Few Chinese companies have taken as much flak as Tencent has in recent days. The company, which operates QQ, the world’s largest instant messaging tool, is being blasted on blogs and online bulletin boards following its attempt to force users to drop the services of an antivirus company with which it is in dispute.
A smattering of irate QQ users, frustrated competitors and critics of China’s regulatory environment are vilifying Tencent and alleging it is a monopolist.
“In China ... a second-rate judiciary can only create a second-rate industry,” said Charles Zhang, chief executive of Sohu, China’s second-largest online news portal, on his microblog, in reference to the country’s poor intellectual property protection. “In concrete terms, Tencent, for which copying and monopolisation is the foundation of its business, has taken both to the extreme. Innovation doesn’t enjoy protection, small companies don’t survive.”
However, it is difficult to disentangle the rights and wrongs of Tencent’s fight with Qihoo 360, China’s leading antivirus software provider.
Both companies have removed their gloves and used their customers in their bitter battle.
The fight began when Qihoo 360 accused Tencent of letting QQ software scan its users’ computers for personal data, and issued tools to block QQ components. Last week, Tencent stopped allowing users to log on to certain services if they also had 360 software on their computers.
The reason most of the fury is directed against Tencent is the company’s sheer size and market power. With more than 600m active accounts, its QQ messaging tool has become something of an equivalent of the Windows operating system in the western world.
“Tencent is the Microsoft of the Chinese internet,” says Wallace Cheung, an analyst at Credit Suisse. “They have created a platform they can use to push their own products only and squeeze others aside, just like Microsoft did in the late 90s, for example when they pushed aside Netscape with Internet Explorer.”
Tencent’s most successful products have drawn their inspiration from elsewhere. QQ, the very basis of its business, started as an outright imitation of ICQ, AOL’s instant messaging tool.
One of Tencent’s most powerful tools for keeping users on its platform, its online farming game, was pioneered in China by Kaixin, a social networking site.
“Tencent has been acting like a vacuum cleaner – once they see that a product goes, they do it as well, and they do it faster and better than everone else,” says Wu Siqiao, vice-president of online music company Kugou.
A growing number of internet start-ups are calling for better regulation which would help smaller players to protect their intellectual property.
Mr Zhang of Sohu cites Mark Zuckerberg, who recompensed students who alleged that they came up with the idea of an online social network which he then used to set up Facebook, as an example of the stronger legal framework in the US.
But analysts point to the fact that new product inventions are as shortlived in Western internet markets as in China. “Across the entire internet world, business models are very easily replicated,” says Mr Cheung.
Google, for example, followed Hotmail’s example in setting up its Gmail. In China, a snowball effect is often triggered once a new service has some early success. While Twitter is blocked in the country, there are at least a dozen homegrown microblogs operating there.
Financiers argue the key reason that small players lose out to the big ones in China so quickly is that less money is available for early-phase start-ups than in Silicon Valley.
But despite these differences between the Chinese and the US market environment, Tencent owes most of its success to its own strengths.
“People like the community of Tencent so there is a viral marketing going on with new products,” says Mr Cheung.
Moreover, Tencent has shown an unerring sense for picking winning products. “The timing of their product launches has followed the trend of the Chinese market,” he says.
One thing that does leave room for improvement is probably Tencent’s public relations. Pony Ma, Tencent’s soft-spoken and notoriously media-shy founder and chief executive, attempted some damage control of the clash on Monday.
At an industry conference, he rejected the accusations of monopolistic behaviour and issued a strong commitment to open software platforms.