Before I finished reading "The Tencent Story," my understanding of Tencent was that it was a product-driven company, known for its micro-innovations across all its products. For instance, WeChat drew inspiration from Kik and Talkbox, QQ originated from OICQ, and QQ Games came from Lianzhong. In summary, its products entered the market later but managed to defeat competitors by leveraging its massive traffic.

However, after reading the book, my understanding changed. Despite the book's significant biases, it does not hinder our understanding of what kind of company Tencent truly is.

I believe most people, like me, first encountered Tencent's products through QQ. I remember that at the time, the internet was just emerging, and we, the academically challenged, loved to go to internet cafes to chat on QQ and play "Stone Age." Of course, we also had our share of mishaps, like when parents suddenly appeared behind us.

Success in entrepreneurship is never accidental.

When Pony Ma was 14, his family was willing to spend four months' salary to buy him a professional-grade astronomical telescope. He later wrote an observation report and won third prize in an observation competition, earning a 40 yuan prize. To cultivate his scientific interest, his family subscribed to popular science magazines like "We Love Science" from a young age. Later, they bought him a set of lenses, allowing him to assemble his first telescope.

During his university years, Pony Ma and his friends were all outstanding students with a solid foundation. Even if they hadn't founded Tencent, they could have become excellent talents. At that time, he and Zhang Zhidong already owned their own computers. He assessed himself as not very strong technically but good at applications, knowing how to implement a product.

At the age of 22, he created his first true product, a graphical stock analysis system. A company approached him for acquisition, offering 50,000 yuan, equivalent to three years' salary for a university graduate.

In 1993, he joined Runxun. When he was in Huaqiangbei looking for books, he met a classmate majoring in radio technology, who introduced him to the company. The next day, Pony Ma was hired. At that time, Runxun was a new enterprise, and he was at the forefront of the pager service, which was predominantly "one machine per person." Pony Ma quietly stayed at the company until the end of 1998, witnessing the rise and fall of the entire company.

Later, he used all the money from selling software to lay phone lines, set up eight computers, and created "Ma Station." He also worked as a correspondent for "Computer World," writing an article titled "BBS and Huido Network." In 1995, he met Ding Lei. That year, Jack Ma had just founded "China Yellow Pages," which made money by allowing businesses to post their commercial information online. After that, Zhang Chaoyang followed suit, referencing Yahoo, and founded Sohu.

To take on more work, they did everything from website design and server storage to simple webpage creation, even doing some projects for free, hoping to earn maintenance fees later. From 1998 to 1999, Tencent achieved a total revenue of 1 million yuan. However, it initially faced tough battles, with its main business stagnating and funds running low, making it seem like a struggling startup.

ICQ and OICQ

In 1996, three Israeli youths who had just completed their military service developed software that allowed for quick and direct communication over the internet. They named the new software ICQ, which stands for "I SEE YOU," and it was later acquired by AOL for $407 million in 1998.

There were rumors that ICQ was looking for partners in China, and they had contacted Runxun. Pony Ma was sent as a negotiator, but after Runxun dropped out, he decided to start his own venture. The reality was that at that time, China Telecom was bidding for a Chinese instant messaging tool similar to ICQ, but unsurprisingly, they did not win the bid. At this point, five entrepreneurs sat down to discuss whether they should develop OICQ. Although there were already three products on the market, no one knew how to make a profit. However, AOL was willing to pay $400 million for ICQ, which seemed promising.

So they decided to nurture it; after all, it was a small product, and making money would still rely on selling software. Later, the founders of Tencent were often asked how they managed to rise to the top. There were two reasons: one was the competitors' complacency and weakness, and the other was the micro-innovations in technology.

By the end of 1998 in the United States, personal computers were already widespread, but at that time, the computer penetration rate in China was less than 1%. Young people did not have their own computers; the first internet cafe in Shanghai only appeared in 1996, and by 1998, nearly 10,000 internet cafes had emerged nationwide, becoming important places for young Chinese netizens to go online.

Tencent made what seemed like a subtle innovation at the time, which is now quite common. In the U.S., everyone had their own computers, so the impact of information existing on the client side was minimal. However, in China, the main places for going online were internet cafes. When switching to a different computer, the original content and friend lists would disappear, which was frustrating. So they moved this information to the server side. The technical difficulty was not high, but it adapted well to the Chinese environment at the time.

At that time, domestic internet broadband was generally 14k, 28k, or 54k, so they optimized their software to a version that was only 220KB, while ICQ required 3-5MB, usually taking tens of minutes to download, whereas QQ could be downloaded in just a few minutes.

In addition, there were other innovations, such as offline messages, allowing users to add online strangers as "friends," and designing message notification sounds. Over the next ten years, this communication tool underwent more than 100 iterations.

The Unmarketable Tencent

The relentless pursuit of product perfection and continuous micro-innovation turned this relatively small product into a cash-burning machine, as the rapid increase in users pushed the servers to their limits time and again. As OICQ's registered users exceeded 1 million, they had to open up seven-digit user numbers, but the other news was that Tencent's account only had 10,000 yuan left.

Everyone began to tighten their belts, with salaries halved. Compared to enduring this, selling the company might have been a better choice, but according to incomplete statistics, at least six companies refused to buy shares in Tencent.

When the cash flow was nearly cut off, the founders had to borrow money from friends, reaching out to everyone they knew in Shenzhen. Two relatively wealthy friends lent Tencent 200,000 yuan and 500,000 yuan, respectively. When Pony Ma asked if he could use Tencent's stock to repay the debt, one generous friend said, "You really have no money left; you don't have to exchange it, but I don't want your stock."

At that time, Zeng Liqing thought negotiating with IDG might be Tencent's lifeline. He wrote a 20-page business plan, but when it came to the profit forecast, he couldn't make it clear. For investors at that time, Tencent's situation was dire; without funding, it might die immediately, but giving money also meant the company's future was uncertain. When asked how Pony Ma viewed the company's future, he paused for a moment and said, "I don't know either."

During the process of finalizing the agreement, Tencent's account was already depleted. The investment agreement was signed in April 2000, just in time for the internet world to shift from sunny to stormy. In this round of stock market crashes, several Chinese companies listed on NASDAQ were not spared; Sina's stock price fell to $1.06, Sohu dropped to 60 cents, and NetEase was once down to 53 cents, receiving a "delisting warning" from the exchange.

By the end of 2000, Tencent faced another financial crisis. IDG took the lead in seeking help from Sohu and Sina, but both were rejected. From the perspective of technical personnel in the internet industry, they believed they could do Tencent's work themselves, so why spend millions of dollars to buy it?

Later, they approached Yahoo China but were rejected. They visited Kingdee and were turned down. They sought Lenovo and were also rejected. Just when they were at their wits' end, a South African investment company called MIH discovered Tencent while trying to understand what young people in China were using in internet cafes. They found that OICQ was running on every desktop in the cafes, leading them to believe that this could be a great internet company.

MIH wanted to become Tencent's major shareholder, valuing it at $60 million, but the founders were unwilling to give up control. However, they were pleased that Tencent's valuation had increased by a full 11 times compared to before.

Revenue Dilemma

At that time, a new attempt by Japanese telecom operator NTT DoCoMo caught Pony Ma's attention. NTT DoCoMo charged content providers and then shared profits, creating an infinite value-added business beyond call services.

Later, on May 17, 2005, "Mobile OICQ" was launched, allowing users to send messages via SMS platforms, achieving real-time information exchange between mobile and computer. By February 2001, the total number of SMS messages sent through "Mobile QQ" had reached 30 million, generating 2 million yuan in revenue for Tencent. At that time, the three major portals, Sohu, Sina, and NetEase, were deeply mired in losses, while Alibaba, despite having 4 million e-commerce users, had nearly burned through the 25 million dollars it raised and had to close its overseas companies and lay off foreign employees, moving its headquarters back from Shanghai to its hometown of Hangzhou.

The booming wireless business made QQ even more of a beggar with a golden rice bowl, as almost all the money raised was poured into QQ, yet there was no direct way to profit. At this point, thoughts turned to profit models, with the first being advertising. However, since QQ's user demographic was predominantly young, their purchasing power was insufficient, making advertising promotion not very successful. Another model was membership, costing 10 yuan per month for additional value-added services. At that time, very few young consumers in China had credit cards; they had to go to the post office to transfer money, and very few netizens were willing to run to the post office every month for 10 yuan. Thus, this attempt was also unsuccessful. The third model was enterprise services, but the enterprise version of QQ (RTX) struggled in the commercial market for the next ten years.

Throughout 2002, Tencent's experiments with QQ's charging model were not successful. At that time, in the online gaming market, Jiucheng invented a game card that allowed users to recharge points. Tencent referenced this model and launched its own Q coin system.

Tencent discovered a community website in Korea called sayclub.com, which developed an "Avatar" feature that allowed users to customize their virtual images, becoming very popular among young Koreans. Later, they commissioned a Korean company to design virtual props, resulting in over 800 styles in two months, which is what we later saw as QQ Show. The launch of QQ Show transformed QQ from a simple chat tool into a virtual world with its own virtual personality, values, and community norms. Once it took shape, it developed the ability for self-replication, leading to significant commercial benefits for Tencent through QQ Space and QQ Games, all of which were extensions of this logic.

Conclusion

In fact, the content above only covers one-third of this book. There are still expansions into gaming, the rise of WeChat, the battle with MSN, QQ Space, the famous 3Q incident, and more. However, I believe the most valuable aspect is seeing the various difficulties encountered during the founding process, the early struggles, the temptation to give up when no one was buying, and the persistence, confusion, opportunities, and luck that shaped the current penguin.

Although the book contains some subjective biases from the author, by reading more, thinking more, and reflecting more, we can clarify our path forward.