While the strong growth and domestic dominance of Chinese tech titans Alibaba and Tencent is no surprise to watchers of the Chinese market, these companies haven’t always received the attention they might deserve in the Western media. But that looks to be changing.
On the heels of strong earnings announcements from both companies this week, the New York Times yesterday featured an article detailing the success that both Alibaba and Tencent have enjoyed in recent years.
What’s notable to us about this article isn’t so much its content, but rather the fact that an eminent publication like the New York Times seems to be just getting around to describing for its readers the overall size of the Chinese technology market and its dominant players. As the article notes, both companies have benefited from favorable domestic market conditions, including a more mature mobile economy, a regulatory regime that has served to favor domestic challengers versus global champions, and a strong understanding of domestic consumer tastes. These advantages have allowed Alibaba and Tencent to not only match their Western counterparts, but in many ways to exceed them.
Take just two examples. Both companies are strong players in the mobile payments market. This is a market that is ubiquitous in much of China, but has faced significant hurdles to adoption in the US, and both companies are now looking to bring their payments technology and ecosystems into the US market. Meanwhile, Tencent in particular has been able to leverage the strength of its overall ecosystem along with strong understanding of consumer tastes to become the world’s largest game company by total revenue, a vertical that Alibaba is also looking to enter.
Given that a significant portion of China’s population have not yet adopted smartphones — and given that China’s smartphone market is expected to grow by about 200 million additional users in the next five years (roughly equivalent to the entire US smartphone market today) — both Alibaba and Tencent are poised for significant additional growth. While Alibaba and Tencent may not yet be household names in the US, if trends continue they should be rightly counted with US firms like Apple, Google, Facebook, and Microsoft as giants of consumer technology.