, Me Talk, that's nice. You have these like, you know, bulletin board internet forums with your early adapters. We have nine hundred million QQ users that we're just gonna import here. But Yeah, like it does well. That's a huge advantage, but it doesn't do that well. Like the other apps are still in the mix here, including Talkbox. Allen and team.

1:00:50 They go back to the drawing board, they're like, Okay, what's not working here? They realize that there's there's One thing that Talkbox is doing and that I think Me Talk has copied at this point too, that's pretty important. The reason it's called Talkbox is in addition to Text messaging. They also have a walkie talkie feature. So like you can record a sho voice message. Like Apple's been trying to add this to iMessage for years. Adding it in strange ways in the UI that nobody really is. Super strange ways. But again to like localization for

1:01:20 the your market you know, in Chinese, the characters are like really complicated. There are a lot of them. Uh sometimes it's harder to express yourself with typing quickly when you just want to send a short message. Much easier to just say something. That's why talking uh and these this walkie talkie feature becomes like really important for this uh class of apps. And again, you don't have a keyboard like you would have with instant messaging. This is like the next telephones from the nineties that like had that first. And I think even there was a product called Viber that did this for a while before uh and uh Voxer, I think, too. Yeah, yeah, yeah, yeah. I think that maybe that's actually the first time. Viber, I think was based in Israel, I wanna say? I don't know. And I I think it was based either in Israel or Asia. This is before the the great messaging wars were settled. Oh, the other thing we should point out, this is a key

1:02:10 becomes really key in the messaging wars everywhere. There's The mobile operating system wars are also going on at this point in time. There's iOS and Android, everybody's duking it out. One of the really key things about a messaging platform. that people start to realize is you have to be able to work seamlessly between iOS and Android. And this is a key thing that Mi Talk falls down on. They don't have an iOS app for a long time. They only have the uh because on the Mi OS, uh like remember the whole thing is to be building the Mi Phone and building Xiaomi. So this is part of what helps Tencent catch and WeChat catch up as well as they come out with an iOS app first and then an Android app.

1:02:50 So they add the walkie-talkie feature. That helps a bunch. The other thing they add in this spring V2 update in twenty eleven. Is this innocuously named feature. called Friends Nearby. That also, you know, sounds like that thing that Apple's been trying to add to your phone to you know, find my friends. It sounds like that. But It sounds like that. But it's not that. It's it's not it's not friends in the sense of like friends who are already in my contact book. It's more like friends in the sense of People that I might be interested in meeting for a variety of reasons. Yeah. Maybe maybe people

1:03:24 Who you could with certain characteristics that you could filter for. Like gender or, you know, other things that you might be interested in meeting. And they might be interested in meeting you in the right Circumstance. So Ten Cent invents Tinder. Yes. Uh basically that is the moral of the story. And this is twenty eleven? Twenty eleven. Yep. So do you know one other fact about Pony Ma that uh may or may not have inspired this?

1:03:57 I don't. Go for it. Can you think of anything? So I don't I don't know I don't have any facts that that this this uh uh inspire this, but Pony in li ninety Eight, nine ninety nine, somewhere in there. He met his wife on QQ. And they corresponded for three months on Q Q before meeting in person.

1:04:17 I did not know this. Yeah. Wow. Man, talk about like Intimate, you know. Solving your own

1:04:25 Problem with the product. So the spring twenty eleven update to WeChat Uh has both of these features. It has. Walkie talkie and it has Tinder. It just is like pushes it above everyone else in the market. They

1:04:40 Start like zooming past everyone by Early twenty twelve, WeChat now has a hundred million active users. Um by the end of twenty twelve, they have three hundred million active users. Today they have just under a billion. So like basically every single person in China, uh well. I can't say that for sure. Listeners may like correct'cause I'm sure there are parts of China that that don't use WeThat yet, but like

1:05:01 Essentially the entire population of China is on. We chat at this point. That's crazy in and of itself. This is even crazier. So The average Time spent for the average user. This is average, averaged across the entire user base of WeChat.

1:05:18 Average time spent. on WeChat is four hours a day. That is more than every single social app in the US combined. Facebook, Instagram, Twitter, Snapchat, everything. Vastly more. Interestingly, it's more time than I spend on my phone per day. So I think that speaks to two things. One, it speaks to of course I'm not an zero if it speaks to I'm not an a the average of the United States, but people in China, that's their computing device, and I think my laptop is my computing device primarily. And I think my phone time is somewhere between like two and three and a half hours, depending on whatever. You also start to get the foreshadowing here that

1:05:55 Messaging isn't just messaging. Messaging is more like the way we think of the operating system. The WeChat app is actually the platform upon which other things can be built. And you don't actually need to spend much time outside WeChat. This is sort of foreshadowing the launch of WeChat official accounts. Yeah, it is. Well well, there's two things here. One one is that, which we're gonna get into right now. But before we do

1:06:19 The other important thing here, and like and again this gets back to like The local. having the product right for your user base in your market. Email never really became a thing in China. Like Fox Mail Like was big and Tencent acquired it.

1:06:33 And like Hotmail and Yahoo Mail ripped off a bunch of its features. But like people didn't have like they have email accounts, but they don't really use email. Even in work settings that's very different than the US. what WeChat has become like it's the communication platform for like imagine Your

1:06:49 uh iMessage or you know whatever your your messaging apps app whatever you use that plus your email plus your Slack for work like it's all it's all there. So like all of your communication is going through this platform. And again, because of that, all your communication's going through Yeah, and here's where Alan Alan Young is is is like such a huge product visionary, and he starts to separate WeChat from all the other messengers around the world, not just in China, they launch this concept of official accounts. So what are official accounts? Official accounts are a lightweight way for a business or an entity, not a person, to interact with

1:07:26 users who want to interact with them on the platform. Sounds, you know, simple enough, but this becomes enormous. It's kinda like a souped up Facebook page, right? It's that's exactly what it is. Uh but it allows like the account that The the business or whatever entity controls to message and interact with with lots and lots of users. So people start buying stuff through this. And like it becomes a commerce platform. And of course, you know, Tencent is already very adept at e commerce through all of the microtransactions that they had done through QQ. They build We chat pay. We pay into into the platform. Not just e commerce. Ride sharing like Didi basically gets built on WeChat. Meal ordering uh and meal delivery and Maitwan Dam Jamping gets built on

1:08:10 We chat. They also introduce, in conjunction, I think shortly thereafter with official accounts is the Moments Newsfeed. And this is something that's it's really, you know, we know this in in Facebook, it's really a publishing system for for content, but it's also importantly they do a really aggressive push to force users to use this in a way that is decentralized among smaller groups. And so you can easily sort of share things from your Romans newsfeed into groups. Publishers or individuals who are publishing can publish to smaller groups. It becomes the largest content ecosystem in China. And as you're alluding to, David, you can buy or book things on on the official accounts uh sort of through the Moments Newsfeed. And and another sort of important thing to know about the Moments Newsfeed is, you know, we keep talking about Tencent as a business that makes money on microtransactions and gaming. uh but is a social network. And in the US social network is synonymous with advertising company. Well, i there's not actually a lot of ads in the moment's newsfeed and they wait a a very long time before introducing them. And even then they they do it in a very lightweight way. And so

1:09:15 You know, it's really all about sort of the facilitating the attention there, but the business model ends up being way different. You know, we talked about on the Alibaba episode that Alibaba is like Amazon plus Google together. You know, in this way ten cent becomes like Facebook plus

1:09:31 Amazon or Facebook plus Uber, you know, or Facebook plus Uber plus Airbnb plus all of these commerce platforms, you know, all together. And this totally plays to the company strengths product wise, but also executive wise. And remember Martin Lau, you know, he's been he was The banker from Goldman, he brings on a few other folks. James Mitchell, notably from Goldman, also as a tech banker, I believe also in Hong Kong. Uh I believe he doesn't even speak Mandarin, he comes and he joins as chief strategy officer. And what they do is they realize

1:10:03 All these companies are getting built on the WeChat platform. Let's just start investing in them. and like helping them succeed on the platform. So they do. So Tencent is a major investor in Didi, in Maitwan Jiangping, in Pinduo Duo. All of these huge, you know, now current generation Chinese companies that are all built on the WeChat platform, they're not just built on the platform. Tencent owns a meaningful stake in these businesses. And so they're benefiting from that too. And then

1:10:32 The other thing, and this has just just happened, uh w recently happened, but is is now in the news. So The official accounts thing, it's very basic. Like very, very basic, very lightweight. In early twenty seventeen, they t essentially turn official accounts into this slightly more advanced. Yeah. Which which were mini apps, but Apple didn't like that. So now they're mini programs. Apple didn't like that. Exactly, exactly. And uh supposedly I don't know what the Chinese words are, but mini program sounds better in Chinese than it does in English. So it's not as weird. Um but uh

1:11:06 Th this now unlocks actual, like, more functionality from like programmatic like actually, you know, building a tech enabled experience for companies. Think about it like if you were looking to book a flight through Expedia and you were previously trying to do it on Expedia's Facebook page, that would be super difficult. But if then Facebook launched the way to have native apps inside of Facebook, just like native apps exist on iOS, then it's like, oh I see there's full rich functionality in order for me to do whatever here. You know, this might sound like uh just basic product evolution, and it is, but it enables a whole new class of businesses to get built on the platform. And this is what enables Pinto Auduo. So you know, the company that just went public here in the US, it's like two years old. is you know, do I forget about the market cap. We'll we'll have to cover it next season. Like, you know, thirty billion plus market cap, I believe. And David, what does Pinduo Duo do?

1:11:57 It is a mini it's a mini program. It's a shopping experience. I've seen videos. I haven't I haven't actually done it, but uh so I may be butchering this listeners correct us if if we are. But it's a sort of like gamified shopping experience that is all conducted through a mini program on on WeChat. And what's great about that is like the friction the distribution friction to get this in front of people is zero. You know, and and that's important because like this the the target market for Pindu Duo is people in third and fourth tier Chinese cities who are not already well served by Alibaba, by JDE, by all the existing Commerce players, but they have WeChat accounts. And like they can interact. So they don't they don't have, you know

1:12:41 uh JD accounts, but they can interact super seamlessly just through the Moments news feed and um a mini program with Pindu Audio. Makes a lot of sense. All right listeners. Now is a great time to thank our longtime friend of the show, ServiceNow. If you are running a large enterprise, AI agents are likely spread across every team, and deploying them is uh no longer the hard part.

1:13:04 Yeah. The hard part is knowing what permissions they have, what employees are using them for, or what decisions AI is making. AI security for an enterprise at scale is not a small concern. Like the risks Are real. Exactly. And the challenge with AI is governing it, securing it, measuring it, and making sure that it actually delivers value. That is why Service Now built the AI control tower. Yep, AI control tower gives enterprises a single place to see, manage, govern, and optimize AI across the entire business. And it works with

1:13:37 Any AI, not just theirs. Every device on your network, every permission across every system. Every AI agent visible and secure in one place. And ServiceNow can do this because they've spent more than twenty years building the operational backbone of the enterprise, the workflows, governance, approval, security controls, and institutional knowledge that power how work actually gets done across IT, HR, customer service, finance, and security. ServiceNow already runs more than a hundred billion workflows annually and trillions of transactions for more than eighty five percent of the Fortune five hundred. So when companies need a place to govern AI at enterprise scale, they're building on a platform at the center of how their business already operates.

1:14:18 And in a future, that isn't going to be one AI, it's going to be thousands of AI agents working across every function of the company. But the question is. Who's managing them all? So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely at scale, go check out service now.com slash acquired and tell them that Ben and David sent you. There's a couple things I want to revisit in this sort of evolution of WeChat that I think are are interesting and and important. Do you know about QQ pay? And sort of what what that was before we chat pay. Uh not in any depth. So apparently, and I didn't realize this, so early on, Tencent sort of thought about doing this transaction platform on QQ before they had done WeChat, which started to pick up Steam, but people started using QQ Pay as a uh replacement for the RMB.

1:15:08 And the Chinese government freaked out, this is like before Bitcoin and decided no no no no then they and they shut it down. So it's interesting that when when the time was finally right for WeChat pay, I mean I'm sure they they had uh sort of worked it out with a government where um it made a lot of sense for them to do that and and uh and wouldn't get shut down like the previous time, but they were actually well ahead of the curve in in sort of establishing that digital wallet, which makes a lot of sense as you sort of evolve from microtransactions as your roots, um, to then thinking about peer to peer payments instead of just uh uh buying virtual goods on um on your platform. Another thing that came out of this, d did you see anything about lucky money? Oh yeah. Oh man, this is a a rabbit hole. I I didn't go too far down, but so I I I'm not gonna go into the whole thing. It was kind of like a fun game where you could win money, but we won't dive too deep into but you could win lucky money without ever connecting a bank account. And so what what was happening is people were winning. Exactly. And so they ended up with just little bits of money uh in their account, but not necessarily needing to ever send it out anywhere. And so the thing that bootstrapped their uh WeChat payment platform was

1:16:19 was that street vendors and other people started accepting your sort of winnings from lucky money as a way to pay for stuff in the real world. And then suddenly that was an i uh uh once you get sort of merchants then on the network, then there's sort of this like, Oh, I should connect it to my bank account so that I can use this thing to pay. It's a brilliant strategy. Well of course this is all uh tied into the Chinese custom and I believe around the new year of red envelopes and gift giving and uh giving money and um We we've already talked about Dung Xiaoping and and uh the cultural revolutionary, so we're not gonna go too that much farther deep into uh

1:16:54 History and Chinese history and culture but um I don't think we should, but there is one other thing that I do want to talk about in in WeChat Pay before Uh going back to gaming, I think, is where we're gonna go next. So this one relates to the Venmo episode. One thing that we determined on the Venmo episode was the real business in what Venmo is doing and um you know where where peer to peer payments companies like PayPal end up going is in paying merchants because peer to peer payments have No fees um because people don't expect that when you and I are just giving each other digital cash, we should have to have fees associated with that in the US. If you can win over Visas business, like if you can get merchants to accept Venmo, then you get to play in that sort of three percent interchange world where you get to make three percent on every transaction. That's hugely profitable business.

1:17:45 So of course Venmo's going there with Pay with Venmo. Of course, you know, PayPal went there. In China WeChat pay is actually not very profitable because instead of a culturally accepted two to three percent interchange fee. It's like point six percent. And so WeChat Pay isn't really the golden goose that you would think it would be. That's really just about sort of additional lock in and additional sort of loyalty to the platform, um, so that they can make money in other ways.

1:18:12 It's the glue that or the uh connective tissue that enables The whole th Ecosystem of businesses. Yeah, to get built on. On WeChat. Interesting. Okay.

1:18:23 So that's WeChat. A few kind of miscellaneous fun things along the way to catch us up to today that that also happen at at Tencent Corporate. In twenty thirteen uh right around the time that Facebook was trying to buy Snapchat. Ten cent desperately.

1:18:41 wants to either buy or make a strategic investment in Snapchat. Remember, like they've figured like this twenty thirteen Two years earlier. They had they're already on the road. They've figured out like how messaging can build an amazing huge business. Around it. view Snapchat as an opportunity to do that in the US.

1:19:01 They think they have the right playbook, they can bring it to Snap and and do it do it here. They're in talks to do a a big strategic investment in the company. Instead, Evan Spiegel rejects it. decides to pursue his own kind of, you know, vision for the company as a camera company, uh, not a commerce and business uh empire, platform empire.

1:19:23 And the deal does not happen. We covered that on our Snap IPO episode. But What has happened. Since then

1:19:31 Is After the SNAP IPO, Tencent has started buying up shares on the open market. So they now own twelve percent of Snap. Very interesting. Apparently they uh according to all parties involved. There's a good

1:19:46 Good relationship, mutually beneficial relationship. What's interesting about that though, if you remember from our Long ago Snap IPO episode. Snap IPO'd with a very Interesting um governance structure.

1:19:59 By interesting, you mean multiple classes. No governance structure. You know, there's uh multiple share classes uh in public US tech companies is is not new. Facebook has it with you know super voting shares that the founders control. I think um Goo did Google pioneer it or did uh Google pioneered it, I believe it was a media company thing, actually from back. Yeah, the New York Times has it'cause the family votes differently than Yeah. The argument was that media companies needed independence from the political and economic, you know, landscape because they needed to cover these companies. And so thus if there were a mechanism that somebody could buy up voting control of a media company, uh, then it would be like, you know, bad for democracy. Anyway, tech has kinda perverted this. Well, as we know, since Facebook is not a media company, I mean I they they don't Right, right. Anyway, Evan Spiegel takes this to a whole new level of not only

1:20:55 just getting super voting shares that uh he and his co founder is gonna keep the the Shares they sell to the public get no votes. Zero. So if you own Snapchares, you have zero voting control. So You know, Tencent can buy as much of Snap. Yeah.

1:21:13 there's no actual teeth that it has uh in doing anything with that. Which is interesting. We should make up like a uh best of when David th says things are interesting and he means terrible. Uh Well, it depends, you know, what side you're on. Terrible or great. That's what makes it interesting. Well look, even if you have all the voting shares, you still want the stock price to be a lot higher than it is right now, so Right. Right. So interests are a line on that front. Other very interesting uh acquired related trivia here. In early twenty fourteen. Ten cent.

1:21:47 Starts. Talks to acquire WhatsApp. And apparently they're in pretty deep talks. And the price tag was kind of somewhere Around ten billion, uh I think a l less than ten billion. Um which e which would have been crazy. Like that would have been a crazy high price for that time.

1:22:03 Like we o the world went nuts with Instagram going for a billion. Like this would have been a banana's number. Totally. And the the the Facebook r the rumored Facebook uh offer for Snapchat was three billion. Um so this is great. But again, you know, Tencent recognizes the power of WhatsApp and they see like Man. This is our gateway to Europe, uh, of doing running the same playbook there. Progress on the deal, though, apparently gets delayed because Pony Ma has to have back surgery. And so he's kinda out of the game and like there were supposed to be meetings that were gonna happen in California. He had to delay them. In the interim. While he's having back surgery, Facebook swoops in

1:22:39 Zuckerberg sweeps in, buys the company for nineteen billion dollars, you know, in a weekend. And you you cannot uh I don't know, I wasn't there for the we weren't there for the conversation, but uh I have to imagine that the the prospect of Tencent owning WhatsApp had a lot to do with both the speed and price. that that deal got done yeah. Other couple of interesting things. Shortly after that In kind of late twenty fourteen, early twenty fifteen, Tencent asks.

1:23:03 Riot to make a mobile version of League of Legends. And Riot, they're like purists. They're like No, we can't do that. Like, you know, League only works, you know, on desktop. We can't make a mobile version. Tencent's like, all right, fine. We'll just do it ourselves. Tencent decides that we will do this in one of our internal studios, and they agree on some kind of revenue share with League of Legends because they If I remember right, they they hadn't agreed on a Rev share yet. Um, so they have their studio start going and and building what is a effectively a clone of League of Legends, um which they own, but don't have enough sort of power and coercion over Ri to get them to do this thing. They own like ninety three percent, I think, of the company and the Riot founders have uh

1:23:47 have a retained a small stake. And but they but they have control of the company. The the operating control. Interesting. So they start working on honor of kings internally. And they end up releasing it and it's it's all Riot IP. Like Ri goes to them and they're like, You you you have all of our champions in here. I believe I read that Honor of Kings does two billion.

1:24:10 Annual revenue. In China. I mean it's the most popular mobile game in China, maybe the most popular mobile game in in the world. I think it is the most popular mobile game in the world, uh, has two hundred million monthly active users, almost all of which are in China. So basically one fifth of the country. Plays plays Honor of Kings.

1:24:33 Think about that. Like that's crazy. Uh totally nuts. And as you can sort of read between the lines here, the relationship between uh Tencent and Riot is a little strained. Well, especially'cause Riot's like oh It'll never work on mobile. The other thing, they they do a couple other things in the gaming world. In twenty sixteen, they buy Supercell, the Finnish maker of Clash of Clans. So for eight point six billion dollars, they now have The largest. Mobile game in China.

1:25:03 They have the largest mobile game in Europe. And of course is uh also huge in in North America too. They they don't yet have like the the the crown jewel in in North America yet. I mean they have Riot, but League is is not on mobile. Well, fast forward to recent times.

1:25:22 When did PUBG come out? Twenty six is it seventeen or sixteen? I'm not sure, but last few years. Last few years. PUBG.

1:25:31 This Korean game maker, uh Blue Hole. Player Unknowns Battlegrounds. Player on the own battlegrounds. Uh releases a beta version of a game called Pub D Player Und Battlegrounds with this concept of battle royale and it takes the world by storm, uh particularly North America, but the in but the whole world. Tencent, of course, negotiates for the rights to publish PUBG in China, which they do and they get a small equity stake in the company.

1:25:59 Now, meantime, remember An hour ago we talked about Ten Cent acquiring a forty percent stake in a You know, well known in the gaming industry, but not well known outside the gaming industry. Well uh company in North Carolina called Epic Games. And Epic, of course, uh the maker of Fortnite had Fortnite out at this time when PUBG is taking the world by storm, but did not have the battle royale mode. So it was just a sort of regular sort of spacey fantasy first person shooter. They did have all of the battle royale stuff in development. So it's not like they just saw PUBG and were like, Build that. This is this is gonna merit its own episode at at some point for some some excuse to do an episode. We all know what happens. Fortnite

1:26:41 Pivots and becomes all about battle royale. And is now Um, I believe By far the largest. game and mobile game in North America.

1:26:51 And so now Tencent controls the largest mobile games in basically every you know, major mobile internet using uh content. In the world. Yeah, it's the biggest company, the most important company that's not a household name.

1:27:07 On the non-gaming side of the house, uh, they're up to plenty of interesting things there too. In twenty seventeen They acquire a five percent stake in Tesla. Now, I'm not exactly sure how this came about, but Tencent is, I believe, now the third or fourth largest shareholder in Tesla. Super interesting, especially given uh Ten, as we talked about at the top of the episode, located in Shenzhen, uh, which now thanks to Tencent is really Silicon Valley in the modern Silicon Valley sense of all things tech. But of course has its roots in hardware and manufacturing. And there are a number of electric vehicle startups and established companies in Shenzhen. And of course, uh rumors are out there that uh Tencent may be interested in getting in

1:27:53 to that game themselves. And then of course there was yesterday's uh this week's event. of the ten cent. Music IPO. Which happens and uh they float ten cent music publicly.

1:28:06 has a twenty one billion dollar market cap. I believe Tencent still owns like ninety five percent of the company. As we were doing the research, like some people out there are starting to refer to Tencent and its management team as like the Berkshire Hathaway of Tech, not just like Asian tech, but like tech, period. Like these guys are so prescient. Yep. And before we drift too close into tech themes here, it is worth pointing out the very recent things that have happened with the company. So last year. 2017 was an insane year for Tencent from a finance perspective. Their stock started the year at$25 USD and ended the year at$60 USD. Like

1:28:42 This is a company that went from I think it was like a quarter trillion dollars to a uh half trillion dollars in market cap in one year. In the last few episodes we've really talked about sort of value creative uh uh companies. a enormous company doubling in size, more than doubling in size, wild. twenty eighteen the exact opposite story. They've wiped out almost their entire run up from twenty seventeen. And there's been a couple of interesting things that I think are are you ready to call it tech themes?

1:29:09 Um that mention them and go into to tech themes a little bit. I let's do it though with the one uh I was thinking about what to do and what would have happened otherwise. I think we basically covered it. The most interesting thing to me is like what if Xiaomi had built WeChat or if if MeChat had succeeded. But again, I don't think it could have because of like the the iOS Android, like the cross platform, you know, aspect. And the network graft. Yeah. And the network graft I like that. I like that. Spell that however you want.

1:29:40 Twenty eighteen, you know, the stock is sliding. What's going on? There's uh couple of interesting things. One is people are very worried about uh some gaming regulation that China has right now, where we're not gonna get fully into it, but um People are worried about uh right now China has an approval process for being allowed to release and distribute games. And so there's a big hold up on on uh popular titles that Tencent can't release right now. And then secondarily on top of that, there's also a restriction on what you're allowed to monetize. So people are worried, wow, Tencent may may in fact get to have their games out there, but they won't be able to to monetize them. Um and before getting into sort of the second competitive thing here, I just want to point out, and I other very smart people have pointed this out. Ben Thompson has pointed this out and Matt Brennan has pointed this out uh that If this regulation is sort of here to stay. It tends to protect the incumbents. And so there's a lot going on right now where people are really worried about gosh, ten cent business is really gonna be hurt by this. Probably not. Like

1:30:39 Tencent's probably the one that's going to be able to sort of have their moat solidified by all this regulation that comes in and prevents uh due to sort of distribution and pure expense uh of going through the regulatory process, future startups from succeeding in gaming. And so not just future startups, but again, think about how global this business has become. Who else but Tencent? Could bring Non Chinese developed. Properties.

1:31:05 to China now if like there's a ton of right like you think uh you think Epic is gonna like do that directly with the Chinese government? Like no way. Yeah, you don't you don't get to enter China without a partner like Tencent. The other company that I I think we should talk about is is Bite Dance. And David, what is Bite Dance? Oh man. What is Bite Dance? Well, okay, so Byte Dance

1:31:30 is probably The Uh I w we've painted a picture, uh, I think very justifiably so of a very rosy picture for Tencent. They've accomplished incredible things. They look like they are unassailable uh in China or really anywhere else. And they they own entertainment, right? They own entertainment in China on the game side and on the social networking side. Yep.

1:31:52 Bite dance is the biggest. Threat. Two. Ten cent out there right now. And it is a very, very real threat.

1:31:59 It it's it's so interesting. Like uh the tech theme we've talked about a number of times about things uh I think this is originally a Paul Graham idea of like things looking like toys when they start and then becoming much more than toys. So Bite Dance started a couple years ago I believe it was a news aggregator app, Totia to start. Um of aggregating content and news uh into a reader on you know on on mobile devices has Morphed and changed into that plus

1:32:28 video aggregation and and micro video production, they acquired Musically, which was uh folks in the US probably remember was a big kind of music video lip syncing sing along app co-developed here and in China. That became part of Bite Dance. With that, all that has gotten merged into TikTok. Which is crazy if you haven't tried it. Like you guys all need to download TikTok and and be prepared to be confused and have your mind blown. And um You know, has kinda become like I don't know what the w what's the best way to describe it? Like kinda like YouTube, right? Like all types of video.

1:33:05 Algorithmically surfaced for you. Based on what you love, both from your friends and official accounts. It's very like synchronized to music. Yeah, I don't know I don't know why the content is so different, but they're really wacky videos and they're short form and they're all sort of synchronized to music. I don't think we've ever sounded Like older actual grandpa than at this moment on the podcast. But

1:33:28 Take our word for it, from a business model perspective, this is a huge threat to Tencent, which the the The key to making all of this work is the four hours a day that people are spending on WeChat. And ten cent properties. If that starts getting eaten away. Yeah.

1:33:44 then the opportunity for building the ecosystem and serving them goes to where those I balls are and that is why Byte Dance, a company founded, David, I think you said a couple years ago, just raised capital at a valuation of seventy five billion dollars. Yes, and I believe that makes it officially the world's most valuable Private startup?

1:34:05 Uh,'cause I believe Uber's still held at seventy or slightly below. Yeah, and their last share tender was in the fifties or sixties, so w what? Like Hm. Incredible. Um so uh count that as the the sort of major credible threat if they're if Byte Dance is able to sort of turn into a platform company the way that Tencent had.

1:34:29 Um When I think for me, I mean I I guess I already said it, but what that highlights for me in in Tech themes is the the the power of of the business model that Tencent pioneered of this this freemium microtransaction business model. Like this is a huge like development for business period and tech enabled business.

1:34:49 globally, like think about things like Kimberlite, like, you know, our L P program. It's a direct result of This like, you know, uh in the old world, like Podcasting is a perfect example. People have been trying to make advertising and the traditional, you know, US centric way of, you know, add supported content work and it hasn't worked and it hasn't worked and it hasn't worked.

1:35:10 This other approach. Has built like so much uh has worked at least equally well for Tencent, and we're starting to see it elsewhere. And it'll be very interesting to see how Bite Dance starts to build their monetization and business model around what they're doing. So ten cents core products do well w in China.

1:35:30 And to the extent that they aren't doing well in China, uh or they're doing well outside of China, it's with either sort of expats or people that do business with Chinese, but like I don't use WeChat. You mean like the core uh not their investments, the things that they've actually yeah. Like Those things do well in China. the way that they've gone to the rest of the world is through investments. And I'm sort of wondering like

1:35:54 Do you think their future is really more as an investment company than uh I mean, you you alluded to the Berkshire Hathaway thing. I'll go out on a limb and say, uh Ten cents core products or copies of things that were doing well elsewhere. sort of f fitted to make sense in China and nail the timing and the the distribution in China. And then they were able to grow tremendously by investing in companies elsewhere. Are they an innovative company?

1:36:21 Yeah. Are they sort of a very good sort of ruthless cutthroat investment and And copying company. Uh both, of course. So okay, this was my other tech team too. This is such a great question. I'm so glad you asked it and and that it's come out in this episode. This is a core question that people have asked for years about Tencent. Like, don't they just copy everything? And I think we've tried to

1:36:45 paint the picture throughout this episode of, you know, going back to that pony mock, one of his few, you know, public quotes of like Yes, you know, like it he starts it with like we we stood with the Isaac Newton quote of like we stand on the s we see so far because we stand on the shoulders of giants, i.e., we copy things. But like it's not just the copying, like you have to adapt it in the right way for the right local market. And I think that's the nuance here. And that's why WeChat is so powerful in China, it's never worked anywhere else. That's why WhatsApp is so powerful in Europe and is doesn't really work, you know, in the US and and you know, all the things that work here. Like they're they're just these element, like Take the US for example. I message is

1:37:27 uh the the market is so fragmented because iMessage is so baked so deeply into iOS and iOS was the first smartphone you know, available here in the US and has a toe hold. uh an unassailable toe hold on at least the high end part of the the market. Thus something always needs to be Like there there's enough of a network there among iMessage that it's viable, you know? Those dynamics are not the same in other markets. What's interesting is as you think about network effects and You know, monopolies. Like everybody's always asking

1:38:00 When is Tencent going global? Why aren't Tencent's products working, you know, elsewhere around the world. And this is it, is that like They can't. You know, like there are elements of these markets that you can have a m a monopoly in the local market and the local markets can be enormous. They can be the size of China or the size of Europe or the size of North America, but like

1:38:20 what is the right thing to unlock that market is not necessarily the right thing to unlock another market. You see this in ridesharing too. Like the way DD works is super different than the way Uber works in the US. It's different than the way the Indian ridesharing companies work. Uh like you need to accept cash in India. Like You would never use cash with Uber in the US. Sometimes a company can like see around corners enough to or be visionary enough to serve create different versions of the product to serve those different markets. But it's really hard. And that's why I think more often than not you get these Local monopolies. Hm. So you're asserting that

1:38:55 for many of these products, it's actually not a global market that's a it's addressable to them. That's a that it's it's a conglomeration of local markets, some of which are gonna be very dominant, others you're gonna be fighting for scraps, and then others you're gonna have nothing. Yeah. I mean I think that The one example I can think of that is very, very clearly an exception to this is Airbnb. Because there's such significant cross market network effects.

1:39:20 Like w you travel to another place and need to have that platform there. Like I don't really care that Europe is is like based on WhatsApp if we're messaging and that China's based on WeChat. Like and when I need to interact with, you know, people that are in those networks, I just download that app. Like that's fine, but I'm not gonna use it day to day. Whereas like the whole value prop of Airbnb is like I'm traveling there, you know? So I want one global network that like Everything. And I think this is why Airbnb is is uh I believe is succeeding to a greater extent than other Western companies in China, um, because of this pressure to like Make it all one one network.

1:39:56 Well, speaking of networks, my last I think we touched on this a lot, but my last real theme to think about here is When you are already a power having the hundreds of millions of users that they had on QQ If you have the product right, or even if you have the product you know, within spitting range of the the market leader.

1:40:15 You really can just kind of go win in that category too, the way that they encouraged aggressively all the Q Q users to become WeChat users. And you just see it time and time again with Facebook today. I mean They they could have bought any number of the Instagram like services and probably promoted it to the point where it became the winner. Instagram was definitely the best product and it definitely had, you know, the most users and the most growth at that time, but there's a

1:40:41 pretty interesting thing going on now with with these like social networks where you know you really can sort of promote something to the point of being successful. if you're able to successfully move users over. And I think shy of the platforms changing that in a big way, like making it so that you could imagine like a way that Apple or Google could make it impossible for Facebook to so aggressively leverage your use of the Facebook app to get you to download Messenger and become the dominant messaging app in the US. I don't exactly know how that would work, but shy of something. big in the product at the platform level changing like that, we're gonna continue to see this where

1:41:20 since the when the platform wars were sort of settled in a market by market basis, that's who gets to decide what the next product on that platform is. Part of the core of um what Ben Thompson has uh talked about for years now, um that Facebook's never been allowed to buy Instagram. Because that's like

1:41:40 now in retrospect such a clear example of Basically anti competitive uh warping of a market. That is Clear that that is what happened from a business stance, but legally, like, you know, the laws aren't, you know, set up yet to uh address such a situation. All right, well we're setting records here on the episode length. Do we want to go to uh to grading?

1:42:03 Yeah, let's do it. All right. So the way that we decided to grade this one is to uh do the big reveal on uh what Uh Nasper's investment in Ten cent turned into, and then talk about it in the context of other potential candidates for the best investment of all time. So here it is by the numbers. Two thousand one, NASPERs invests thirty two million dollars. In March of twenty eighteen

1:42:29 when they still owned thirty three percent of the company. That was worth a hundred and seventy five billion dollars. They sold two percent to get liquid. On that two percent. And also March of twenty eighteen, pretty good time to sell some 10 cent stock. At that time, it represents a 5500X. from the thirty two million to their one hundred and seventy five billion dollars of of shares in Tencent.

1:42:56 Yeah. I'll take it. Was it thirty two million they invested in invested initially or was it twenty million? They owned a thirty two point eight percent stake. But I think They initially purchased it for twenty million. Maybe they did another round or something,'cause at some point here I have a thirty two million dollar investment for roughly forty seven percent of the company, and then they got d diluted down to own owning uh about a third of the company. So I think they may have done it another. Maybe they bought more ahead of the IPO to avoid deletion in the IPO. Well anyway.

1:43:26 W whatever. At this point, talk about rounding errors. Yeah. And one other note on that, which is just interesting and very reminiscent of the Yahoo episode with Altaba, that investment makes Naspers the most valuable company in Africa. But So remember I just said that in March um it represented a hundred and seventy five billion dollars of of market cap. Nasper's itself is actually valued at$122 billion.

1:43:52 significantly less than their share in Tencent. Which Not all it does two things. Basically it assigns no value to anything else that NASPERS does, but also of course it has that discount because there's uncertainty in the ability to get liquid on that. uh while NASPAR still owns thirty one point two percent of

1:44:10 Ten cent. their investors do not look at anything they do other than that ownership as valuable. Sort of like Altaaba, like um and we talked about in the I Baba episode. There are two ways that you can invest in Tencent. Like you can go buy Ten Cent stock on the Hong Kong uh stock exchange.

1:44:28 Or you could go buy an Asper stock. Uh like they still own. Thirty two percent of the company. So David, what what else is a a candidate here? Well, I think the most direct candidate, and this is, you know, perfect for acquired and uh closing out season three here.

1:44:45 is the south bank investment in Alibaba. of twenty million for twenty percent of Alibaba. There's certainly there are you know other candidates are Excel's investment in Facebook, uh, which was gosh, what was it? It was like 10 million for just under 10% of the company. Or or even Peter Thiel's angel investment before that. Of course great investments. What I think is interesting here and my grading criteria. is gonna be heavily influenced by

1:45:13 Holding times. and exiting the investment because So I think I believe thinking back to the Alibaba episode, they Start.

1:45:22 Exiting some of the Alibaba. Stock, right? Uh along the way. And uh certainly Yahoo, when they had come in and invested a billion dollars for forty percent of the company. They exited uh along the way. What's interesting is like NASPERS, you know, still owns

1:45:38 Thirty two percent of the company. And Excel, of course, because you know they had to. This is the way VC funds work. When Facebook went public, of course, they distributed the shares. The fact that this may be the greatest deal of all time is also an artifact of the fact that, you know, Naspers is not set up as a fund. So they don't they don't have to distribute the shares. It's an A. It's an A plus. Uh the question is whether it is the single greatest investment of all time. Um, I don't know. I think there's a very strong argument here. Uh I'm probably biased because we've just finished two hours of talking about Tencent, but uh But this is incredible.

1:46:12 I think I'm gonna go with this as the number one. Please drop it in the Slack or uh hit us up acquire at Fm at gmail dot com if uh if you have other opinions, but I it's hard to imagine. Hard to imagine better investment. I don't know what Nasper's governance structure is, but like that they've held it for so long and still do. Like Well

1:46:32 Uh Like that's amazing. Like any other, you know, type of governance structure, organizational dynamics. Along the way, of course, people would be like, We gotta like at least take some money off the table here, you know? A plus but weird criteria. I think it's the best of all time. I do think so, yeah.

1:46:50 Yeah. Yeah, I think so. Alright. Carvalho. Yeah, so mine is

1:46:57 President Barack Obama as one of the first podcasters ever. So there was an amazing uh I can't even remember where I found this, maybe Reddit. On Barack Obama's U S Senator for Illinois

1:47:10 Page that was hosted. on I think it's senate.gov, Obama. Senate.gov, which of course doesn't exist anymore, he produced an RSS feed that had a bunch of MP three files in it, starting in September of two thousand five, which is three months after podcasting launched on iTunes. And submitted it.

1:47:32 The amazing thing is that the Wayback Machine preserved it. So we'll put the link in the show notes here to click through and look at it. But there is a uh there's a page that uh has I don't know twenty or so episodes of Obama just kind of checking in with the the the good people of Illinois. And he's uh, you know, hey, I want to talk to you today about Hurricane Katrina relief efforts. Hey, you know, I I I talked to some people recently about avian flu preparedness. I want to spread that information to you. It is so interesting to get sort of a look at Number one, what he was sort of thinking in oh five, you know, three years before he became president.

1:48:09 And also sort of him s honing his voice a little bit. He wasn't quite as presidential. And also like what he was doing is just very innovative. I mean, no there were so few podcasters then. If you look at the growth over time, of course there's six hundred thousand podcasts now. The growth has been exponential. And so those first few years it was just a dribble of people here and there. It was a clue thing to do. You know, you make this weird RSS feed thing. Um I guess it's still a clue thing to do. Still you make a weird RSS. And nothing has changed. Um and if you look over on the right sidebar, it says subscribe for free. You can click this button that says podcast RSS, which I think just literally takes you to an XML file. And then there's a third button. Called Odio. Oh no way. Oh my god, I hadn't seen that. That super awesome incredible.

1:48:55 That's incredible. Well, you know what uh company we still haven't covered on this show. Odeo. Indeed. Yeah. That's what we should do, though. We should we should uh we should title the episode Odeo.

1:49:10 Will in joke. All right. Um My car about. Uh I have two, which I know is against the rules, but A, we skipped carve outs a couple times this season. Uh but B, because this is the last episode of the season, I I

1:49:24 I have good reason here. The first is is timely, so it has to be now. It may already be a little past, but but let's revive it. Go listen to Keriswisher's interview with the Google walk out organizers. Friend of the show, Keriswisher. Yes, friend of the show, Keriswisher. Incredible. Everything, you know, that is great about Kara uh is on display there. So important, you know, as in the moment we are in here at the end of twenty eighteen and tech and uh everything going on. Just really, really great in in true style, you know, she is of course opinionated, but she brings out like from six people all at once. I can't imagine interviewing six people remote, some in person, some you know remote.

1:50:04 brings out their stories and the purpose of the Google walk out and and everything behind it. Um in a way that like is just masterful. So everyone should go listen to that. On a later note, since this is the end of the year and the season finale and people have holiday travel coming up an incredible, one of the best long read articles I have read in the past few years, uh that came to me as I was just browsing Twitter. Sometimes every now and then I'm like Twitter like

1:50:32 This is just like a cesspool. I'm ready to give it up. And then like they they hit you with the gem. Um Allen Iverson. I wrote really amazing. This is my gem, Alan Iverson. It's a it's a gem. This I'm not I'm not kidding. This is like an incredible gem. Allen Iverson writing for the players tribune. Right.

1:50:51 An incredibly long piece just about Him and his story. And like it's so cool. I grew up in Philadelphia, like, watching Alan Iverson, you know, play and like Everything, of course, at the basketball player, Alan Iverson, he changed so many things. Like there would be no, you know, everything about what the NBA is today. Comes from Alan Iverson. And like in some way, it's so different from what he was. But like he he makes the point in this in this piece, which is so good on so many levels, that like

1:51:18 Everybody called him a thug, everybody call him like whatever, you know, all the stuff, but it was like he was being him, you know? And like that was the thing that like He wanted to be an amazing athlete and like he was so intense and such a so dedicated to the game, despite the whole practice thing. He didn't wanna like not be him. You know, now All these NBA players are empowered, like LeBron is being LeBron, you know? And staff is being staff. Like uh It's uh it's so good. Can't recommend it enough. Uh, even if you're not like a huge basketball fan. Like it's just so cool to see somebody who, like was so important to their industry in a way that like

1:51:54 was misunderstood in so many ways at the time, then ten, twenty years later come back and like be able to write about it. Uh and uh Yeah from his perspective. Awesome. Well, adding to my insta paper.

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1:53:12 If we don't talk to you again, have an excellent Excellent holiday season. Thank you for being with us on this journey in season three. If you aren't subscribed and want to hear more, you can subscribe from probably wherever you're listening to this. If you like the show and you want more, you should totally become a limited partner. We would love your support. Um, we're stoked that the program's going well and that uh Um, you know, it's it's making sort of a meaningful impact on uh on on acquired and what we're able to do as far as like travel to guests and being able to promote the show more, bring on uh um, you know, m more listeners, and and really it's kinda funny, like we cover all these companies

1:53:50 Capital can sort of equal quality. And so it sort of justifies us being able to to go above and beyond and make the show better in in a bunch of different ways. So click the link in the show notes, join and become a limited partner. We seriously appreciate it. Um and we hope you get a ton of value out of the the bonus shows that we're doing. I know we have a bunch of fun doing it. So Indeed, indeed. Well Thank you all, as always.

1:54:12 Happy holidays. We'll see you in season four. Yeah. Mm-hmm.

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