How Internet platform companies create value through CVC strategy orientation in business ecosystems: The case of Tencent

Introduction

This study delves into the strategic objectives of Tencent, a leading Chinese internet platform company, and their influence on value creation within its business ecosystem. By examining these objectives at three levels—core product, platform, and ecosystem—this research offers insights into the dynamics of value creation in the digital business landscape.

A. Core Product Level

At the core product level, Tencent’s strategic objectives primarily revolve around enhancing the novelty, efficiency, complementarity, and lock-in of its core products, such as QQ, WeChat, and games. These objectives aim to continually create usage value for users, expand user bases, and promote network effects.

Novelty: To remain appealing, core products must evolve, introducing new technologies, functions, and business models. Tencent’s strategic objectives of improving market and technology insights, acquiring technical capabilities, and expanding internationally contribute to this novelty. For instance, Tencent’s acquisition of Foxmail and investment in Supercell facilitated the development of new products and technologies, ensuring continuous innovation.

Efficiency: Core products should not only enhance user efficiency but also improve the service surrounding them. Tencent achieves this by expanding the functions of WeChat to daily service areas, integrating local life services, and enhancing entertainment content accessibility on QQ. These efforts increase user satisfaction and loyalty while improving overall efficiency.

Complementarity: By encouraging partners to deploy their services within WeChat and integrating different service features, Tencent enhances complementarity. This allows for shared functionalities and diverse service offerings, catering to users’ varied needs. Investments in gaming and content resources further enrich the ecosystem, fostering stronger complementarity.

Lock-in: Strengthening user loyalty and increasing switching costs are vital for core product value. Tencent’s strategic objectives, such as acquiring game and content resources, promote lock-in by providing unique content and improving user experiences. This fosters a sense of loyalty and attachment to Tencent’s ecosystem.

B. Platform Level

At the platform level, Tencent focuses on leveraging complementary value creation through strategic objectives aimed at innovation, efficiency, complementarity, and lock-in.

Novelty: Platforms must offer innovative skills and resources to attract complementary partners and generate synergy. Tencent achieves this by acquiring game and content resources, providing partners with new resources, and fostering innovation. For example, sharing new content resources gained from Supercell enhances partners’ product offerings, driving incremental value creation.

Efficiency: Lowering partners’ costs in discovering customers and developing offerings is crucial for platform efficiency. Tencent’s strategic objectives, such as acquiring technical capabilities and expanding core product usage, reduce transaction costs and enhance synergy between the platform and its partners. This leads to more efficient value creation processes and improved partner satisfaction.

Complementarity: Encouraging synergies among diverse ecosystem participants is essential for creating complementary value. Tencent’s investments in various sectors and its focus on acquiring game and content resources enhance complementarity. By unlocking competencies and resources and fostering collaboration among partners, Tencent strengthens ecosystem synergies and drives incremental value creation.

Lock-in: Maintaining stable relationships with partners is vital for platform lock-in. Tencent’s strategic objectives, such as acquiring game and content resources, increase switching costs for partners and incentivize their retention. By providing unique content and technical capabilities, Tencent reinforces partner allegiance and fosters long-term engagement.

C. Ecosystem Level

At the ecosystem level, Tencent’s strategic objectives influence value creation by promoting novelty, efficiency, complementarity, and lock-in across ecosystem participants.

Novelty: Continuously updating resources and capabilities and expanding into relevant industries enhance ecosystem novelty. Tencent’s strategic objectives, such as improving market insights and acquiring game and content resources, contribute to this novelty by connecting new capabilities and resources. This fosters innovation and drives sustainable ecosystem growth.
Efficiency: Integrating resources and reducing transaction costs are crucial for ecosystem efficiency. Tencent’s investments in technology companies and its focus on expanding core product usage improve transaction efficiency within the ecosystem. By providing partners with access to cutting-edge technology and market insights, Tencent enhances overall ecosystem efficiency and value creation.
Complementarity: Unlocking competencies and fostering synergy among diverse ecosystem participants drive complementarity. Tencent’s strategic objectives, such as acquiring game and content resources and expanding core product usage, promote collaboration and resource sharing among ecosystem members. This creates a more cohesive and integrated ecosystem, driving incremental value creation for all participants.

Lock-in: Maintaining stable engagement across the ecosystem is essential for lock-in. Tencent’s strategic objectives, such as acquiring game and content resources and expanding core product usage, increase switching costs for ecosystem participants. By providing unique content and fostering strong relationships, Tencent reinforces ecosystem loyalty and incentivizes continued engagement.

Conclusion

In conclusion, Tencent’s strategic objectives play a crucial role in value creation across its business ecosystem. By focusing on enhancing novelty, efficiency, complementarity, and lock-in at the core product, platform, and ecosystem levels, Tencent drives innovation, reduces costs, fosters synergies, and promotes ecosystem growth. These findings offer valuable insights into the mechanisms of value creation in digital ecosystems, with implications for both academia and industry.

Methodology

The case study explores Tencent’s strategic objectives and value creation within the business ecosystem through qualitative methodology. Tencent, a global internet and tech company, prioritizes technology for societal benefit. It serves over a billion users with communication, social services, and entertainment, while also offering enterprise services like cloud computing and FinTech. Data collection involved analyzing secondary sources and financial investment databases to identify 31 CVC initiatives, refined to eight based on strategic alignment and data completeness. These projects were analyzed for investment duration, purpose, and industry sectors, leading to the development of a theoretical framework. Data sources included publications and secondary data from certified sources and Tencent’s internal documents.

Applications and beneficiaries

Managers and firms can learn from this research. This study illustrates Tencent’s ecosystem evolution, revealing value creation occurring at core product, complementary platform, and ecosystem levels. Core products establish usage value, attracting partners who contribute to platform synergy and diverse value creation. At the ecosystem level, network members collaborate to enhance overall value. Recognizing short-term opportunities and risks, and predicting market and technology trends are crucial for sustained value creation. Tencent’s strategic integration and early-stage CVC investments exemplify leveraging gaming, entertainment, and e-commerce for value creation. Embracing innovation and strategic partnerships are key for businesses to thrive in evolving ecosystems.

Reference to the research

Yan, J., Wang, S., Xiong, J., Scaringella, L. and Chen, X. (2024), “How Internet platform companies create value through CVC strategy orientation in business ecosystems: The case of Tencent”, IEEE Transactions on Engineering Management, 71, 1531-1541.

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