Transfer Pricing Associates

China’s Social Network Saw the Patent Light Years before Facebook

post Friday May 11, 2012


Facebook’s preparations for its upcoming IPO may currently be hogging the headlines, with much debate and opinion on whether it can justify its estimated $75 billion valuation, and if its shares will be worth investing in. But the social networking company is not the only major internet player. The Wall Street Journal has posted an interesting question for potential investors: is China’s Tencent worth a punt instead?

China’s Tencent is a mix of online platforms including micro blogging, games and social networks. Its instant messaging service is tremendously popular and has more than 700 million users. Tencent shows impressive revenue figures, with $4.52 billion in 2011 comparing favorably to Facebook’s $3.7 billion. The primary source of Facebook’s revenue comes from advertisements; only 11% comes from the sale of virtual goods. Tencent’s revenue mainly comes from internet value-added services, and the advertising counts for less than $300 million.

Another interesting issue facing both businesses is the potential for growth – they each want to expand their markets, but are facing problems. Tencent has an English language version, but has had little impact in the wider world; meanwhile Facebook is currently banned in China, although it may be looking to partner with local operators. Defending its patents may not be an issue for Tencent at the moment, but that may change if it does succeed in internationalizing. Facebook has up to now built up an enormous community with super user stickiness. Its huge traffic is what the advertiser is after. And if it learns from the Tencent model in increasing its value-added services, its profit will soar even further. Meanwhile, there’s also plenty Tencent can learn from Facebook. Currently Tencent’s community structure includes, an open microblog, and a QQ instant message service as a paid service on smartphones. On its community platforms, it offers services like e-commerce, online games and a search engine. But it has not yet achieved substantial growth in its advertising revenue. On this front, Tencent can learn from Facebook.

The debate about Facebook’s value will no doubt rage for many months to come. Yet according to the Wall Street Journal, Citigroup has suggested that Tencent could be worth $100 billion in the longer term, as opposed to the rough $50 billion valuation it has now. Investors would perhaps do well to pay attention to the lower-profile Chinese company that is just as much of an internet powerhouse as Facebook.

[Sources: Wall Street Journal,, Worldcrunch]


Image courtesy of iamharin

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