A Study of the Business Model of Tencent Group

With the development of information technology, Many Internet enterprises have emerged rapidly, and to thrive in the face of fierce competition, it is vital for them to have efficient business models. These business models are a popular focus of research interest. At present, there is still no unified interpretation of the business model system of Internet enterprises. The existing theoretical research examines mainly individual enterprises; there are only a very few studies on the business models of platform enterprises. This study therefore aims to summarize the literature on the basis of existing theories combined with the enterprise reality, through a literature review and case study of the Tencent group of companies in China. This study explores the online trading platform for enterprises and its business model.It is instructive to correctly analyze the Internet business model of enterprises in the third party service platform enterprises.


Introduction
In recent decades, many Chinese Internet companies, such as Tencent, Baidu, and Alibaba have achieved high growth. With creative economy as their core concept, they provide information, consulting, entertainment, and other services for consumers. These firms represent the new economy and belong to the emerging information service industry. The business models of such firms attract much attention from the academic and business community. However, prior studies did not explore the essential characteristics of these business models. The problem is that most Internet enterprise business models are vague and undefined, relating basically to increasing profits, and market access [1].In the backdrop of the global economic slowdown, the growth in business model innovation caused by the change in scale of trade has become of vital significance to firms. Business model innovation can lead the enterprise to new market resources, bring new concepts to business development and economic growth, and increase the firm's competitive advantages (e.g., Tencent). Successful cases of business model innovation continue to emerge, which encourages entrepreneurs to constantly pursue business model innovation [2].
With this background, the present study is rooted in theoretical work combined with enterprise reality through a literature review and a case study of the Tencent group in China. This study explores the Tencent online trading platform for enterprises and its business model. In the Internet industry, different business models have become enterprise management strategies for competition in terms of the choice of operational tools. The Internet business model is an important part of enterprise core competitiveness, the method to transition to a new business model. This study aims to provide guidance in terms of other Internet firms' growth potential.

Definition of a business model
In recent years, there has been a growing understanding of the importance of business models. Studies on business models focus on product, business, company, and multi-aggregate industry levels. business model, in its most basic sense, refers to the way of doing business, which is the model on which a company lives --a model that can bring profits to the enterprise.argue that business models are the means of corporate profitability. The term "business model" first appeared in the 1950s, but did not become popular until the mid-1990s .The Internet   and information technology changed the trading rules and methods, brought about continuous innovation and   new forms of business methods and transactions, and became the new method, channel, and approach to business competition. In particular, Internet enterprises achieved great success by virtue of business model innovation, creating value that is difficult for traditional enterprises to obtain in the short term, such as Amazon, Alibaba, and Tencent, making business models a new weapon with which enterprises compete against each other [3,15].

Business model characteristics
1) Integrity and systematicity. The model is much more than the sum of its parts, which can reflect the essence of how the enterprise system focuses.A business model that lacks comprehensiveness may well be attractive in one respect, but it may not be possible at all because the entrepreneur ignored the elements that support intrinsic profitability.
2) Innovation. Innovation is a tool with which entrepreneurs can make themselves noticeable in the market. The fundamental source of unique value is the unique resources owned by entrepreneurs and the development strategy based on the uniqueness of these resources. Therefore, innovation is an important characteristic of business models. A business model is a comprehensive concept that does not refer to a pure profit model; however, it does not abandon the content of value acquisition. It organically combines the source of value (i.e., value creation) and value acquisition to form a balance between the two mechanisms of value generation and acquisition within an enterprise.
3) Stability. Stability means that the entrepreneur's business model has sustainable growth. For businesses equipped with comprehensive and innovative business models, it is necessary to fully stabilize the speed of market development to avoid falling behind competitors.  Based on the analysis in the second chapter, Tencent's business model is analyzed and studied from the following perspectives.

Profit model
In some cases, the business model is equated with the profit model. The ability to create value is the key point that enterprises should focus on. The aforementioned analysis indicates that the value creation theory truly reflects the reasonable demands of enterprises to create value for themselves and customers because value creation theory can clarify the essence of the business model.

Analysis of Tencent's profit model
Internet value-added services Tencent's offers three categories of Internet value-added services: member services, community services, and game entertainment services. This specific business includes e-mail, entertainment, and information content services; dating services; casual games; and large-scale multi-user online games. Through the free to use strategy and market cultivation, the company can resist competitors through value-added services such as QQ members, QQ clothing, QQ-zone props, and ornaments. These services are the most important source of income for Tencent.
In November 2000, QQ members launched a QQ service for the elderly, wherein users pay a 10 yuan per month fee to enjoy a variety of basic QQ services outside of the additional benefits, including the selection of a QQ number, having information stored in the QQ server, large capacity network storage space, and several other QQ value-added services. The QQ network exclusive QQ zone offers members special tags and additional chat rooms. Tencent continues to improve the QQ membership service content to highlight the members' rich and valuable Internet experience and upscale identity. In this way, it continuously improves the stickiness of QQ for long-paying members and attracts more users to join the QQ membership group. Now, QQ memberships are Tencent's highest-earning single product. Tencent partnered with several Chinese handset makers to pre-install mobile QQ and other client software directly into mobile phones. Most mobile QQ users use the SMS (short message service), which costs between 4.5 yuan and 5 yuan per month. In practice, no more than 2 SPs in China can get grade A, 5 SP in general, and 10 SP in general. Relying on its huge user base, Tencent can get preferential policies from operators in terms of product quantity, high-tariff billing codes, and marketing resources, which is a major factor in promoting the revenue growth of telecom value-added services in the short term. Tencent began to plan its own mobile value-added business marketing channels, including bundled promotion of QQ client-related products, promotion on 3G portal, and so on. The use of its own marketing channels can improve the gross profit margin of value-added services, reduce dependence on the marketing channels of operators, and further reduce the policy risk.
Online advertising Tencent advertises online mainly through the instant messaging client software and in the QQ.com portal advertising bar to earn its network advertising revenue. With the help of QQ's huge user base, the portal website developed by Tencent QQ greatly increased its traffic and maintained a high click rate and popularity. Then, it attracted advertising placements on the Tencent portal website from various enterprises to promote their products.
Consequently, its network advertising revenue will not be low. Tencent has a variety of carriers of online advertising that focus on targeted delivery, display, and other aspects. Tencent's advertising carrier includes the QQ client, portal website, search engine, network video, game built-in advertising (IGA), wireless WAP portal, and so on. Different advertising carriers can be aimed at different target audience groups. For example, through QQ client, Tencent can target ads to different regions and user groups with different behavioral characteristics, and in-game ads can target game user groups specifically. Some advertising carriers can show pictures and videos.

Tencent's value creation
Target customers Tencent's typical user group is young and fashion-conscious users who need entertainment and to show themselves to others.

Value content
Through Tencent, users can show their own personality. At the same time, Tencent provides a large amount of entertainment content, so users can pass the time and make friends during the entertainment. Many news content sources are also an important channel for users to acquire knowledge and understand information. In addition, Tencent's online mall also meets consumers' online lifestyle demands.

Value network
Tencent's value system is three-dimensional and multidimensional. Users are exposed to Tencent's value system at different levels, though this does not affect the positioning of the framework. The underlying basic services and financial system provide the main support, though Tencent emphasizes availability and flexibility over profit. The aforementioned analysis shows that Tencent's business model consists of a "3-4-8" system, where "3" represents the contact interface, including customer value, partner value, and enterprise value. The "4" represents the constituent units of value proposition, network, maintenance, and value realization. Finally, the "8" represents the components target customers, value content, network form, business positioning, partnerships, isolation mechanism, revenue model, and cost management. In essence, the "3-4-8" composition of the business model is a three-dimensional architecture that comprehensively examines the business model in terms of the "far-middle-near" levels.

Conclusion
Tencent is one of the largest integrated Internet service providers in China and has the most service users in China. Since its establishment, Tencent adhered to a business philosophy of user value, and has always been in a state of steady and rapid development. At present, the company's main products are IM software, online games, and portal value-added products. Within a few years, relying on its own advantages and unique business model, Tencent was listed on the main board of the Hong Kong Stock Exchange in 2004. Making profits is a major goal of businesses and the key to surviving competition. However, the success of Tencent's diversified, profitable business comes largely from the company's aim to address urgent widespread social needs, provide solutions to society for free, entice price-sensitive people to use the company's products, set the consumption trend, and use the huge consumption trend to develop a changing and profitable model.
In 1999, Tencent put QQ software on the Internet as a free download, and the company saw a geometric growth trend in the number of users. The user base increased to more than 30 million less than two years into its development. Now, the company has nearly 400 million users; this user base has formed the foundation for Tencent to obtain other revenue. Now, the Tencent QQ user group is China's largest Internet registered user group; Tencent provides China's largest instant messaging service network. Currently, many people have a QQ number as a telephone number, e-mail address, and for other ways to contact other people. Tencent thus has created its core competitiveness and achieved a monopoly in its client channel.
Tencent is well positioned. Most of its businesses are targeted at the young; the company knows what users want and can develop appropriate products. Tencent captured the idiosyncrasies of young people who want to be different. The launch of virtual products such as QQ Show allows young people to express their personalities in the virtual world and realize their inner needs that are suppressed in real life. Thus, fashion became the basis of QQ Show, and young people use it to showcase their lifestyle. Tencent uses a profit multiplier model; that is, it gains repeated profits from the same product, feature, trademark, ability, or service. It establishes its own brands, such as in toys and clothes, which are consumed by young people. In this way, the company extends its brand effect at very low promotion cost. It thereby doubled its profits on such products.
Tencent is good at actively integrating, discovering, and utilizing the advantageous resources around it. It also takes advantage of user-based innovation, while expanding user channels or platforms so users have easy access and can improve their experiences, which improves Tencent's operations.
Today, Tencent is building its competitive advantage step by step, constantly exploring new areas, such as artificial intelligence, driverless cars and so on.As a giant enterprise with strong innovation ability in China, it established a platform for many local enterprises and made steady progress in today's increasingly fierce competition.