Acquired - Tencent

0:00Also, I did have Tesla that they invested in Tesla, and I have one other that is kind of surprising that they own a good bit of, or owned a good bit of. Excellent. Do you know that one? Snap. Snap. Yeah. Yeah, there's, there's... Tencent is everywhere. Welcome to season three, episode ten of acquired. The show about technology, acquisitions, and IPOs. I'm Ben Gilbert. David Rosenthal.

0:40and we are your hosts. Today we are covering a company that Wikipedia describes as a Chinese multinational investment holding conglomerate founded in 1998. Of course, this is Tencent. All of that and so much more. All that, and a bag of chips. And a bag of chips. And the 12% stake and snap. David. We'll get to that later. Spoilers. Well, so what is Tencent besides that very long definition that feels conglomerate?

1:08Well, first off, they're notoriously bad at PR and they actually talk about this as a company. You probably don't have them in your mind as one of the world's most important companies unless you're in gaming or maybe social media. So starting off with that first, Tencent is the world's largest gaming company. They are a game publisher and they take most of their money from games. It's where they make most money as a company, but they certainly didn't start this way and we'll dig into that in a minute.

1:35Tencent Rivals Facebook for the world's largest social networking company by market cap. It is the world's largest music service that actually IPOed this week with over 800 million monthly active users. That music company that just IPOed on the New York Stock Exchange on its own has a $21 billion market cap of which Tencent owns most of it. They raised like $1.1 billion in their IPO.

2:05just a little blip on the radar of all that is Tencent. Last year at one point before their stock fell, it had a market cap of half a trillion US dollars. In this year's WPP brand rankings, it has the fifth largest brand in the world, even ahead of Facebook, David. Well, the brand stock in one of those is falling right now. The other is, I don't know if it's rising, but it's not falling as much. But This company is a juggernaut, and I could think of no better way to wrap up not only our China mini series, but all of season three. There's going to be so much back and forth through this episode between Alibaba, and it's founder Jack Ma, and here now Tencent, and it's founder Pony Ma. They're very different as are their companies, as we shall see.

2:52Well, listeners, we wanted to let you all know about our latest limited partner bonus show topic. So last week on the LP show, the topic was the art of pitching your company for investment and how to craft the narrative. So we had a blast doing this. We got to share a bunch of personal experiences. Super fun, David, to be able to kind of branch off of the standard format and dive into topics like this.

3:15If you want to listen, you can become a limited partner by clicking the link in the show notes or going to Kimberlite.fm slash acquired, which is of course also on our website acquired.fm along with our Slack. We're turning into Tencent. We're a media empire of properties here. My gosh, I know. We got to start sub-brands. We need to reach out to our QQ. Yeah. Or maybe a penguin mascot. All right.

3:44All right, listeners. Now is a great time to talk about a new partner of ours here on Acquired. LaGora, the agentic operating system that is redefining how the world's best legal teams work. Yup, it's sort of obvious that AI is going to completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. LaGora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry?

4:14So the founders did exactly what great founders do, operate with obsessive customer focus. They embedded inside a massive law firm for months. They sat with the lawyers just watching how the work really gets done. And that's how you get features that customers love, like tabular review where you.

4:33drop in a folder of hundreds of contracts, and it pulls every key term into a grid a lawyer can actually work with. Lagores Bed here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work, and this means that the pie can grow even as each individual task takes less time.

4:53And they recently launched LaGora agent offering greater intelligence and performance. The agent lets lawyers set an objective. Then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required. And LaGora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early LaGora numbers essentially speak for themselves when they have a head-to-head pilot with their top competitor they win 70% of the time. LaGora now has over a hundred thousand lawyers on the platform from 1200 legal teams in 50 countries and crazily they went from one million to a hundred million in ARR in about 18 months. Truly insane numbers and that is the real test.

5:45Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in house at a company, you can learn more at logora.com slash acquired and just tell them that Ben and David sent you. Well, before we dive in, David, I think we have a little bit of follow up from the Netflix episode.

6:12Do we ever a glaring omission from our Netflix two-parter? So do you want to do it? We're keeping everybody in suspense here. One of the coolest things about our little mini Netflix series was learning about the spinouts from the company, of course, of Red Box and Roku, and several listeners wrote us after they listened to part two and said, guys I was waiting for the third spin out quote unquote quasi spin out and and it never came not not in the shareholder perspective but in the people that left and were instrumental in building Netflix and now we're building something else and building something else and of course we were totally remiss

6:57Movie Pass. How could we have missed it? The meme, the company everybody loved to love and hate on in 2018 was founded and is run by Mitch Lowe. The one and only. The one and only, not only original Netflix executive, but then Redbox president. And now CEO and founder of Movie Pass.

7:20and battled movie pass. He's founding just keep getting worse and worse. So I'm thinking maybe this should be the last one. Hey, products market fit. I mean, customer demand is there. Yes. Yes. Boy, you can sell dimes for nickels at insane rates. Insane rates. Insane rates. So we apologize for leaving that fun bit out of the the history and facts for Netflix, but I wanted to make sure to include it in the follow up. All right. So is it time? I think it's time. Let's get into Tencent. Yeah, I think starting with a couple of of thank yous to really great sources that we found for the episode and actually some some from listeners. I have three thank yous in particular. I want to throw out first to

8:10Bernard Liang in the Slack, in the acquired Slack, who is the host of the Analyze Asia podcast, also a great show. Recommend, especially if you've enjoyed our China mini series that you go listen to it. So he wrote us after we said, and we released an episode of our LP show last week. And in it, we said, we were going to be covering Tencent today. And he said, You really gave us a couple of podcasts to listen to. Also said that the canonical book on Tencent is called Tencent Story. It's by Shaobou Wu. Unfortunately, it's only in Chinese, but fortunately we were able to find an English language summary on Medium by Julia Wu. So huge thank you to Bernard to Shaobou for writing the book and then to Julia for writing a really excellent English language summary, which we will link to in the show notes.

9:04Then lastly, on Mayan, the China Econ Talk podcast had a great episode with Matt Brennan, who's a WeChat expert and analyst. He was a guest on the show and just gave an unbelievable sort of blow-by-blow history of the development of WeChat, which contributed to the research for today. And lastly, friend of the show Brad Stone did an awesome piece in Bloomberg Business Week on Tencent this past June. We had Brad back on for another show at some point, David, because he's a plus. He is a plus.

9:33All right, so with all that, let's dive in. So before we get to Tencent and its founder, Ponyma, I think it helps a little bit like Netflix to talk about the geographical place where Tencent is located. And that is the city of Shenzhen, which is probably familiar to, I would assume, all listeners of the show at this point, the quote-unquote Silicon Valley of China.

10:02Yeah, anyone who's had an iPhone ship to them have probably seen this on there. They're tracking. So in the China mini series this season we covered Xiaomi, which is based in Beijing. Baidu is based in Beijing. We haven't covered Baidu yet. We covered Alibaba, which is based in Hangzhou. But this is our first Shenzhen company.

10:21What's so special about Shenzhen and why is it the Silicon Valley of China? So it's in the south of China. It's very southern part of the country. It's part of the Pearl River Delta region named Regional Economic Zone. It is located right across the Bay of Shenzhen from Hong Kong. So this is super important. The history is really interesting. So before...

10:45the post-mau reforms in China and the kind of opening up of China and the introduction of the capitalist market system. The legend is that that Shenzhen was just a fishing village. It was a little more than that. It was a market town but it was very small and fishing was one of the main industries there. The city itself had about 30,000 people and during the cultural revolution, you know, when things were...

11:08really bad in China. People go out to fish and they would just keep going in their boats and they'd go right across the bay to Hong Kong, which of course was a British protectorate at the time. And never come back. Some people would even jump in the bay and physically swim across. It was right on the border, you know, of kind of like the the East and West and capitalist and Chinese communist party in the 60s and 70s. But after Mao, during the reforms, of course, Deng Xiaoping takes over the party and he starts, you know, this is probably the most radical transformation in world history, you know, introducing capitalism to China. He calls it socialism with Chinese characteristics. You could argue this leads directly to acquire doing this mini series, which is the most important, you know, outcome of all. Of course, we just so dang when he wants to introduce capitalism, he wants to do it very, very slowly and in specific areas. And he picks Shenzhen as the first

12:04area where capitalism is going to be introduced in China. This is so special. Think about if we try to do that in the United States. We're going to change the economic structure, but we're only going to do it in this state. In one city. It is only going to happen in San Jose or Bellevue. That is the equivalent here. It's pretty crazy. It literally is if you're familiar with the Seattle area, geography. It's like Bellevue, right? There was Seattle.

12:30Hong Kong, and then across, you know, a body of water, there is Xinjiang. And so it becomes the first special economic zone where... Capitalism in the free market is not only allowed but encouraged now by the government. And Ding has this famous quote about this where his concept is let some people get rich first. And that will kind of draw the rest of the country along. And that's what would start to send in on the path from a 30,000 person kind of market and fishing village to people start flocking there from all over the country.

13:02importing and exporting becomes a huge business there from Hong Kong across the bay. It's now one of the busiest container ports in the world. Then manufacturing, obviously, which lots of people know about. And of course, now high tech. So today, there are over 12 million people that live in Shenzhen proper. And then the Pearl River Delta region, which I think has about nine cities around it. It's all one continuous urban area has 60 million people. It's the largest continuous urban region in the world, which is nuts. It's like if you took all of California and you condensed it into like the Bay Area, or maybe the Los Angeles area is probably more comparable. So this is the soil that Tencent gets planted in. So in 1971, a boy named

13:49Ma Huaten is born in a small city in the province of Hai Nan, which is an island south of Xinjiang and Hong Kong. It is the southernmost Chinese province. He eventually adopts the English name Pony, which is a reference to his last name Ma, which means horse. So he is Pony horse. And when he's 13 in 1984, his father gets a job as part of this great, you know.

14:14a rise of Shenzhen gets a job as a port manager at a shipping facility in Shenzhen and they move there. Now Ma is super precocious. He's like a great student. Totally excels at everything. He graduates from high school in 1989. He does knocks it out of the park like I don't know if he was technically first in his class but like top of his class in his college entrance exams he could go wherever he wants but he and his parents choose for him to stay at home and go to Shenzhen University instead of going elsewhere to better schools in the country because this is 1989 and if you know your Chinese history there's something else going on in 1989 which is the student protests and unrest and they decided it's better for him to stay at home and stay in the special economic zone.

15:00So he goes to Shenzhen University, but again he's super-precocious. He majors in computer science. Apparently, he originally wanted to be an astronomer, but that wasn't offered at Shenzhen. So everybody, the sort of talk of the town is that just like Jeff Bezos and Elon Musk, we might see Pony as he moves into the kind of second phase of his life, get into space and rockets and...

15:25be a Chinese version of these US tech billionaires that get into space. One surprise me, he's already he's moved millions or I think billions of dollars into his private philanthropic work. So. Yeah. So instead he studies computer science. And while he's in school, he develops a little app and this company that he's in turning for Leaming ends up buying this side project of his for 50,000 RMB, which is like, three or four years worth of salary of a new college grad at the time. Not a bad way to enter the workforce. Contrast him already with Jack Ma, who's like, it doesn't do well at math. It was nothing about technology and can't code and is like making a living as an English teacher. He's already sold his first company. He's still in college. And Jack Ma, I don't think he'd already done this by this point. But another interesting contrast is was obsessed with Western society and ended up spending a lot of time in the United States.

16:24Pony Ma does none of this. And I don't think he'd ever visited the US or gone to Europe, doesn't speak English. So he graduates a bunch of his friends who are also at the top of his class, kind of want to stay and go on to graduate degrees. But Pony is like, no, I want to get out into the working world. I've already sold, you know, kind of my first project. I want to go make an impact and build things that people use. So he goes and he works for a company called Shenzhen, Runchen, communications.

16:52I may be butchering that, but that's his first app. He works in R&D and they're sort of like a telecom company. And so he's working in all sorts of advanced tech. One of the main things that they do is they make technology for pages. Pages are like really big in China at this point in time. They're big everywhere, but especially in China where like PCs aren't really a thing yet. Like lots of people are using pages to communicate.

17:18And so that's kind of his first taste of communications tech. Again, remember, Jack Ma, he has to go on this crazy trip to the US to get exposed to the internet. Pony is getting exposed to it through his work. So he's one of the very, very few people in China that even though the internet is a thing, let alone have access to it. So he gets really deep in the early BBSs on the internet, like the bulletin board systems. And amazingly, a whole bunch of Chinese entrepreneurs come out of this. So again, the only people who have access here, like people who are super geeks working at tech and communications companies in China. So Leijun, the founder who of Xiaomi, and the previous CEO of Kingsoft, who we discussed in our Xiaomi episode, he's on there on the bulletin board systems. Pony's hanging out with him. Also, Ding Lei, who would go on to start Netty's, which is another huge Chinese portal that we've talked about on the Alibaba episode,

18:15He's there as well and so all these guys they're all like starting companies as they see the internet comes there like a future billionaires BBS that they all sort of totally talking about what planes they're going to buy you know how many rockets they're going to build 19,000 square foot homes Yeah, which I think you're referring to pony has a very private secluded mansion in in Hong Kong. Yes Ma is like super inspired. He sees Ding start net netties and like he's like, man, I gotta get in this game. So 1998, I think he graduated in 93. So he's five years out of college. He reunites with his old college friends who had stayed and done graduate degrees. And they're finishing up their studies and he's like, guys, we gotta, we gotta do this. The time is now. We gotta start a company.

19:06the initial idea that he pitches them on. Remember, he's working on pager technology. Well, he's like, we're going to develop internet services for pagers. So like, all these people in China, they have pagers. We're going to provide like a better like mobile internet on pagers. Ben, I don't know if you remember in the early days of like quote-unquote smartphones before, you know, before Blackberry, before the iPhone in the US, like there was this mobile internet.

19:33Yeah, you did. I have a carrier's head. Yeah, WAP, exactly. So I think this is what the idea is. WAPs required sort of like a, I guess not necessarily a color screen, but some kind of like actual dot matrix thing that you could display almost HTML on, right? It was like some janky images and really low quality gifts and text that you could scroll. So I think like it's like a slightly more primitive precursor to WAP.

19:59So they start the company, they need to choose a name, and they come up with Tungshun, I believe is how it's pronounced, Tengshun, Tungshun, which literally in Chinese means galloping message. Of course, his name is Pony, Pony, Pony Mop, or Galloping message. Yeah, and because I was doing all this research, I was like, where does Tencent come from? And I've always wondered that. It is the Westernized version of Tengshun. Wow.

20:28Galloping message, there you go. I'll send you a galloping message after the show. We can talk about how we thought it went. Yeah, on our many communications platforms. You can page me. Perfect. Well, two other things about the incorporation of galloping message. One 20-mile was 26 at this time.

20:50multi-hundred billion dollar company founded by 26 year old. Not exactly this sort of Mark Zuckerberg or Evan Spiegel crazy early, but still pretty, pretty, pretty young. It's still pretty young. And his co-founders of course had just finished their, you know, grad degrees. Right, right. The other interesting thing that I caught was it was incorporated in the Cayman Islands. I don't know if this is exactly the same structure, but if you remember from the Ali Baba episode, Yahoo couldn't invest in a Chinese company, I think it was that the Chinese company couldn't have a major international shareholders. So there was a Cayman entity set up for Yahoo to invest in that then had a contractual relationship with the actual entity of of Alibaba in China. It's interesting to see probably a slightly different thing since they actually started it as a Cayman entity, but sort of interesting to see that structure here. I assume they did this because they intended on

21:45raising venture capital. It's kind of like how you and I start these Delaware corpse. Yeah, exactly. It's the Delaware Corporation of the Cayman Islands is the Delaware of. Yeah. We'll call our registered agent down there and have them spin somewhere. Yeah. So they do this. They're working on the page of software. Meanwhile, this is 1998 late 1998 going into early 1999. What's going on in the rest of the world on the internet? It's like, The first wave of real consumer internet and social, quote unquote, although people didn't call it yet, that is blowing up. So you've got Napster in the US. And of course, you've got AOL and an MSN and all sorts of other kind of portals and early instant messengers are popping up. And so the first instant messenger was this company called ICQ. Is really company? Oh man, I used to live in ICQ. And that was the first PC-based instant messaging client.

22:44ends up getting acquired by AOL in 1998. So right before Tencent is started and really starts taking off entrepreneurs, see the power of the network effect in these communications businesses. And now there's an exit in ICQ and they're like, okay, great, we're going to start building these things. So it's like, you know, the first example of what we would see later, you know, with messaging apps on mobile and ride sharing, it's like you have, they start popping up all over.

23:11the world. And so Pony and his co-founders see this and they're like, okay, forget this picture software thing. We're going to go... as the galloping messages over instant message. Yes, on a computer. And again, to be fair, like the pager thing wasn't totally crazy because people had them. And what people did not have in China were their own, you know, personal computers. But what it was starting to emerge now was internet cafes. And people would go and spend tons of time in internet cafes on PCs there. And so they realized we can still get distribution into consumers hands, even though they don't

23:46personally own PCs, we just get it into these internet cafes. People install our version of ICQ, which they call open ICQ, very creatively. Oh, ICQ on the internet cafe PCs and we're going to access a huge amount of the Chinese market, which they do. Just to drive this point home about like when we say people in China didn't really have PCs in home. So in 1999, there were 50 desktop computers for every 100 people in the United States.

24:16It's about half people, as you would sort of expect if you rewind it to 1990, think about what you were observing around you. Well, in China at that same time, it was one home computer for every 100 people. The internet and even computing really hadn't come to China yet, particularly at home. But these internet cafes had, and it works.

24:39People start spending a ton of time and I remember reading about this at the time thinking like this is crazy. Like I use the computer in my house but in not just China but Korea. I don't I don't think it was as much in Japan but definitely in Korea. This whole internet cafe thing became a huge meme. The birth of the PC bang. I've been to one. Have you been to one? No I haven't. I've read way too many articles to have not been to on. It's cool depressing but cool.

25:04When I was at Stanford in business school, we did a, everyone has to do like a international trip experience in mind was to South Korea. And it was funny. PC Bang was not on the official itinerary. So it was like one evening when we were free. I was like, I cannot not go to a PC Bang. So I just wandered off by myself and like, is it like just everybody playing Starcraft? Yes.

25:26That is exactly what it was. So within nine months of this pivot to OICQ to copying, and it wasn't just copying, and Ponyman actually, he talks about this, because Tencent has a reputation for copying others' ideas as we will see multiple times throughout this episode. But he's like, it's not just copying, you had to adapt it to the Chinese market. Like, ICQ wasn't gonna work.

25:54or any of the competitors in China, A, because it wasn't in Chinese, but also be like the way that the market operated was different. Again, people didn't have PCs, they went to internet cafes, and so you just had to do a bunch of stuff with the product to adapt it to the local.

26:10market. You couldn't make assumptions around this user is always logged in and stuff like that. Well, stuff like mailing a CD to your house, you know, that AOL, of course, so famously used for distribution was different. Yeah. Makes sense. Yeah. Like that's not going to work. So within nine months of the pivot, they have a million users, which obviously is a drop in the bucket compared to.

26:31the whole population in China, but still like huge and huge enough that AOL notices them and notices this open ICQ that is taking off in China that they do not own when they thought they owned ICQ. So they serve them a lawsuit and demand that they take down the service or at least change their name. So now they're kind of up a creek without a paddle. They have no business model. They're giving away all this for free. They're presumably having to pay something, or at least employ a lot of people to go get this service installed in internet cafes around the country. They have ballooning server costs. Yeah, as I said, you actually have to build data centers and buy servers and rack them and have IT people that are maintaining all that.

27:16all this stuff. So they're like, okay, we're gonna do a dual track process. We're going to try to sell the company. We're gonna be, you know, we're the ICQ of China, or we're going to raise venture capital. And we'll see what happens. This flexibility was shocking to me. The fact that Pony Ma's like, look, I have a clear vision. We're gonna bring messaging to China.

27:35and like it's not as important to me to do it in a way where I maintain control the whole company and like I just want to see my mission through and of course I'm sure everyone had a profit mode of there but like it was really about like we have an opportunity that makes it this thing huge and I'm open to whatever process gets us there just like Netflix right like you know they tried to sell Netflix I think what three times yeah once to blockbuster for $200 million or something yeah well first to Amazon and It was like I think Bezos offered like nine million or something like that and it was too low anyway Listeners, it's amazing how quickly David and I have about a nine hour span where we can actually do an episode where we have enough of the information in our heads and like the notes collated in such the way where we can actually do the episode and then it all just like jumbles after So it's good that we get him out when we do yeah totally it's a problem with getting old so nobody wants to buy the company but

28:28In 2000, they do have two people who are interested in investing. So one is IDG venture capital, which is... One of the most prolific at least kind of first wave VCs in China. It was a US VC. I believe it's a publishing group. I think it was like, they did a lot of the early trade shows and kind of like computer trade shows and sort of like internet 1.0 and they had a venture arm that was very successful in China. So IDG wants to invest. In this particular fund, I believe was quite small.

29:04Think about it like a much much smaller than you would think about a seed fund today, which will be be important in a moment Which is probably why they need to bring in extra capital. So they bring in one of the companies owned by Lee Kashin the very famous Hong Kong-based billionaire investor Telecom investor So the two of them as a syndicate are willing to invest and they are willing to invest 2.2 million USD for 40% of the company. So $5.5 million post money valuation for a business that has a million users. And a million users back then. Is there harsh terms, man? That's a lot of the company to give up. I know. I know. Well, you know, the VCs, they want their 20%. And in this case, they both want their 20%. Yeah. But pony and Tencent, they kind of have no choice. They take the money. They sell the 40% of the company.

29:58Immediately afterwards, they lose the judgment in the matter with AOL. I don't know exactly what jurisdiction it was in. It was international law, but they're ordered to stop using the Open ICQ name.

30:09And the story is, so they're trying to figure out how can we rebrand this thing. Supposedly, a 10 cent employee is on the bus one day in Shenzhen. And he hears a couple of users who use the service just talking about it on the bus. And they're referring to it as QQ as a cute kind of diminutive of OICQ as just QQ. And he's like, hey, we need something. A star is born. A star is born. So not only do they rebrand OICQ too.

30:39QQ they fully embrace the cuteness and they design and adapt the cute little cuddly penguin that if you're familiar with with Tencent and with QQ you probably know of as their mascot. Which I didn't know about till doing this research and thank God I did because then I got your penguin jokes earlier. Well and I think that means probably most of my listeners didn't get the penguin jokes but now you get the penguin jokes.

31:05Now, I think I wasn't totally able to confirm this because like, you know, the internet way back machine doesn't really, you know, work in China. But I believe not only before this switchover were they using...

31:19Oh, I see Q as their name and ripping off of that. I believe the default avatar images for users on the service before were straight up ripped Disney characters, like Mickey Mouse and Donald Duck. It's like, wait, wait, we should get away from this trademark infringement with I see Q. Yeah. So bring in Mickey Mouse. I heard they're not just. No, that was, that was before. I think now they're afraid of international litigation. So like we got to clean up everything. So.

31:44I think this is also where the penguin comes from is we got to replace Mickey Mouse and Donald Duck. Let's use, let's design our own cube for a little animal. It is worth noting at this time. So doing a little bit of research on IDG. So I thought I knew the name from somewhere. They run Macworld. So they own Macworld, computer world, PC world, all those things. They also, they're really old. They were started in 1964. Like this has been a publishing group from long, long time, and they run all these expos and skipping ahead to tech themes, but how often we see these immensely successful spin-off funds of companies such as SoftBank or IDG getting in at the ground floor of something huge. This is the global instantiation of our theme from, I forget what episode, it was probably a year or two ago now about...

32:38How at this point in time in tech and on the internet, there were like 11 people in the whole world working on it. It's crazy. You know, and a bunch of characters who we have seen before are going to pop up as well as some new ones as we go along here. All right, listeners. Now is a great time to tell you about a longtime friend of the show, Vanta. AI has scrambled the whole security picture.

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34:42Okay, so they raised the money, they changed the name to QQ, they've settled the lawsuit, but they still have a problem, which is that they don't really have a business model. They're giving away the software for free, they're making some revenue from telecom carriers for delivering QQ messages to pages. So like the major thing is still part of the company, which actually makes sense. You know, you're not in a internet cafe, somebody sends you a message, you want to know about it, you get it through the page, you're like, okay, I get it.

35:12The other thing that happens in 2001, of course, is the.com crash happens in the US and that cools the venture financing market globally. The company's still growing like a weed. They're adding 500,000 users a day. In 2001, they searched past 100 million users. This is crazy. And again, remember.

35:33internet cafes like nuts they're beating the bushes though they're they're they're still trying to sell the company because they're like okay great we've got a hundred million users we're super valuable to somebody you know we've cleaned up all these legal issues somebody's gonna have to want to buy us And from a shareholders perspective, IDG doesn't have any ability to follow on capital because they're in that kind of very small phone. They syndicated just that $2.2 million round. And IDG is starting to feel like, you know, this company that we have that is growing, that's great, but we're a little skittish post.com bubble. Like let's let's liquidate some stuff.

36:09as is Lee Cushing. Now, I don't know, I didn't do enough research to know here for sure, but my understanding of Lee Cushing is he made his fortune in the telecom industry, and the one industry that was heard harder than tech in the internet in the .com bubble bursting was, of course, telecom. He's probably hurting in these liquids, so he's looking to get out of his investment as well.

36:29So they meet throughout this process, the Tencent and Pony Meet and Pony's co-founders. Meet the most incredibly random group you could even think of. They meet the investment arm of NASPERS, which is a big South African media conglomerate. This is like the like the news corp of South Africa. So like they're, you know, a Shenzhen based.

36:54Chinese company that stole their original name and product from an Israeli company that's being affected by the us.com crash. Sure, South African media company. Why not? And there are people out there who are listening who have definitely heard of naspers. In this day, like in 1999, when this is all happening, you would not have heard of naspers. It's not something where you're like, oh, yeah, no, I don't know much about it, but it's kind of this big international thing, not a big international thing yet.

37:21No, no, and yeah now well-known tech investor because of what they're about to do here so they say Look we don't want to buy your company, but we've got capital We're looking to diversify out of the media I believe I believe mostly print media business in South Africa We will invest and we're not only are we We want to invest, but we want to invest. We want a meaningful ownership stake. We're willing to buy out your existing investors. Echoes of the Alibaba episode here. We'll take that 40%. The Goldman investment that gets bought out. Yeah. Not only are they willing to buy out of existing investors, they're willing to do so at a $60 million valuation. Remember just a few months ago, this company was valued at five and a half million dollars post money. The existing investors are trying to get liquidity. They're like, great.

38:1211x, 60 million dollars. I'll hit that. I mean, gosh, a couple of years. That feels really good to me. Let's do it. Yeah. Let's do it. 10x there. 10x returns. Oh boy. Oh boy. So Lee Cushing sells his entire 20% stake. Fortunately for IDG, they sell only 12.8% of their stake. So they retain 7.2% of ownership in Tencent. Naspers acquires 32.8%.

38:41of Tencent in total just under a third for $20 million. We're gonna get to grading in a little bit, and well, this will come back up. But to say this was prescient would be the understatement of the century. Yeah, and listeners, just to plant the seed now, we're not gonna be grading, like we called this episode 10 cent, like we called Tesla Tesla, or like Alibaba, Alibaba. This isn't really gonna be about sort of the 10 cent IPO because it's part of a much longer journey, but this is acquired and we have to grade stuff, so we're gonna end up grading this particular investment against other there are sort of very successful investments. You might imagine which ones. Okay, meanwhile though, the company is still not really making any money. Yeah, but David, they have a lot of eyeballs. So I mean, they have a lot of eyeballs. Exactly. And not only that, but this transaction that happened, the company didn't get any money. Like the investors just cashed out. So yeah, funny thing.

39:41So they got to figure out a way to survive here. In 2002, a PM who's working at the company, hears about this Korean company that is selling, quote, unquote, digital goods for their users to customize their, you know, avatars on this, you know, digital service. And yeah, people are like laughing about it. Well, people aren't even laughing about it in the world. People don't even know about this yet.

40:06But apparently, it's doing pretty well. And so Tencent's like, well, we got to do something. Let's try that. So they once again copy this business model and they launch what's called, they call QQ show as part of the QQ platform. And it's basically a customization for your avatar on QQ. You can buy digital articles of clothing, digital avatars, hair, you know, all sorts of stuff to make you have a different appearance. And it takes off like wildfire. So within six months, they have over five million users on the QQ platform that are paying an average of five RMB a month. So that works out to a 300 million RMB annual run rate. So that's about $50 million in USD within six months. And this is 2002 in the like, you know, the nuclear winter of the internet. Yeah. And so fascinatingly, I mean, American companies,

41:04won't catch up to sort of micro transactions for a while. There's portal games like on MSN and AOL, which we use it a little bit, but it's not really until you get into sort of the Facebook and single world and then really the mobile world and sort of 2008 to 2012. Mobile and Riot Games and League of Legends, which we're going to come back to in a little bit.

41:25But here, Tencent is understanding the power of this super early. They're not a gaming company yet, but they understand the power of microtransactions and of virtual goods. And it's 2002. And I want to just flash forward to something that I read today is a Wall Street Journal piece about the Tencent Music IPO. And they mention the sort of differences between Spotify and Tencent Music. And they say Tencent Music's main revenue source isn't actually music streaming. Instead, it generates billions of dollars from selling virtual gifts.

41:54with which users can tip entertainers who stream live performances in its apps. And so Tencent, like this is a completely formative moment for the company that will dictate future business models across verticals. Totally. And this is the business model of Tencent. As we'll see, Tencent grows into having so many different products and portfolio of things that they're in, but this is the common thread.

42:18that they figured out and they'd know more than anyone. I didn't have time to actually read the full Wall Street Journal article, but from what I did read, I think they were sort of dismissive of this as like, well, tens of music isn't as good as Spotify, because people don't actually pay. And it's like, no, come on, this is a better business model. If you guys heard of Twitch, have you seen tens of it? This is how it works. It's a better business model. It's at least different and powerful and could be better for different. Yeah.

42:47You know, this isn't as egregious, but this reminds me of, you know, the 7-11 blockbuster CEO coming in and be like, I don't believe in internet businesses. Like, I don't believe in micro-transaction, but no, like, yeah, they work. Dev, you played Fortnite. Fortnite, which somebody might own most of? Oh, who would that be? Spoiler, it's Tencent. Everybody around the table is like, high-fiving now. And especially, Naspers, Lee Cushing is not high-fiving.

43:1511x baby, what do you want? Yeah. Naspers pays $20 million and then within a matter of months, they own $32-33% in a company that is at a $50 million revenue run rate and growing gangbusters. And not just $50 million revenue run rate. Think about the margins on this. There's no cost of goods sold when you are selling digital goods. Pretty good business model. Okay, 2003, the next year.

43:41they do over a hundred million USD in revenue. They start thinking about two things, one, going public, and two, what else they can apply this new business model that they've figured out of freemium goods and digital goods and micro transactions. What else they can apply this to around their core kind of communications and I am...

44:05platform that they own with QQ. And before they take the plunge into doing what I think you're about to say, they really enter the portal market. Like if you look at what AOL was doing, what MSN was doing, Yahoo was doing, you know, there's all this content that flows through them, like they get to own distribution to customers. And QQ is blown up to the point now where they say, you know what, we're now a portal to and we're China's portal. Yep. Thinking about a portal, they think about what else can we add to the QQ platform.

44:31And one thing that the company is really good at to this day is they are a very, very good product organization. And so they go and they spend time with people who are using QQ with users. And they realize that the segment of people are using QQ to chat with each other in these internet cafes while they are playing games on the PCs, playing online games of all types. And they're like, that's interesting.

44:59What if we added games to our platform to our portal? It's kind of like, you know, Discord. Like, it like finally figures this out. Well, Discord figured out like this product insight, you know, many, many years later in the US. Like, it's amazing how far behind we are here. Like, this is the Tencent business model. They're like, games. Okay. They start adding games to the platform. They go out, they start acquiring some games, they start studios, in-house, developing their own games, adding them to the QQ platform. Within the year, it adds another $50 million of revenue to the company, so huge success. Not to success, like the core virtual goods business on QQ is growing like crazy. Now they haven't even faster growing games business that's also part of the portal that they've added. So in the process of realizing all this, they're like, okay.

45:52A couple of things. One, we got to get public, because this is a great business. Two, all the founders are computer scientists. There's one founder who had some sales expertise, but it was sort of from the telecom world. We need some real business folks, and Pony is great. He's a total visionary, product visionary, but as you said, Ben, he's fairly reclusive. He doesn't speak English very well. They realize now they need to be going out, doing deals around the world, acquiring these games, bringing them to China.

46:19They need their equivalent of Ali Baba's Josai. I mean, in addition to sort of the business development skills, you really need someone here who's a great capital allocator, who sort of understands, like, because by putting all these games on their platform, some they're buying, some they're investing in, like, they're already sort of starting to take a conglomerate form, though all of the things do feed into this portal they've created. So they look around and they're like, well, we kind of have somebody who fits that bill.

46:46who's been hanging out with us a lot, and that's our banker from Goldman Sachs, who's working on taking us public, whose name is Martin Lau. Martin is super interesting, just like Josiah in Alibaba. He's a TMT banker at Goldman in Hong Kong. His parents are Chinese, but he was educated in the US. He went to Michigan for undergrad, studied engineering, got an engineering master's from Stanford, did an MBA, Kellogg, then worked at McKinsey and then moved to Goldman over in Hong Kong. And so...

47:14Pony is like, dude, Martin, you gotta like forget this banking thing. This is where the future is. You gotta come work with us. Martin declines at first. It's sort of similar to, you know, it reminded me of when Joe said, you know, decline the first offer from Alibaba. And it's like, I gotta have my wife come over and meet you guys. Very similar. He declines. He's like, this is kind of a conflict of interest. Like, I'm your banker. I'm working on taking you public. He's like, let's get the IPO done first.

47:42They get the IPO done in June of 2004. They go public on the Hong Kong Stock Exchange. They raise $180 million. And pretty shortly afterwards, Lao is like, okay, this is a really special company. I'm going to, I'm going to leave Goldman and I'm going to join. So he becomes the Chief Strategy Officer in charge of investor relations and importantly, M&A, which is like kind of a like they're not many Chinese internet executives that are in charge of M&A at this point, allows really like blazing a trail. He does really well. Totally jails with the team. 2006 he gets promoted to president of the company. And he's really the one who starts driving this idea that like Tencent is now this platform and Tencent is this business model that can go around and bring all of these types of various types of content and experiences into the both the QQ platform and use this business model to create, you know,

48:36amazing businesses. So they launch Qzone, which is a kind of a more even more full-fledged social network by 2011. So a few years later, Tencent now operates four of the five top games in China. And they do a pretty important thing that we will come back to in 2011 deal. They acquire a majority stake in Riot games based in LA maker of League of Legends. Little, little game in the esports world.

49:06but not super well-known in 2011 in the West, but enormous in China. And I mean, big around the world. I think Tencent was their publisher in China, where they were able to write, didn't really have the capacity to reach customers in China, though the game was going to be beloved, so partnered with Tencent to be the publisher there. Yep, so they're the publisher already in China. They're seeing, and of course, for listeners who aren't familiar, League of Legends was natively built with the with the Tencent Business Model. So it's free to play, cost nothing, anybody can play, and the way the game monetizes is through people buying digital goods for their characters, both characters and then goods to put on the characters that have no effect impact on gameplay. So the playing field is level for everyone, but people just want to customize their characters and it works amazingly well in China. Just a couple days ago, Riot released the

50:052018 League of Legends esports by the numbers they had 99.6 million unique viewers Just watching the world's finals the world championship finals. I mean, this is 44 million viewers tuned in concurrently at peak like this is one of these really insane global phenomena that was not quite like this, when Tencent bought them. I mean, we may be foreshadowing that it'd be fun to do an episode on this at some point, and Dave and I are smiling at each other. Noting and agreement. Yeah. Most of the growth of League of Legends has happened in China and under Tencent's watch. And so they're really sort of to credit for the growth of this global phenomenon. I think we will have much more to say on a future episode about this, but I believe they paid $300 million, is that right? $34. Yeah.

50:55three or four hundred million dollars for like a 90%-ish stake in in Riot Games the maker of League at this point. Absolutely crazy crazy pressure and investment. The other thing they do the next year in 2012 and then we're going to take a step back from the gaming part of 10-7 for a minute.

51:10This is going to come up. They acquire a 40% staker in North Carolina based epic games, which made this like unreal tournament, which was beloved by a small group of people, the unreal engine, which was used by a bunch more people. But it's not not a global phenomenon. It was more of like a more of like an infrastructure play and like, who knows what they were thinking, but they're like, maybe this is a way that like we can start to compete with valve and steam. Anyway.

51:39Let's park that to the side for a minute. The other thing, let's move back to the core Tencent platform and QQ and kind of the engine that makes all this possible is all the attention and communication and network effect that they have of their users.

51:54Yeah, because remember, Tencent is a social media company or a social networking company that started with the messaging platform QQ. And of course, their most profitable area is gaming, which we've sort of caught up on. But there's a thing that happens at Tencent in the social networking world and the communication world that really dominates them today that we haven't talked about.

52:16IPO happens in 2004 basically from 2004 till 2010 2011 like growth is rampant QQ is dominant They're like unassailable growing to hundreds and hundreds of millions of users throughout China But as 20 you know, we get to this time frame There's this thing called mobile that's happening, and people are starting to realize this is not just like the next big wave in tech globally, but like particularly in China. We talked about this a bunch on the Xiaomi episode, and remember Leijun, the founder of Xiaomi, is Pony Mazel, buddy from the bulletin board days. Xiaomi's already started at this point. Leijun sees like, he realizes that mobile, like...

52:58China internet users are going to jump directly from using PCs in internet cafes and not owning PCs to owning mobile phones. And this is going to be a complete product and business model paradigm shift for the way Chinese users interact with the internet and their personal relationship to it.

53:17As you'll remember on other episodes acquired, such as the Facebook IPO, there were companies that had an existential moment where they either missed mobile or almost missed mobile, and it was company defining. And for Facebook, it was actually sort of behemoth creating. And so a Tencent is about to hit this very same cliff where they have their moment where they go, Oh, we need something on mobile because QQ, you know, for all of its greatness, it's for those of you who are big on AOL and submessenger, do you remember when the aim app came to the phone and how it was kind of garbage and it wasn't made for the phone and native to that platform? Well, they need an answer to that. This is happening. And they realize this two years ahead of when Facebook realizes this. So they do, they have the whole management team at Tencent.

54:04They know they have to deal with this. They call a big off-site strategy retreat for the top management. They call it the conference of the gods. I'm clear if they call it this themselves or if the other employees of the company call this, the conference of the gods, they come out of it. They decide that like, yep, this is wartime. We got to go all in on mobile. We have to solve this problem. Like we need our equivalent of what Facebook two years later would get with Instagram. So what do they, what do they look at? What do they decide to do? What's the landscape here? If we rewind a little bit.

54:33in summer 2009 at WWDC Apple launches push messaging and this is what the moment that really enables this so like before this you could have apps on the phone but like there's no way to know like that something happened in the app, so a messenger app was useless. I have no way to know that somebody had sent me a message. With push messaging, now you get the little red notification badge and I know like, oh, there's something here waiting for me to check. So a group of students in Canada at the University of Waterloo, they see this and they're like, oh cool, we'll build a mobile messenger app, and they call it Kick, K-I-K. Still around today, raises a series A from Fred Wilson, Union Square Ventures.

55:14gets a bunch of traction starts adding users like crazy. I want to take a pause just because one of the things that's heralded is added users like crazy. It's, you know, it's almost like virtuous how fast they grew and how this great product market fit. Do you remember the first time you installed kick on your phone? What happened, David? Like, did you ever go through this, this user experience?

55:35I remember being a total early adopter loving it. It was so much better in text messaging and getting all my friends and family to sign up for it. Well, that's the thing is I didn't intentionally get all my friends and family to sign up for it. They like far worse than LinkedIn. Oh, no, they did LinkedIn. Like way worse with your phone book for the first time before Apple had requesting permissions. And I remember this thing where I sent a an invite.

55:59unknowingly to every single member of my contactless inviting them to kick like they they were the the champions of the sort of exploit and abuse and then apologize later strategy. All your professors that always you're getting kicking but the good news was there were several other people that like I got that same spam from lots of people so I was like I see what's going on here but oh man I forgot about that shoot actually maybe I never knew maybe I spammed a bunch of people David alone invited millions of people to kick and agree with him. Well, unfortunately for kick, they basically become the ICQ of the of the mobile messenger market. Again, they're still around. They're doing it, but they don't win because a lot of other people around the world see that like this is the future. Kick has shown us, you know, the blueprint of step one. And we're just going to go do the same thing for our local market.

56:56And this is like the heyday of Chinese cloning era. The theme on acquired this season is very much about sort of like how a lot of these companies innovate in their own way and how these Chinese companies are created sort of China native and have a different strategy, but famously like this was not yet the case. No, this was a straight-up clone. But as we'll see, as the pony, my quote from earlier in the episode, like it's cloning, but it's also like cloning in a way, like if kick had just come to China, like it would not have worked.

57:26So Tencent realizes they need to hop on the bandwagon, that they're going to build a kick clone as well. They have the perfect person to do it. So back in 2005, Tencent had acquired a product called Foxmail. And Foxmail was this product in China created by this incredible, incredible engineer called Alan Jong is a super visionary, fantastic engineer. Like I said, in Foxmail, it was a webmail client. And like one of the biggest in China and at the time, even like Hotmail and Yahoo Mail and the US internet portals, they were copying a lot of their feature roadmap from what Fox Mail was doing in China. Tencent acquires this thing. Late 2010, now as this, you know, kind of like we're at war, we're shifting to mobile is going on. Alan is still working at Tencent and he emails Pony and he's like, let me

58:20Let me handle this. This is like your most trusted lieutenant is volunteering to go to battle here. I don't know where in the timeline this happened, but wasn't there a competing group within Tencent also looking at mobile messaging? Yes, I don't know all the details, but what I believe is that coming out of this conference of the gods, there was a task force working on this.

58:47And I believe it could be wrong here. Listeners correct us if you know otherwise. Alan is he just emails pony one night and he's like, let me do this. Give me resources. Give me yes. Give me the power. And apparently Ma likes to stay up really late at night. And he sees the email. He writes back right away. And he's like, do it. And so supposedly Allen takes a small team. They go lock themselves away in, I think Pony refers to it as like a black career, but it's like a room with like black boards and like no light and like they work for two months straight and they build an app and then they take it out and they show it to Pony and Martin Lowne and they say they're going to call it Wee Shin, which in English translates to Wee Chat.

59:35And they're not the only ones doing this. I mean, we mentioned the cloning. There's also debuting right around this time is Metoc from Xiaomi, which is before Xiaomi made phones, which is the craziest thing. Remember when we were saying they were doing all this research by doing mobile software and an OS before they built Metoc? So WeChat has a billion users that's a huge lock-in component for Tencent. That could also be Xiaomi's, but that's not how history played out.

1:00:02And Mitox adding a ton of users, like they've got a head start, like they're off to a really good start in the market. They're like lots of people are going after the Chinese kick opportunity. Another company that's doing this is a Hong Kong base start up right across the Bay called Talkbox that's going to come back in in a minute. So they release WeChat.

1:00:23And it does well. They import the social graph from QQ. So that's like, you know, major legged feeding. It's like, oh, you know, me talk. That's nice. You have these like bulletin board internet forums with your early adapters. We have 900 million QQ users that we're just going to import here. But it like it does well. That's a huge advantage. But it doesn't do that well. Like the other apps are still in the mix here, including talk box.

1:00:50Alan and team, they go back to the drawing board. They're like, okay, what's not working here? They realize that there's one thing that Talkbox is doing and that I think MiTalk has copied at this point, too. That's pretty important. The reason it's called Talkbox is in addition to text messaging. They also have a walkie talkie feature. So like you can record a short voice message like Apple's been trying to add this to iMessage for years. Yeah, adding it in strange ways in the UI. Yeah, super strange ways.

1:01:17But again, to like localization for your market, you know, in Chinese, the characters are like really complicated. There are a lot of them. Sometimes it's harder to express yourself with typing quickly when you just want to send a short message, much easier to just say something. That's why talking and this walkie-talkie feature becomes like really important for this class of apps. And again, you don't have a keyboard like you would have with instant messaging.

1:01:44This is like the next telephones from the 90s that like had that first. And I think even there was a product called Viber that did this for a while. Yes, and a boxer I think too. Yeah, yeah, yeah, maybe that's actually the thing. Viber I think was based in Israel, I want to say. I don't know. And I think it was based either in Israel or Asia. This is before the great messaging wars were settled. Oh, the other thing we should point out, this is a key, becomes really key in the messaging wars everywhere.

1:02:13There's the mobile operating system wars are also going on at this point in time. There's iOS and Android. Everybody's duking it out. One of the really key things about a messaging platform that people start to realize is you have to be able to work seamlessly between iOS and Android. And this is a...

1:02:30key thing that me talk falls down on. They don't have an iOS app for a long time. They only have the, because on the me OS, like remember, the whole thing is to be building the me phone and building Xiaomi. So this is part of what helps Tencent catch and we chat catch up as well as they come out with an iOS app first and then an Android app. So they add the Waky Talk feature. That helps a bunch. The other thing they add in this spring V2 update in 2011.

1:02:59is this innocuously named feature called Friends Nearby. That also, you know, it sounds like that thing that Apple's been trying to add to your phones, you know, find my friends. It sounds like that. But it sounds like that, but it's not that. It's not friends in the sense of like friends who are already in my contact book. It's more like friends in the sense of people that I might be interested in meeting for a variety of reasons. Yeah. Maybe, maybe people who you could, with certain characteristics that you could filter for. Like gender. You might be interested in, yeah, like gender or, you know, other things that you might be interested in meeting and they might be interested in meeting you in the right circumstance. So 10 cent in Vince Tinder.

1:03:41Yes. Basically, that is the moral of the story. And this is 2011. 2011, yep. So, do you know one other fact about Pony Ma that may or may not have inspired this? I don't go for it. Can you think of anything? So, I don't know any facts that this inspired this, but Pony in 98, 99 somewhere in there, He met his wife on QQ and they corresponded for three months on QQ before meeting in person. I did not know this. Yeah. Wow. Man, talk about like intimate, you know, solving your own problem with the product. So the spring 2011 update to WeChat has both of these features. It has walkie-talkie and it has Tinder. It just is like,

1:04:37pushes it above everyone else in the market. They start like zooming past everyone. By early 2012, WeChat now has 100 million active users. By the end of 2012, they have 300 million active users. Today they have just under a billion. So basically every single person in China, well, I can't say that for sure. Listeners may like correct us. I'm sure they're parts of China that don't use WeChat yet, but like essentially the entire population of China is on.

1:05:05We chat at this point. That's crazy in and of itself. This is even crazier. So the average time spent for the average user, this is average, average across the entire user base of WeChat. Average time spent on WeChat is four hours a day. That is more than every single social app in the US combined. Facebook, Instagram, Twitter, Snapchat, everything.

1:05:30vastly more. Interestingly, it's more time than I spend on my phone per day, so I think that speaks to two things. One, it speaks to, of course, I'm not in. Zero with, it speaks to I'm not in the average of the United States, but...

1:05:42People in China, that's their computing device. And I think my laptop is my computing device primarily. And I think my phone time is somewhere between like two and three and a half hours depending on whatever. You also start to get the foreshadowing here that messaging isn't just messaging. Messaging is more like the way we think of the operating system. The WeChat app is actually the platform upon which other things can be built. And you don't actually need to spend much time outside WeChat. This is sort of foreshadowing the launch of WeChat official accounts.

1:06:12Yeah, it is well. Well, there's two things here one one is that which we're gonna get into right now But before we do the other important thing here and like again this gets back to like The local having the product right for your user base in your market email never really became a thing in China like Foxmail like was big and 10 cent acquired it and like Hotmail and Yahoo Mail ripped off a bunch of its features, but like people didn't have like they have email accounts, but they don't really use email even in work settings. That's very different than the US. What WeChat has become like it's the communication platform for like imagine your iMessage or you know whatever you're messaging app at WhatsApp whatever you use that plus your email plus your Slack for work like it's all it's all there So like all of your communication is going through this platform and again because of that

1:07:03all your communications going through. And here's where Alan is such a huge product visionary. And he starts to separate WeChat from all the other messengers around the world, not just in China. They launch this concept of official accounts. So what are official accounts? Official accounts are a lightweight way for a business or an entity, not a person, to interact with.

1:07:27users who want to interact with them on the platform sounds, you know, simple enough, but this becomes enormous. It's kind of like a souped out Facebook page, right? That's exactly what it is. But it allows like the account that the business or whatever entity controls to message and interact with lots and lots of users. So people start buying stuff.

1:07:46through this and it becomes a commerce platform. And of course, a 1010 is already very adept at e-commerce through all of the microtransactions that they had done through QQ. They build WeChat Pay. We pay into the platform, not just e-commerce, ride sharing, like Dee Dee basically gets built on WeChat, meal ordering, and meal delivery. It may be done dumping gets built on.

1:08:10We did. They also introduce in conjunction, I think, shortly thereafter with official accounts is the moment's newsfeed. And this is something that's really, you know, we know this in Facebook. It's really a publishing system for content, but it's also importantly, they do a really aggressive push to...

1:08:28force users to use this in a way that is decentralized among smaller groups. And so you can easily sort of share things from your Romans newsfeed into groups, publishers or individuals who are publishing can publish two smaller groups. It becomes the largest content ecosystem in China. And as you're alluding to David, you can buy or book things on the official accounts sort of through the moment's newsfeed. And another sort of important thing to know about the moment's newsfeed is, you know, we keep talking about 10 cent as a business that that makes money on microtransactions and gaming, but is a social network. And then the US social network is synonymous with advertising company. Well, there's not actually a lot of ads in the moment's newsfeed, and they wait a very long time before introducing them, and even then they do it in a very lightweight way. And so it's really all about sort of the facilitating the attention there, but the business model ends up being way different.

1:09:22You know, we talked about on the Alibaba episode that Alibaba is like Amazon plus Google together. You know, in this way, Tencent becomes like Facebook plus Amazon or Facebook plus Uber, you know, Facebook plus Uber plus Airbnb plus all of these commerce platforms, you know, all together. And this totally plays to...

1:09:42the company's strengths product wise, but also executive wise. Remember, Martin Lau, he's been, he was the banker from Goldman. He brings on a few other folks, James Mitchell, notably from Goldman, also as a tech banker, I believe also in Hong Kong. I believe he doesn't even speak Mandarin. He comes and he joins as chief strategy officer. And what they do is they realize all these companies are getting built on the WeChat platform. Let's start investing in them and like helping them succeed on the platform. So They do. So Tencent is a major investor in D.D. in Maytuan Jumping in Pinduo Duo. All of these huge, you know, now current generation Chinese companies that are all built on the WeChat platform. They're not just built on the platform. Tencent owns a meaningful stake in these businesses. And so they're benefiting from that too. And then the other thing, and this has just happened recently happened but is now in the news.

1:10:38The official accounts thing, it's very basic, like very, very basic, very lightweight. In early 2017, they essentially turn official accounts into this slightly more advanced thing called mini programs, which were mini apps, but Apple didn't like that. So now there are many programs. Apple didn't like that. Exactly, exactly. And supposedly, I don't know what the Chinese words are, but mini program sounds better in Chinese than it does in English. So it's not as weird.

1:11:06This now unlocks actual, like, more functionality from, like, programmatic, like, actually, you know, building a tech-enabled experience for companies. Think about it like if you were looking to book a flight through Expedia and you were previously trying to do it on Expedia's Facebook page, that would be super difficult. But if then Facebook launched the way to have native apps inside of Facebook, just, like, native apps exist on iOS, then it's like, oh, I see, there's full rich functionality in order for me to do whatever here.

1:11:34You know, this might sound like a just basic product evolution and it is but it enables a whole new class of businesses to get built on the platform and this is what enables Pinto Oduo. So, you know, the company that just went public here in the US, it's like two years old is, you know, do I get what the market cap? We'll have to cover it next season. Like, you know, 30 billion plus market cap I believe. And David, what does Pinto Oduo do?

1:11:57It is a mini program. It's a shopping experience. I've seen videos. I haven't actually done it, but so I may be butchering this listeners correct us if we are. But it's a sort of like gamified shopping experience that is all conducted through a mini program on WeChat. And what's great about that is like the friction, the distribution friction to get this in front of people is zero. And that's important because like This, the target market for Pindu Oduo is people in third and fourth tier Chinese cities who are not already well served by Alibaba, by JD, by all the existing commerce players, but they have reach out accounts and like they can interact. So they don't have, you know, JD accounts, but they can interact super seamlessly just through the moment's news feed and a mini program with Pindu Oduo. Makes a lot of sense. All right, listeners.

1:12:52Now is a great time to thank our longtime friend of the show, ServiceNow. If you are running a large enterprise, AI agents are likely spread across every team and deploying them is no longer the hard part. Yeah, the hard part is knowing what permissions they have, what employees are using them for, or what decisions AI is making. AI security for an enterprise at scale is not a small concern. Like the risks are real.

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1:14:05billion workflows annually, and trillions of transactions for more than 85% of the Fortune 500. So when companies need a place to govern AI at enterprise scale, they're building on a platform at the center of how their business already operates. And in a future that isn't going to be one AI, it's going to be thousands of AI agents working across every function of the company. But the question is, who's managing them all? So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely at scale, go check out servicenow.com slash acquired and tell them that Ben and David sent you. There's a couple of things I want to revisit in this sort of evolution of WeChat that I think are interesting and important. Do you know about QQ pay and sort of what that was before WeChat pay? Not in any depth. So apparently, I didn't realize this. So early on, 10 cents sort of

1:14:57thought about doing this transaction platform on QQ before they had done WeChat, which started to pick up steam, but people started using QQ pay as a replacement for the RMB. And the Chinese government freaked out, this is like before Bitcoin and decided, no, no, no, no, no, they shut it down. So it's interesting that when...

1:15:18when the time was finally right for WeChat pay, I mean, I'm sure they had sort of worked it out with the government where it made a lot of sense for them to do that and wouldn't get shut down like the previous time. But they were actually well ahead of the curve in sort of establishing that digital wallet, which makes a lot of sense as you sort of evolve from micro transactions as your roots to then thinking about peer-to-peer payments instead of just buying virtual goods on your platform.

1:15:44Another thing that came out of this, did you see anything about lucky money? Oh, yeah. Oh man, this is a rabbit hole. I didn't go too far down. So I'm not gonna go to the whole thing. It was kind of like a fun game where you could win money, which we won't dive too deep into, but you could win lucky money without ever connecting a bank account. And so what was happening is people were winning. Seated people's accounts, right? And so they ended up with just a little bit of money in their account.

1:16:12but not necessarily needing to ever send it out anywhere. And so the thing that bootstrapped their WeChat payment platform was that street vendors and other people started accepting your sort of winnings from lucky money as a way to pay for stuff in the real world. And then suddenly that was once you get sort of merchants, then on the network, then there's sort of this like, oh, I should connect it to my bank account so that I can use this thing to pay. It's a brilliant strategy. Well, of course, this is all tied into the Chinese customer.

1:16:41believe we're on the new year of red envelopes and gift giving and giving money. And we've already talked about Deng Xiaoping and the cultural revolution here. So we're not going to go too that much farther deep into history and Chinese history and culture. But I don't think we should, but there is one other thing that I do want to talk about in WeChat Pay before going back to gaming, I think is where we're going to go next. So this one relates to the Venmo episode.

1:17:09One thing that we determined on the Venmo episode was the real business in what Venmo is doing and where peer-to-peer payments companies like PayPal end up going is in paying merchants because peer-to-peer payments have...

1:17:23No fees because people don't expect that when you and I are just giving each other digital cash We should have to have fees associated with that in the US if you can win over Visa's business like if you can get merchants to accept Venmo Then you get to play in that sort of 3% interchange world where you get to make 3% on every transaction. That's hugely profitable business So of course Venmo is going there with pay with Venmo of course, you know PayPal went there in China WeChat Pay is actually not very profitable because instead of a culturally accepted 2-3% interchange fee, it's like 0.6%. And so WeChat Pay isn't really the golden goose that you would think it would be. That's really just about sort of additional lock-in and additional sort of loyalty to the platform so that they can make money in other ways. It's the glue that or the connective tissue that enables the whole ecosystem of businesses to get built on.

1:18:20on WeChat. Interesting. Okay, so that's WeChat. A few kind of miscellaneous fun things along the way to catch us up to today that also happened at Tencent Corporate. In 2013, right around the time that Facebook was trying to buy Snapchat, Tencent desperately wants to either buy or make a strategic investment in Snapchat. Remember, they figured like this 2013 two years earlier, they had They're already on the road. They figured out how messaging can build an amazing, huge business around it. They view Snapchat as an opportunity to do that in the US. They think they have the right playbook. They can bring it to Snap and do it here. They're in talks to do a big strategic investment in the company. Instead, Evan's legal rejects it decides to pursue his own vision for the company as a camera company, not a

1:19:19commerce and business empire, platform empire, and the deal does not happen. We covered that on our Snap IPO episode. But what has happened since then is after the Snap IPO, Tencent has started buying up shares on the open market. So they now own 12% of Snap. Very interesting. Apparently they, according to all parties involved, there's a good relationship, mutually beneficial relationship.

1:19:49What's interesting about that though, if you remember from our long ago Snap IPO episode, Snap IPOed with a very interesting governance structure. By interesting, you mean multiple classes. No governance structure. There's multiple share classes in public US tech companies is not new Facebook has it with super voting shares that the founders control. Google Pioneer or did Google Pioneer? It was a media company thing actually from back in the day. The New York Times has it because the family votes differently then. Yeah.

1:20:25The argument was that media companies needed independence from the political and economic landscape because they needed to cover these companies. And so thus, if there were a mechanism that somebody could buy up voting control of a media company, then it would be like, you know, bad for democracy.

1:20:42Anyway, tech has kind of perverted this. Well, as we know, since Facebook is not a media company, I mean, they don't. Right. Right. Anyway, Evan Spiegel takes this to a whole new level of not only just getting super voting shares that he and his co-founder is going to keep the shares they sold to the public get no votes. Zero. So if you own snap shares, you have zero voting control. So, you know, Tencent can buy as much of snap.

1:21:12as it wants. There's no actual teeth that it has in doing anything with that, which is interesting. We should make up like a best of when David says things are interesting, and he means terrible. Well, it depends, you know, what side you're on terrible or great. That's what makes it interesting. Well, look, even if you have all the voting shares, you still want the stock price to be a lot higher than it is right now.

1:21:36Right, right. So interests are aligned on that front. Other very interesting acquired related trivia here. In early 2014, Tencent starts talks to acquire WhatsApp. And apparently they're in pretty deep talks. And the price tag was kind of somewhere around 10 billion, I think less than 10 billion, which would have been crazy. Like that would have been a crazy high price for that time.

1:22:03Like, the world went nuts with Instagram going for a billion. Like, this would have been a bananas number. Totally. And the Facebook, the rumored Facebook offer for Snapchat was three billion. So this is great. But again, you know, Tencent recognizes the power of WhatsApp and they see like, man, this is our gateway to Europe of doing running the same playbook there. Progress on the deal, though, apparently gets delayed because Ponyma has to have...

1:22:29back surgery and so he's kind of out of the game and like there are supposed to be meetings that were going to happen in California. He had to delay them in the interim while he's having back surgery, Facebook swoops in, Zuckerberg swoops in, buys the company for $19 billion, you know, in a weekend. And you cannot, I don't know, I wasn't there for the, we weren't there for the conversation, but I have to imagine that the prospect of Tencent owning WhatsApp had a lot to do with both the speed and price that deal got done.

1:22:58Other interesting things, shortly after that, in kind of late 2014, early 2015, Tencent asks Riot to make a mobile version of League of Legends. And Riot, they're like, purist. They're like, no, we can't do that. Like, League only works on desktop.

1:23:14We can't make a mobile version. Tencent's like, all right, fine. We'll just do it ourselves. Tencent decides that we will do this in one of our internal studios and they agree on some kind of revenue share with League of Legends because they, if I remember right, they hadn't agreed on a rev share yet. So they have their studio start going and building.

1:23:35what is effectively a clone of League of Legends, which they own, but don't have enough sort of power and coercion over Riot to get them to do this thing. They own like 93%, I think, of the company and the Riot founders have retained a small stake, but they have control of the company. They operate in control. Interesting. So they start working on honor of kings internally.

1:23:59and they end up releasing it, and it's all Riot IP. Riot goes to them and they're like, you have all of our champions in here. I believe I read that Honor of Kings does two billion annual revenue in China. That's crazy. I mean, it's the most popular mobile game in China, maybe the most popular mobile game in the world. I think it is the most popular mobile game in the world. It has 200 million monthly active users, almost all of which are in China, so basically one fifth.

1:24:29Of the country plays plays honor of kings think about that like that's crazy Totally nuts and as you can sort of read between the lines here the relationship between Tencent and Riot is a little strained Well, especially because riots like I'll never work on mobile The other thing they do a couple other things in the gaming world in 2016 they buy Supercell the Finnish maker of Clash of Clans. So for $8.6 billion, they now have the largest mobile game in China. They have the largest mobile game in Europe. And of course, there's also a huge in North America too. They don't yet have like the crown jewel in North America yet. I mean, they have Riot, but Lee is not on mobile. Well, fast forward to recent times.

1:25:23When did PUBG come out? 2017 or 16? I'm not sure, but last few years. Last few years, PUBG is this Korean game maker, Blue Hole. Player unknown battlegrounds. Player unknown battlegrounds releases a beta version of a game called PUBG Player unknown battlegrounds with this...

1:25:44concept of battle royale, and it takes the world by storm, particularly North America, but the whole world. Tencent, of course, negotiates for the rights to publish PUBG in China, which they do, and they get a small equity stake in the company. Now, meantime, remember...

1:26:01An hour ago, we talked about Tencent acquiring a 40% stake in a well-known in the gaming industry, but not well-known outside the gaming industry. A little company in North Carolina called Epic Games. And Epic, of course, the maker of Fortnite had Fortnite out at this time when PUBG is taking the world by storm, but did not have the battle royale mode. So it was just a sort of regular sort of spacey fantasy first person shooter.

1:26:30They did have all the battle royale stuff in development so it's not like they just saw PUBG or like build that. This is going to merit its own episode at some point for some some excuse to do an episode. We all know what happens, Fortnite, Pippets and becomes all about battle royale and is now I believe by far the largest game and mobile game in North America. And so now Tencent controls the largest mobile games in basically every you know, major mobile internet using content in the world. The biggest company, the most important company that's not a household name. On the non-gaming side of the house, they're up to plenty of interesting things there too. In 2017, they acquire a 5% stake in Tesla.

1:27:19Now I'm not exactly sure how this came about, but Tencent is I believe now the third or fourth largest shareholder in Tesla. Super interesting, especially given Tencent as we talked about at the top of the episode, located in Shenzhen, which now thanks to Tencent is really Silicon Valley and the modern Silicon Valley sense of all things tech, but of course has its roots in hardware and manufacturing, and there are a number of electric vehicle.

1:27:45startups and established companies in Shenzhen and of course rumors are out there that Tencent may be interested in getting in to that game themselves. And then of course there was yesterday's this week's event of the Tencent Music IPO which happens and they float Tencent Music publicly as a $21 billion market cap. I believe Tencent still owns like 95% of the company as we were doing the research like some people out there are starting to refer to Tencent and its management team as the Berkshire Hathaway of tech, not just Asian tech, but tech period. These guys are so precious. Before we drift too close into tech themes here, it is worth pointing out the very recent things that have happened with the company. Last year, 2017 was an insane year for Tencent from a finance perspective. Their stock started the year at $25 USD and ended the year at $60 USD.

1:28:42This is a company that went from, I think it was like a quarter trillion dollars to a half trillion dollars in market cap in one year. And the last few episodes, we really talked about sort of value creative companies, enormous company doubling in size, more than doubling in size, wild. 2018, the exact opposite story. They've wiped out almost their entire run-up from 2017. And there's been a couple of interesting things that I think, are you ready to call it tech themes?

1:29:10that mentioned them and go in to tech teams a little bit. Let's do it there with the one I was thinking about what to do and what would have happened. Otherwise, I think we basically covered it. The most interesting thing to me is like, what if Xiaomi had built, which if mechat had succeeded. But again, I don't think it could have because of like the iOS Android like the cross platform aspect and the network graphed.

1:29:34Yeah, and the event network graph to I like that. I like that spell that however you want 2018, you know the stock is sliding what's going on? There's a couple of interesting things One is people are very worried about some gaming regulation that China has right now, where we're not gonna get fully into it, but people are worried about right now China has an approval process for being allowed to release and distribute games. And so there's a big hold up on popular titles that Tencent can't release right now. And then secondarily on top of that, there's also a restriction on what you're allowed to monetize. So people are worried, wow, Tencent may...

1:30:12may in fact get to have their games out there, but they won't be able to monetize them. And before getting into sort of the second competitive thing here, I just want to point out, and other very smart people have pointed this out, Ben Thompson has pointed this out, and Matt Brennan has pointed this out, that if this regulation is sort of here to stay, it tends to protect the incumbents. And so there's a lot going on right now where people are really worried about, gosh, 10 cents business is really going to be hurt by this, probably not.

1:30:40Tencent's probably the one that's going to be able to sort of have their most solidified by all this regulation that comes in and prevents due to sort of distribution and pure expense of going through the regulatory process future startups from succeeding in gaming. And so not just future startups, but again, think about how global this business has become. Who else but Tencent could bring non-Chinese developed properties?

1:31:05to China. Now if like there's a ton of rate like you think you think Epic is gonna like do that directly with the Chinese government like no way. Yeah. Yeah. You don't you don't get to enter China without a partner like Tencent. The other company that I think we should talk about is is bite dance. And David, what is bite dance? Oh man. What is bite dance? Well, okay. So bite dance is probably the We've painted a picture, I think very justifiably so, of a very rosy picture for Tencent. They've accomplished incredible things. They look like they are unassailable in China or really anywhere else. And they own entertainment, right? They own entertainment in China on the game side and on the social networking side. Yep. Bite dance is the biggest threat to Tencent out there right now. And it is a very, very real...

1:31:59threat. It's so interesting. The tech thing we've talked about a number of times about things, I think this is originally a Paul Graham idea of like things looking like toys when they start and then becoming much more than toys. So by dance started a couple of years ago, I believe it was a news aggregator app to start of a aggregated content and news into a reader on mobile devices has morphed and changed into that plus video aggregation and micro video production. They acquired musically, which was, folks in the US probably remember was a big kind of music video lip syncing sing along app, co-developed here in in China. That became part of bite dance. With that, all that has gotten merged into TikTok, which is crazy if you haven't tried it. Like you guys all need to download TikTok and be prepared to be confused and have your mind blown.

1:32:55And you know has kind of become like, I don't know what the, what's the best way to describe it? Like kind of like YouTube, right? Like all types of video algorithmically surfaced for you based on what you love both from your friends and official accounts. It's very like synchronized to music. I don't know why the content is so different, but they're really wacky videos and they're short form and they're all sort of synchronized to music. I don't think we've ever sounded.

1:33:22Like, we are actual grandpas. Then at this moment, oh, the fact is, but take our word for it from a business model perspective. This is a huge threat to Tencent, which the key to making all of this work is the four hours a day that people are spending on WeChat and Tencent properties. If that starts getting eaten away by something else, then the opportunity for building the ecosystem and serving them goes to where those.

1:33:50eyeballs are. And that is why bite dance, a company founded, David, he said a couple of years ago, just raised capital at a valuation of $75 billion. Yes. And I believe that makes it officially the world's most valuable private startup, because I believe Uber's still held it 70 or slightly below. Yeah. And their last share tender was in the 50s or 60s. So what? Yeah. Okay.

1:34:19Incredible so count that as the the sort of major credible threat if they're if bite dance is able to sort of turn into a platform company the way that Tencent had Yeah, when I think for me I mean, I guess I already said it but what that highlights for me and in tech themes is the the power of the business model that Tencent pioneered of this this freemium microtransaction business model like this is a huge like development for business period and tech enabled business globally like think about things like Kimberly like you know our LP program it's a direct result of this like you know in the old world like

1:35:00podcasting is perfect example. People have been trying to make advertising and the traditional, you know, US centric way of, you know, ad supported content work, and it hasn't worked, and it hasn't worked, and it hasn't worked. This other approach has built like so much, has worked at least equally well for Tencent. And we're starting to see it elsewhere. And it'll be very interesting to see how bite dance starts to build their monetization and business model around what they're doing. So Tencent's core products do well.

1:35:29in China. And to the extent that they aren't doing well in China, or they're doing well outside of China, it's with either sort of expats or people that do business with Chinese, but like, I don't use WeChat. You mean like the core? Not their investments, the things that they've actually, yeah. Like, those things do well in China. The way that they've gone to the rest of the world is through investments. And I'm sort of wondering like, Do you think their future is really more as an investment company than I mean you alluded to the Berkshire Hathaway thing I'll go out on a limb and say ten cents core products or copies of things that were doing well elsewhere sort of fitted to make sense in China and nail the timing and the distribution in China and then they were able to grow tremendously by investing in companies elsewhere are they an innovative company or

1:36:23Are they sort of a very good sort of ruthless cutthroat investment and copying company? Both, of course. Okay, this was my other tech team too. This is such a great question. I'm so glad you asked it and that it's come out in this episode. This is a core question that people have asked for years, about 10 cents. Don't they just copy everything? I think we've tried to paint the picture throughout this episode of going back to that pony mock. One of his few public quotes of Yes, you know, like he starts it with like we we stood with the Isaac Newton quote of like we stand on this we see so far because we stand on the shoulders of giants. I he we copy things, but like it's not just the copying like you have to adapt it in the right way for the right local market. And I think that's the nuance here. And that's why we chat is so powerful in China is never worked anywhere else. That's why what's app is so powerful in Europe and it doesn't really work, you know, in the US and you know, all the things that

1:37:22work here. Like they're just these element like take the US, for example, I message is the market is so fragmented because I message is so baked so deeply into iOS and iOS was the first smartphone, you know, available here in the US and has a toehold, an unassailable toehold on at least the high end part of the market. Thus something always needs to be like there's enough of a network there among I message that it's viable, you know, those dynamics are not the same in other markets, what's interesting is as you think about network effects and monopolis. Everybody's always asking, when is Tencent going global? Why aren't Tencent's products working elsewhere around the world? And this is it, is that they can't. There are elements of these markets that you can have a monopoly in the local market. And the local markets can be enormous. They can be the size of China or the size of Europe or the size of North America. But

1:38:20What is the right thing to unlock that market is not necessarily the right thing to unlock another market. You see this in ride sharing too, like the way DD works is super different than the way Uber works in the US is different than the way the Indian ride sharing companies work. Like you need to accept cash in India. Like you would never use cash with Uber in the US. Sometimes a company can like see around corners enough to or be visionary enough to serve create different versions of the product to serve those different markets, but it's really hard and that's why I think more often than not, you get these local monopolies. So you're asserting that for many of these products, it's actually not a global market that's addressable to them. It's a conglomeration of local markets. Some of what you're going to be very dominant. Others you're going to be fighting for scraps and others you're going to have nothing. Yeah, I mean, I think that

1:39:11The one example I can think of that is very, very clearly an exception to this is Airbnb. Because there's such significant cross market network effects. Like you travel to another place and need to have that platform there. Like I don't really care that Europe is based on what's app for messaging and that China is based on reach out. And when I need to interact with people that are in those networks, I just download that app. Like that's fine, but I'm not going to use it day to day. Whereas the whole value prop of Airbnb is like, I'm traveling there, you know? So I want one global network that like everything, and I think this is why Airbnb is, I believe it's exceeding to a greater extent than other Western companies in China, because of this pressure to like make it all one network. Well, speaking of networks, my last, I think we touched on this a lot, but my last real theme to think about here is when you are already a power, having the hundreds of millions of users that they had on QQ,

1:40:08if you have the product right, or even if you have the product within spitting range of the market leader, you really can just kind of go win in that category too, the way that they encouraged aggressively all the QQ users to become WeChat users, and you just see it time and time again with Facebook today. I mean, they could have bought...

1:40:28Any number of the Instagram like services and probably promoted it to the point where it became the winner Instagram was definitely the best product and definitely had you know the most users and most growth at that time but there's a pretty interesting thing going on now with with these like social networks where you know you really can sort of promote something to the point of being successful if you're able to successfully move users over. And I think shy of the platforms changing that in a big way, like making it so that you could imagine like a way that Apple or Google could make it impossible for Facebook to so aggressively leverage your use of the Facebook app to get you to download Messenger and become the dominant messaging app in the US. I don't exactly know how that would work, but shy of something.

1:41:14big in the product at the platform level changing like that. We're going to continue to see this where since the, when the platform wars were sort of settled in a market by market basis, that's who gets to decide what the next product on that platform is. Part of the core of what Ben Thompson has talked about for years now of that Facebook should never been allowed to buy Instagram because that's like Now, in retrospect, such a clear example of basically anti-competitive warping of a market. That is clear that that is what happened from a business dance, but legally the laws aren't set up yet to address such a situation. All right. Well, we're setting records here on the episode length. Do we want to go to grading?

1:42:04Yeah, let's do it. All right, so the way that we decided to grade this one is to do the big reveal on what NASPR's investment in Tencent turned into, and then talk about it in the context of other potential candidates for the best investment of all time. So here it is by the numbers. 2001, NASPR's invests $32 million. In March of 2018, when they still owned 33% of the company, that was worth $175 billion. They sold 2% to get liquid on that 2% and also March of 2018, pretty good time to sell some 10 cent stock. At that time, it represents a 5,500X from the 32 million to their 175 billion dollars of shares in 10 cent. I'll take it. Was it 32 million they invested initially or was it 20 million?

1:43:03They owned a 32.8% stake, but I think they initially purchased it for $20 million. Maybe they did another round or something, because at some point here, I have a $32 million investment for roughly 47% of the company, and then they got deluded down to owning about a third of the company. So I think they may have done another. Maybe they bought more ahead of the IPO to avoid delusion in the IPO. Well, anyway, whatever. At this point, talk about rounding errors. Yeah.

1:43:31And one other note on that, which is just interesting and very reminiscent of the Yahoo episode with Altaba, that investment makes NASPERS the most valuable company in Africa. But, as I remember, I just said that in March, it represented $175 billion of market cap. NASPERS itself is actually valued at $122 billion. Significantly less than their share in Tencent, which does two things. Basically, assigns no value to anything else that NASPERS does, but also, of course, it has that discount because there's uncertainty in the ability to get liquid on that. While NASPERS still owns 31.2% of Tencent, their investors do not look at anything they do other than that ownership as valuable. Sort of like Altaba, and we talked about in the Alibaba episode, there are two ways that you can invest in Tencent. You can go buy Tencent stock on the Hong Kong.

1:44:27Stock Exchange, or you could go buy an Asperger stock, like they still own 32% of the company. So David, what else is a candidate here? Well, I think the most direct candidate, and this is, you know, perfect for acquired and closing out season three here, is the soft bank investment in Alibaba of 20 million for 20% of Alibaba.

1:44:53There's certainly there are, you know, other candidates are Excel's investment in Facebook, which was, gosh, what was it? It was like 10 million first, just under 10% of the company, or even Peter Teele's angel investment before that. Of course, great investments. What I think is interesting here in my grading criteria is going to be heavily influenced by holding times and exiting the investment. Because Softbank, I believe, I'm thinking back to the Yally Balba episode, they start Exiting some of the Alibaba stack right along the way.

1:45:27And certainly Yahoo, when they had come in and invested $1 billion for 40% of the company, they exited along the way. What's interesting is like NASPERS, you know, still owns 32% of the company. And Excel, of course, because, you know, they had to do this as the way BC Funds work when Facebook went public, of course, they distributed the shares. The fact that this may be the greatest deal of all time is also an artifact of the fact that, you know, NASPERS is not set up as a fund, so they don't have to distribute the shares.

1:45:55It's an A, it's an A plus. The question is whether it is the single greatest investment of all time. I don't know, I think there's a very strong argument here. I'm probably biased because we've just finished two hours of talking about Tencent, but this is incredible. I think I'm gonna go with this as no number one. Please drop it in the slack or hit us up acquired FM at gmail.com if you have other opinions, but it's hard to imagine. Hard to imagine better investment.

1:46:24I don't know what NASCAR's governance structure is, but like, that they've held it for so long and still do. Like, what, like, that's amazing. Like, any other, you know, type of governance structure, organizational dynamics, along the way, of course, people would be like, we gotta like at least take some money off the table here, you know? A plus, but weird criteria. I think it's the best of all time. I do think so, yeah. Yeah, yeah, I think so. All right.

1:46:53Yeah, so mine is President Barack Obama as one of the first podcasters ever. So there was an amazing, I can't even remember where I found this, maybe Reddit on Barack Obama's US Senator for Illinois page that was hosted on, I think it's Senate.gov, Obama.Senate.gov, which of course doesn't exist anymore, he produced an RSS feed that had a bunch of MP3 files in it starting in September of 2005, which is three months after podcasting launched on iTunes and submitted it. The amazing thing is that the way back machine preserved it. So we'll put the link in the show notes here to click through and look at it. But there is a there's a page that has I don't know.

1:47:4420 or so episodes of Obama just kind of checking in with the good people of Illinois. And he's, you know, hey, I want to talk to you today about Hurricane Katrina relief efforts. Hey, you know, I talked to some people recently about avian flu preparedness. I want to spread that information to you. It is so interesting to get sort of a look at number one, what he was sort of thinking in 05, you know, three years before he became president.

1:48:09and also sort of him honing his voice a little bit. He wasn't quite as presidential. And also like what he was doing is just very innovative. I mean, there were so few podcasters then. If you look at the growth over time, of course, there's 600,000 podcasts now, the growth has been exponential. And so over there's first few years, it was just a dribble of people here and there. It was a Clujie thing to do. You know, you make this weird RSS feed thing. I guess it's still a Clujie thing to do. And still you make a weird RSS thing. And nothing has changed. And if you look over on the right, Sidebar, it says subscribe for free. You can subscribe when it says podcast RSS, which I think just literally takes you to an XML file. And then there's a third button called Odeo. Yep. Oh, no way. Oh, my God, I hadn't seen that. That's incredible. That's incredible. Well, you know what company we still haven't covered on this show. Odeo. That's what we should do. We should title the episode Odeo.

1:49:10Ville and joke. All right, my carveouts, I have two, which I know is against the rules, but A, we skipped carveouts a couple times this season. But B, because this is the last episode of the season, I have good reason here. The first is timely, so it has to be now. It may already be a little past, but let's revive it. Go listen to Kara Swisher's interview with the Google Walkout organizers. Friend of the show, Kara Swisher. Yes, friend of the show, Kara Swisher.

1:49:39Incredible, everything that is great about Kara is on display there. So important, you know, as in the moment we are in here at the end of 2018 and tech and everything going on. Just really, really great in true style. She is of course opinionated, but she brings out like from six people all at once. I can't imagine interviewing six people, some in person, some, you know, remote, brings out their stories and the purpose of the Google walk out and everything behind it in a way that like it's just masterful. So everyone should go listen to that. On a later note, since this is the end of the year and the season finale and people have holiday travel coming up, an incredible one of the best long read articles I have read in the past few years that came to me as I was just browsing Twitter. Sometimes every now and then I'm like Twitter like

1:50:32This is just like a cesspool. I'm ready to give it up. And then like they hit you with the gem. Alan Iverson, a wrote. This is your gem. Really amazing. This is my gem. Alan Iverson. It's a gem. I'm not kidding. This is like an incredible gem. Alan Iverson, writing for the player's Tribune, writes an incredibly long piece just about him and his story. And like, it's so cool. I grew up in Philadelphia watching Alan Iverson play.

1:51:01Everything of course at the basketball player Alan Everson he changed so many things like there would be no you know everything about what the NBA is today comes from Alan Everson and like in some way it's so different from what he was But like he he makes the point in this in this piece which is so good on so many levels that like Everybody called him a thug everybody called him like whatever, you know all the stuff But it was like he was being him, you know, and like that was the thing that like he wanted to be an amazing athlete and like he was so intense and such a so dedicated to the game despite the whole practice thing he didn't want to like not be him you know now all these NBA players are empowered like LeBron is being LeBron you know and staff is being staff like it's so good can't recommend it enough even if you're not like a huge basketball fan like it's just so cool to see somebody who like was so important to their industry in a way that like

1:51:54was misunderstood in so many ways at the time, then 10, 20 years later, come back and be able to write about it and hear it from his perspective. Awesome. Well, adding demands to paper. All right. All right, listeners. Now is a great time to talk about one of our favorite companies, Statsick.

1:52:17Yes, there is a reason why the best product teams rely on Statsig, whether they are iterating on their core product features or shipping AI-powered experiences at scale. Yep. In the crazy speed of today's AI world, shipping fast is just table stakes now. It's basically trivial to build and deploy your app constantly.

1:52:38The real advantage is how quickly you learn what changes actually created value for customers, and how fast you can use that signal to guide what you shipped next. This is where Statsig comes in. It brings experimentation, feature flags, and product analytics into one unified system so teams can ship safely, test rigorously, and directly link what they changed to how users actually behaved. So if you want to make learning your competitive advantage, whether you're building new AI experiences, or just evolving your existing core product, go to statsig.com slash acquired to get started. All right. Well, listeners, if we don't talk to you again, have an excellent, excellent holiday season. Thank you for being with us on this journey in season three. If you want to subscribe and want to hear more, you can subscribe from

1:53:23Probably wherever you're listening to this. If you like the show and you want more, you should totally become a limited partner. We would love your support. We're stoked that the program's going well and that's, you know, it's making sort of a meaningful impact on acquired and what we're able to do as far as like travel to guests and being able to promote the show more, bring on, you know, more listeners and really it's kind of funny.

1:53:49we cover all these companies. Capital can sort of equal quality. And so it sort of justifies us being able to go above and beyond and make the show better in a bunch of different ways. So click the link in the show notes, join and become a limited partner. We seriously appreciate it. And we hope you get a ton of value out of the bonus shows that we're doing. I know we have a bunch of fun doing it. So. Indeed, indeed. Well, thank you all as always. Happy holidays. We'll see you in season four. Yeah.