Tencent is going to spend money on the cutting edge

Author | Huang Yu

Editor | Zhou Zhiyu

Over a decade ago, Tencent, holding traffic and capital like an octopus, extended its tentacles into various fields and built a huge business empire. However, the era of rapid growth on the internet has passed, and Tencent has recently retracted its former sharpness. While slowing down its expansion pace, it has also actively exited or downsized many businesses.

Recently, Tencent's online vocational education platform, Tencent Classroom, which has been operating for over 10 years, announced that it will cease operations on October 1st and completely stop all platform services. With this, another product that carried the memories of a generation's youth will exit the stage of history.

According to incomplete statistics from Wall Street News, since 2022, Tencent has shut down or removed more than 50 products, including Xioe Pinpin, Huanhe, QQ Video, Kandian News, Sogou Maps, Tencent WiFi Manager, QQ Tang, QQ Link Link, Tencent To-Do List, and other products from different business sectors.

Although the number is not small, these businesses are all non-core businesses of Tencent, either at the end of their life cycle or with an uncertain future, still in a loss-making or low-profit state.

The times do not show mercy to the outdated. And against the backdrop of a global economic slowdown in recent years, Tencent, with its deep pockets, also needs to reduce costs and increase efficiency, spend money wisely, and invest more resources in businesses that can remain sustainable.

The era of internet giants relying on abundant resources to expand wildly is gone, and a new era has arrived. Tencent is striving to rediscover its best state.

Conclusion

Tencent Classroom was born in 2014, the year Tencent entered the education field, and the curtain of China's internet education had just been raised.

Initially leveraging QQ's platform resources, Tencent Classroom introduced a model of third-party educational institutions to provide vocational training, language learning, animation design, studying abroad, and other learning classes. Within a year of its launch, Tencent Classroom released a mobile app and H5 page.

With Tencent's strong resource advantage, Tencent Classroom was once a leader in the online education industry. In March 2020, Tencent Classroom announced a 3.5-fold increase in total class hours for online vocational education; in April of the same year, QuestMobile data showed that in the first quarter of 2020, Tencent Classroom's average Sunday active users ranked first in the education and learning industry.

For Tencent, the education sector is not only an important scene to leverage its connectivity advantage but also a significant manifestation of fulfilling its corporate social responsibility.

Therefore, in addition to Tencent Classroom, Tencent has continuously expanded its education business landscape over the years, including K12 online schools, Tencent Happy Mouse English, and a variety of To C products. It also covers Tencent's education enterprise cooperation, smart campuses, Tencent Weixiao, and B-end solutions, covering technology, services, and content for the entire process from preschool education to adult education In the past, Tencent's education business was in a decentralized state for a long time, with over 20 education products scattered across various business groups.

However, in 2018, with the establishment of the "Cloud and Smart Industries Group" (CSIG) in a new major organizational restructuring of Tencent, Tencent thoroughly reorganized its education business for the first time, unifying them under "Tencent Education" under CSIG.

However, the good times did not last long. In July 2021, the "double reduction" policy was implemented, causing K12 education and training institutions to "plunge into winter overnight," leading to significant adjustments in Tencent's related businesses. For example, K12 online schools, children's English enlightenment product Happy Mouse English, K12 English test evaluation tool Tencent English Gentlemen, etc., have been successively closed or transformed.

Although not within the K12 education and training category, due to the overall economic environment, Tencent Classroom also faced challenges. In addition to Pony Ma's proposal to converge and focus, in September last year, "Jiaopeitong" under Tencent Classroom ceased to provide services.

In the same month, Shi Mei, Vice President of Tencent Cloud and head of Tencent's education industry, stated that Tencent Education will gradually close its C-end business and focus on B-end business.

Against this backdrop, Tencent Classroom's "dismissal" became inevitable.

Starting afresh, although Tencent Education will no longer directly serve C-end users, it faces a trillion-dollar B-end education digital market, covering K12, higher vocational colleges, lifelong education, targeting individuals, schools, educational institutions, education management departments, providing intelligent connection, intelligent teaching, intelligent research, and intelligent management products and services.

In the education digitalization track, based on the advantages of cloud + AI + connectivity, Tencent Education has found a new focus for itself.

Transformation

The self-reconstruction of Tencent Education is a microcosm of the recent major changes in Tencent Cloud and even Tencent Group.

As a Chinese internet giant, Tencent was once criticized more than a decade ago for "doing everything." Therefore, starting from 2013, Tencent underwent significant strategic changes, aiming to retract its sharpness and return to its expertise in communication and social networking, launching the "Internet +" and "Connect Everything" strategies.

However, at that time, it was still the golden age of internet development, and expansion remained Tencent's main theme for a long time. Although choosing not to monopolize all businesses, Tencent would still invest massive resources in seizing important tracks while starting to use external strategic investments as a significant expansion measure.

According to IT Orange's statistics on Tencent's investment landscape, Tencent's investment areas over the years have covered 23 industries, including entertainment media, gaming, enterprise services, artificial intelligence, e-commerce retail, etc., showing diversified investment layouts.

From 2012 to 2021, in the past decade, along with industry development and strategic foresight, in the C-end, Tencent seized the ticket of mobile internet - social and gaming, and in the B-end, also participated in the industrial internet feast of various industries going cloud, achieving rapid growth in revenue and profit scales.

However, in 2022, affected by the overall economic environment, internet regulation, and the lackluster growth of its own business, Tencent's revenue experienced a decline for the first time, decreasing by 1% year-on-year to 554.6 billion yuan Tencent, sensing the crisis, launched the latest round of major reforms in 2022, focusing on cost reduction and efficiency improvement, as well as scaling back non-core businesses.

At the end of 2022, during an internal staff meeting held online by Tencent, Pony Ma emphasized "cost reduction and efficiency improvement" as a key focus of the meeting. He bluntly pointed out that "some businesses have little time left," and many businesses that are not cost-effective compared to the management costs and efforts invested by the company should be cut off without hesitation, such as excessive non-core businesses.

Regarding CSIG, Pony Ma also halted its extensive development model and supported its strategic shift towards developing self-developed products to be integrated. Pony Ma believes that it should not be swayed by external voices about falling behind Huawei Cloud or lagging behind, and should not lose its unique advantages. By early this year, he once again requested that many products of CSIG must be launched as soon as possible, except for particularly important strategic products and basic investments.

For the gaming pillar business, Tencent has also begun to tighten its belt. As Pony Ma mentioned, he hopes that the gaming business will horizontally deepen and solidify in software and game development, rather than confront other gaming companies or hardware manufacturers from a vertical perspective. The key is to identify its core business and focus on it, which will lead to a higher chance of success.

A Tencent gaming employee told Wall Street News that in the past, the company invested heavily in developing many projects, but termination of development or discontinuation was either due to unclear positioning or no longer meeting audience demands. Now, decisions regarding the market are made more cautiously, internal reviews are stricter, new project approvals are more difficult, and generally, the existing batch of projects must first break even before new projects can be initiated.

In addition to shrinking its own business, Tencent has also slowed down its external investments. Starting from the end of 2021, Tencent has successively reduced its holdings in several listed companies, such as JD.com, Sea Limited, New Oriental, Meituan, and others.

Furthermore, according to IT Orange statistics, 2021 was the peak year for Tencent's external investments, with investments in 301 companies throughout the year. By 2022, the total number of investments decreased to 95, and in 2023, it continued to decrease to 40.

Under the theme of "convergence and focus," Tencent's current investments mainly focus on artificial intelligence, healthcare, gaming, entertainment media, and enterprise services.

These areas can generally synergize with Tencent's core businesses, such as WeChat Video Accounts, gaming, cloud services, AI, etc.

With the wave of AI large models, the world is entering a new era, and the landscape of technology companies may face new changes at any time. If Tencent wants to maintain its "iron throne," it must dare to "trim down," strengthen its core advantages, seize the huge opportunities brought by AI, promote rejuvenation of old trees, and allow "new shoots" to grow vigorously.

Of course, turning a large ship is not an easy task, and this is destined to be a challenging transformation