Acquired - Season 3, Episode 10: Tencent

Episode Date: December 17, 2018

We close out Season 3 and our China mini-series with a monster episode on Tencent, the Shenzhen-based social networking and entertainment powerhouse. We dive deep into the story of Pony Ma and his cofounders’ incredible journey from making software for pagers(!) to QQ, WeChat, League of Legends, Fortnite, Snapchat and even Tesla. This is one finale you don’t want to miss!Sponsors:ServiceNow: https://bit.ly/acqsnaiagentsHuntress: https://bit.ly/acqhuntressVanta: https://bit.ly/acquiredvantaMore Acquired!:Get email updates with hints on next episode and follow-ups from recent episodesJoin the SlackSubscribe to ACQ2Merch Store!Carve Outs:Ben: President Obama’s OG podcast! https://bit.ly/2BqXxHJDavid: Kara Swisher’s interview with the Google Walkout organizers: https://bit.ly/2RwuskZDavid (bonus!): Allen Iverson on the Players’ Tribune: https://bit.ly/2EkrRHQ

Also, 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.

Oh, yeah. Tencent is everywhere. Welcome to Season 3, Episode 10 of Acquired, the show about technology acquisitions and IPOs. I'm Ben Gilbert. I'm David Rosenthal. And 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 a 12% stake in Snap. David. We'll get to that later. Spoilers. Well, so what is Tencent besides that very long definition that feels conglomerate? Well, 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. Tencent rivals Facebook for the world's largest social networking company by market cap. It is the world's largest music service that actually IPO'd this week with over 800 million monthly active users. That music company that just IPO'd on the New York Stock Exchange on its own has a $21 billion market cap, of which Tencent owns most of it. I think they raised like $1.1

billion in their IPO. So, you know, just 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 miniseries, but all of season three. There's going to be so much back and forth through this episode between Alibaba and its founder, Jack Ma, and here now Tencent

and its founder, Pony Ma. They're very different, as are their companies, as we shall see. Well, listeners, we want 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. If 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 dot fm along with our slack

we're turning into tencent we have an uh we are a media empire of properties here my gosh i know i know we gotta we gotta start sub brands we need a we chat to our qq yeah or maybe a penguin mascot all right okay listeners now is a great time to tell you about long time friend of the show Or maybe a penguin mascot. All right. Okay, listeners. Now is a great time to tell you about longtime friend of the show, ServiceNow. Yes. As you know, ServiceNow is the AI platform for business transformation. And they have some new news to share. ServiceNow is introducing AI agents. So only the ServiceNow platform puts AI agents to work across every corner of your business.

Yep. And as you know from listening to us all year, ServiceNow is pretty remarkable about embracing the latest AI developments and building them into products for their customers. AI agents are the next phase of this. So what are AI agents? AI agents can think, learn, solve problems, and make decisions autonomously. They work on behalf of your teams, elevating their productivity and potential. And while you get incredible productivity enhancements, you also get to stay in full control.

Yep. With ServiceNow, AI agents proactively solve challenges from IT to HR, customer service, software development, you name it. These agents collaborate, they learn from each other, and they continuously improve, handling the busy work across your business so that your teams can actually focus on what truly matters. Ultimately, ServiceNow and Agentech AI is the way to deploy AI across every corner of your enterprise. They boost productivity for employees, enrich customer experiences, and make work better for everyone. Yep. So learn how you can put AI agents to work for your people by clicking the link in the show notes or going to servicenow.com slash AI dash agents. Well, before we dive in, David, I think we have a little bit of follow-up from the Netflix episode. Do we ever a glaring omission from our netflix two-parter so do you do you

want to do it we're keeping everybody in suspense here one of the coolest things about our our little mini netflix series was um learning about the the spin outs from from the company um of course of redbox and and roku and uh 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 uh 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. MoviePass. How could we have missed it?

Only 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 executive but then red box president and now uh ceo and founder of movie pass embattled movie pass he's founding just keep getting worse and worse so i'm thinking maybe uh this this should be the last one hey product market fit i mean customer demand is there 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 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 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 Bernard Leong 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 miniseries, 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 Xiaobo 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 Xiaobo 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. Then lastly, on my end, 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 Businessweek on Tencent this past June. We got to have Brad back on for another show at some point, David, because he's A+. He is A. All right. So with all that, let's dive in. So before we get to Tencent and its

founder, Pony Ma, 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. Yeah, anyone who's had an iPhone shipped to them have probably seen this on their tracking. So in the China miniseries 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. So what'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 the post Mao reforms in China, and the kind of opening up of China and introduction of the capitalist market system, the legend is 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, when things were really bad in China, people would 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 miniseries, which is the most important outcome of all. Of course, we jest. So Deng, 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 area 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. Like, well, 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. Yeah. I mean, it literally is like if you're familiar with the Seattle area geography, it's like Bellevue, right? Like there was Seattle, Hong Kong, and then across a body of water, there is Shenzhen. And so it becomes the first special economic zone where, you know, capitalism in the free market is not only allowed, but encouraged now by the government. And Deng 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 starts Shenzhen on the path from a 30,000 person kind of market and fishing village to, you know, people start flocking there from all over the country. First, importing and exporting becomes a huge business there from Hong Kong and 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. It's great. So this is the soil that Tencent gets planted in. So in 1971, a boy named Ma Huaten is born in a small city in the province of Hainan, which is an island south of Shenzhen 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,

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 unrests. And

they decided it's better for him to stay at home and stay in the special economic zone. So 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 be a Chinese version of these US tech billionaires that get into space. It wouldn't 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 interning for Li Ming 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, 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 had 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. Pony Ma does none of this. 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. Um, I want to go make an impact and build things that people use. So he goes and he works for a company called Shenzhen Runshan Communications. I may be butchering that, but, uh, that's his first job. He works in R and 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 pagers. Pagers 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 pagers to communicate. And so that's kind of his first taste of like communications tech. Again, remember Jack Ma, he has to like go on this crazy trip to the U S to get exposed to the internet. Pony is getting exposed to it through his work. Uh, so he's one of the very, very few people in China that like, even though the Internet is a thing, let alone have access to it. So he gets really deep in the early BBS is on the Internet, like the bulletin board systems. And amazingly, a whole bunch of Chinese entrepreneurs come out of this. So, like, again, the only people who have access here are like people who are super geeks working at tech and communications companies

in china so lay june the founder who of xiaomi and the previous ceo of kingsoft um who we discussed in our xiaomi episode he's on there on the bulletin board systems ponies hanging out with him also ding lei who would go on to start netties which is another huge chinese portal that we've talked about on the alibaba episode he's there as well and so all these guys they're all like starting companies as they see the internet company they're like a future billionaires bbs that they all sort of totally talking about what planes they're gonna buy you know how many rockets they're gonna build um 19 000 square foot homes yeah which uh i think you're referring to Pony's current very private secluded mansion. In Hong Kong, yes.

Ma is like super inspired. He sees Ding start Netties and he's like, man, I got to get in this game. So 1998, remember 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, uh, they're finished showing up their studies and he's like, guys, we gotta, we gotta do this. The time is now we got to start a company. And the 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 in the US, like there was this mobile internet. Oh, yeah. all the carriers had 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 gifs and texts that you could scroll so i think like it's it's like a slightly more primitive precursor to wap uh so they start the company they need to choose

a name and they come up with uh tung shun uh i believe is how it's pronounced uh tension tung shun which literally in chinese means galloping message so of course his name is pony pony pony mom that's amazing. I didn't guess that. Yeah. I was doing all this research. I was like, where does Tencent come from? I know, and I've always wondered that. It is the westernized version of Tenction.

Wow. So, galloping message. There you go. Dude, we should... 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, Pony Ma was 26 at this time. So multi-hundred billion dollar company founded by 26-year-old. Not exactly the sort of Mark Zuckerberg or Evan Spiegel, crazy early, but still pretty young dude. He's still pretty young. And his co-founders, of course, had just finished their 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 Alibaba episode, Yahoo couldn't invest in a Chinese company. I think it was that the Chinese company couldn't have 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 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 raising venture capital.

It's kind of like how you and I always start these Delaware Corps. Yeah, exactly. It's the Delaware Corporation. Cayman Islands is the Delaware of China. We'll just call our registered agent down there and have them spin something up yeah so they do this they're working on the pager 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 then 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. Israeli company? Oh man, I used to live in ICQ. And that was the first PC-based instant messaging client. Ends 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 the first example of what we would see later with messaging apps on mobile and ride sharing. It's like they start popping up all over the world. And so Pony and his co-founders see this and they're like, okay, forget this pager software thing.'re gonna go clone send 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 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 personally own PCs. We just get it into these internet cafes. People install, uh, our version of ICQ, which they call OpenICQ, very creatively, OICQ, 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 at home. So in 1999, there were 50 desktop computers for every 100 people in the United States. So it's about, you know, half people, as you would sort of expect if you rewinded to 1999,

you think about that, you know, 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, you know, even computing really hadn't come to China yet, particularly at home. But these internet cafes had and it works and people 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. And 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 one. It's cool. Depressing, but cool. When I was at Stanford in business school, we did a, um, everyone has to do like a international trip experience. And mine was to South Korea. And, uh, it was funny. 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 bank so i just wandered off by myself and like is it like just everybody playing starcraft yes that is exactly what it was uh so within nine months of this pivot to, oh, ICQ to, to copying and it wasn't just copying and, and, and pony ma 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 going to work or, or any of the competitors in China, A, because it wasn't, you know, in Chinese, but also be like the way that like 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 in the with the product to adapt it to the local market. 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. It makes sense. Yeah. Like that's not going to work. Um, so within nine months of the pivot, they have a million users, um, which obviously

is a drop in the bucket compared to the 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. Um, so they serve them a lawsuit and a demand that they take down the service or at least change their name. So now they're, they're kind of up a Creek without a paddle. They have no business model. They're giving away all this for free um they're presumably having to pay something or at least you know employ a lot of people to go get this uh service installed in internet cafes around the country they have ballooning server costs yeah i was gonna say you actually have to build data centers and buy servers and rack them and have it people that are you know maintaining all that.

All this stuff. So they're like, okay, we're going to do a dual track process. We're going to try to sell the company. We're going to 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 is like, look, I have a clear vision.

We're going to bring messaging to china and like it's not as important to me to do it in a way where i you know 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 motive there but like it was really about like we have an opportunity that makes 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 $9 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 a way where we can actually do the episode. And then it all just like jumbles after that. So it's good that we get them out when we do. Yeah, totally. It's the problem with getting old. So nobody wants to buy the company. Um, but in 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 IDG,

I believe it's a publishing group. I think it was like a, 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. And this particular fund, I believe, was quite small. Think about it like much, much smaller than you would think about a seed fund today, which will 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 Li Ka-shing, the very famous Hong Kong-based billionaire investor, a 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, uh, for a business that has a million users, uh, in 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. Immediately afterwards, they lose the judgment in the, in the matter with AOL. I don't, I don't know exactly know what jurisdiction it was in. It was international law, but they're ordered to stop using the open ICQ name. And the story is, so, so they're trying to figure out like, how can we rebrand this thing? Supposedly, a Tencent 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 like a cute kind of diminutive of OICQ as QQ. And he's like, hey, we need something.

A star is born. A star is born a star is born so not only do they rebrand oicq to qq they fully embrace the cuteness and uh they design and adapt the cute little cuddly penguin that uh if you're familiar with um 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 um what that means probably most of our listeners didn't get the penguin jokes but now you get the penguin jokes um now i think i wasn't totally able to confirm this because like you know the uh internet way back machine doesn't really you know work in china but i believe not only before this switch over

were they using icq 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 icq so bring in mickey mouse i heard they're not litigious no that was that was before i think now they're afraid of international litigation so like we got to clean up everything so i think this is also where the penguin comes from is we got to replace mickey mouse and donald duck uh let's use uh let's design our own cute furry little animal. Phenomenal. 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, Computerworld, PCworld, all those things. They also, they're really old. They were started in 1964. Like this has been a publishing group for a long, long time. And they run all these expos and um skipping ahead to tech themes but oh how often we see these you know immensely

successful sort of spin-off funds of companies such as softbank or idg getting in on the ground floor of uh of something huge like this is the global instantiation of uh our theme from i forget what episode it was probably a year or two ago now about like how at this point in time in tech and on the internet there were like 11 people in the whole world working on it right you know uh it's crazy you know and a bunch of characters who we uh have seen before are gonna pop up as well as some new ones as we go along here. Okay, so they raise the money, they change 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 messengers to pagers. So like the pager thing is still part of the company, which actually makes sense. You know, you're not at an internet cafe. Somebody sends you a message. You want to know about it. You get it through the pager. Like, okay, I get it. The other thing that happens in 2001, of course, is the dot com crash happens in the US. And that cools, you know, the venture financing market globally. The company is still growing like a weed. They're adding 500,000 users a day. In 2001, they surged past 100 million users. Like this is crazy.

And again, remember, internet cafes like nuts. They're beating the bushes, though. They're still trying to sell the company because they're like, OK, great. We've got 100 million users. We're super valuable to somebody. You know, we've cleaned up all these legal issues. Somebody is going to have to want to buy us. And from a shareholder's perspective, IDG doesn't have any ability to do follow on capital because they're in that kind of very small fund. 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.

As is Li Ka-shing. Now, I don't know, I didn't do enough research to know here for sure, but my understanding of Li Ka-shing is his, he made his fortune in the telecom industry. And the one industry that was hurt harder than tech and the internet in the.com bubble bursting was of course, telecom. He's probably hurting hurting and needs liquidity so he's looking to get out of his investment as well so 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 of south africa so like they're you know a shenzhen-based chinese company uh 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 in 1999 when this is all happening you would not have heard of naspers like it's 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. No, no. And, uh, 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. Uh, we're looking to diversify out of the media. I believe, I believe mostly print media business in South Africa. We will invest. And 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. So like echoes of the Alibaba episode here, we'll take that 40%, the Goldman investment that gets bought out. Yeah. So that not only are they willing to buy out existing investors, they're willing to do so at a $60 million valuation. So remember, just a few months ago, this company was valued at $5.5 million post-money. The existing investors, they're trying to get liquidity. They're like, great, 11x, $60 million. I'll hit that bid. We will take that. I mean, gosh, a couple of years, that feels really good to me. Let's do it.

Yeah, let's do it. 10x-er. 10x returns. Ohx returns oh boy oh boy so lee cushing sells his entire 20 stake fortunately for idg they sell only 12.8 percent of their stake so they retain 7.2 percent of ownership in tencent naspers acquires 32.8 percent of Tencent in total, just under a third for $20 million. We're going to get to grading in a little bit and we'll, this will come back up. But this was to say this was prescient would be the understatement of the century. Yeah. And listeners just to plant the seed. Now we're not going to be grading like we called this episode Tencent, like we called Tesla, Tesla, or like Alibaba, Alibaba. This isn't really going to be about sort of the Tencent IPO because it's part of a much longer journey. But this is acquired and we have to grade stuff. So

we're going to end up grading this particular investment against other sort of very successful investments. You might imagine which ones. Okay. Meanwhile, 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 take your pick exactly and not only that but this transaction that happened the company didn't get any money like the investors just cashed out so funny thing about secondary sales yeah funny thing um so they got to figure out a way you know to survive here in 2002 a pm who's working at the company hears about this korean company uh that is selling quote-unquote digital goods for their users to customize their you know avatars on this you know digital service

and uh yeah people are like laughing about it. People aren't even laughing about it in the world. People don't even know about this yet. But 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, uh, 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 5 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 won't catch up to sort of microtransactions for, you know, 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 Zynga 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. But 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 mentioned 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 GIFs with which users can tip entertainers who stream live performances in its apps. And so Tencent, 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 that they've figured out. And they know

more than anyone. And 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, oh, well, Tencent Music isn't as good as Spotify because people don't actually pay. It's this. And it's like, no, come on. This is a better business model. Have you guys heard of Twitch? Have you seen Tencent? This is how it works. It's a better business model. It's at least different and powerful and, and, uh, could, could be better for different. Yeah. You know, this isn't as egregious, but this is, it reminds me of, uh, you know, the seven 11 blockbuster CEO coming in and be like, I don't believe in internet businesses. Like I don't believe in microtransaction, but no, like, yeah, they work.

Dev, you played Fortnite. Fortnite, which somebody might own most of oh who would that be um spoiler it's tencent everybody around the table is like high-fiving now and especially naspers lee cushing is not high-fiving 11x baby what do you want yeah naspers pays 20 million dollars and then within like a matter of months they own 32 33 percent in a company that is at a 50 million dollar revenue run rate and growing like gangbusters and not just 50 million dollar revenue run rate like think about the margins on this like there's no cost of goods sold when you are selling digital goods pretty good business model okay, the next year, they do over 100 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 microtransactions, what else they can apply this to around their core kind of communications and IM platform 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 has blown up to the point now where they

say, you know what, we're now a portal too and we're china's portal yep they're thinking about a portal they're thinking about what else can we add to the qq platform and they're one thing that the company is really good at to this day is like 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 realized that this 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. What if we added games to our platform, to our portal uh it's kind of like you know discord like like finally figures this out well discord figured out like this product uh insight you know

many many years later in the u.s like it's amazing how far behind we are here like this is the ten cent business model um 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 dollars of revenue to the company so huge success and not just success like the core virtual goods business on qq is growing like crazy now they have an 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 a couple things one we got to get public because this is like a great business two you know all the founders are computer scientists there's one founder who

had some sales expertise uh but it was kind of from the telecom world. They're like, we need some like real, you know, business folks. And Pony like is great. He's a total visionary, product visionary. But like, 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. They need their equivalent of Alibaba's Joe Tsai. 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 who'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 at Kellogg, then worked at McKinsey and then moved to Goldman over in Hong Kong. And so Pony is like, dude, Martin, you got to like forget this banking thing. Like this is where the this is where the future is. You got to come work with us. Martin declines at first. It's sort of similar to, you know, it reminded me of when Josiah, you know, declined the first offer from Alibaba. And it's like, I got to 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. They get the IPO done in June of 2004. They go public on the Hong Kong stock exchange. Uh, they raise $180 million. And pretty shortly afterwards, Lau 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 and a uh which is like kind of a like they're not many chinese internet executives that are in charge of m&a at this point lao is really like blazing a trail he does really well totally gels 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 and use this business model to create you know amazing 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 L. LA, maker of League of Legends. Little game in the esports world. But 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... Riot 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. And of course, for listeners who aren't familiar, League of Legends was natively built 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 2018 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, this is, 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. Nodding in 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 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? Three or four. Yeah. Three or $400 million 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 Tencent for a minute. This 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 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 let'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 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, in the communication world, that really dominates them today that we haven't talked about. Well, so IPO happens in 2004. Basically from 2004 till 2010, 2011, like growth is rampant, QQ is is dominant they're like unassailable growing

to hundreds and hundreds of millions of users uh throughout china but as 20 you know we get to this time frame there's this thing called mobile that's happening uh 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, Lei Jun, the founder of Xiaomi, is Pony Ma's old buddy from the bulletin board days. Xiaomi's already started at this point. Lei Jun sees like he realizes that mobile like China Internet users are going to jump directly from using PCs and 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 their personal relationship to it. As you'll remember on other episodes of 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 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 Instant Messenger, do you remember when the AIM app came to the phone

and how it was kind of garbage and how it wasn't made for the phone and native to that platform? Well, they need an answer to that. This is happening. And they realized this two years ahead of when Facebook realizes this. So they do, they have the whole management team at Tencent.

They know they have to deal with this. So they do, they have the whole management team at Tencent. They know they have to deal with this. They call a big offsite 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 in 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 phone, but like there was no way to know like that something happened in the app. So a messenger app was useless. I'd have no way to know that, you know, somebody had sent me a message with push messaging. Now you get the little red, you know, 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 Kik, K-I-K. Still around today. Raises a Series A from Fred Wilson at Union Square Ventures.

Gets 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 i remember being a total early adopter loving it it was so much better than 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 uh seriously 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 unknowingly to every single member of my contact list 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 at osu are getting kick in but the good news was there were several other people that like it 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 i forgot about that shoot well actually maybe i never knew maybe i spammed a bunch of people and never knew it

david alone invited millions of people to kick and it grew at an unprecedented rate well unfortunately for kick they basically become the icq of the uh of the mobile messenger market again they're still around they're doing but they're 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 and this is 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 the 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 you know, as the Pony Ma 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 so tencent realizes they need to hop on the bandwagon that they're gonna build a kick clone as well they have the perfect person to do it so back in 2005 tencent had acquired a product called fox mail and Fox mail was this product in China created by this incredible, incredible engineer called Alan Zhang is a super visionary, fantastic engineer. Like I said, in, in Fox mail, it was a web mail client and like one of the biggest in China. And at the time, even like hot mail and Yahoo mail and the U S 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 let me handle this. Like, this is like, you're like, you know, most like, your most trusted lieutenant's like, let 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, yes, they're coming out of this conference of the gods. There was a task force you know working on this um and and 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 the resources give me yes give me the power and uh 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, Alan takes a small team. They go lock themselves away in, I think Pony refers to it as like a black room. It's like a room with like blackboards 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 lau and and they say they're going to call it we should which in english translates to we chat and they're not the only ones doing this i mean we mentioned the cloning there's uh also debuting right around this time is me talk 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 they built me talk so wechat has a billion users that's that's a huge lock-in component for tencent that could also be xiaomi's but that's not how

history played out and me talks adding a ton of users like they've got a head start like they're off to a really good start in the market like lots of people are going after the chinese kick opportunity another company that's doing this is a hong kong based startup right across the bay called talkbox uh that's going to come back in in a minute so they release wechat uh and it does well they import the social graph from qq so that's going to come back in a minute so they release wechat uh and it does well they import the social graph from qq so that's like you know major legateating it's like oh you know me talk that's nice you have these like you know bulletin board internet forums with your early adopters we have 900 million qq users that we're just going to import here. But it does well. That's a huge advantage. But

it doesn't do that well. The other apps are still in the mix here, including TalkBox. Alan 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 MeTalk 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 you can record a short voice message. Apple's been trying to add this to iMessage for years. Just adding it in strange ways in the UI that nobody really wants to.

Yeah, super strange ways. But again, to localization for your market, 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.

This is like the next telephones from the 90s that had that first. And I think even there was a product called Viber that did this for a while. Yes, and Voxer, I think, too. Yeah, yeah, yeah, yeah. Maybe that's actually the one. Viber, I think, was based in Israel, I want to say.

I don't know. 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 there'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 key thing that MeTalk falls down on. They don't have an iOS app for a long time. They only have the, uh, cause on the MeOS, uh, like remember the whole thing is to be building

the MePhone and building Xiaomi. So this is part of what helps Tencent catch and WeChat catch up as well as they come out with an iOS app first and then an Android app. So they add the walkie talkie feature that helps a bunch. is this innocuously named feature called friends nearby that also you know sounds like that thing that apple's been trying to add to your phone to you know find my friends it sounds like that but it sounds like that but it's not that it's not 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 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 tencent invents tinder yes uh 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 i don't know i don't have any facts that that this this uh 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 a product so the spring 2011 update to wechat uh has both of these features it has walkie talkie and it has tinder it just is like pushes 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 like basically every single person in China. Well, I can't say that for sure.

Listeners may like correct us. I'm sure there are parts of China that don't use WeChat yet. But like essentially the entire population of China is on WeChat 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, averaged 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. Vastly 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 a zeroeth. It speaks to I'm not the average of the United States. But people 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. Yeah, it is. Well, well, there's two things here. One, one is that which we're going to get into right now. But before we do, the other important thing here, and like, and again 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

fox mail like was big and tencent 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 u US. What WeChat has become like, it's the communication platform for like, imagine your iMessage or you know, whatever your your messaging app, 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, all your communications going through, and here's where Alan, Alan Zhang is, is, is like such a huge product visionary. And he starts to separate WeChat from all the other messengers around the world, not just in China. They launched 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 users who want to interact with them on the platform. Sounds simple enough, but this becomes enormous. It's kind of like a souped up Facebook page, right? That's exactly what it is. But it allows the account that the business or whatever entity controls to message and interact with lots and lots of users. So people start buying stuff through this. It becomes a commerce platform. And of course, Tencent is already very adept at e-commerce through all of the microtransactions that they

had done through QQ. They build WeChat Pay, WePay into the platform, not just e-commerce, ride sharing, like Didi basically gets built on wechat meal ordering uh and meal delivery and mei tuan dan diamping gets built on wechat they also introduce in conjunction i think shortly thereafter with official accounts is the moment's news feed and this is something that's it's really you know we know this Facebook, it's really a publishing system for content. But it's also importantly, they do a really aggressive push to force 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 to smaller groups, it becomes the largest content ecosystem in China.

And as you're alluding to, David, you can buy or book things on official accounts sort of through the Moments News Feed. And another sort of important thing to know about the Moments News Feed is, you know, we keep talking about Tencent as a business that makes money on microtransactions and gaming, but is a social network. And in the US, social network is synonymous with advertising company. Well, there's not actually a lot of ads in the moment's news feed, and they wait a very long time before introducing them. And even then, they do it in a very lightweight way. And so, you know, it's really all about sort of the facilitating the attention there, but the business model ends up being way different. You 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 the company strengths product wise, but also executive wise. Remember, Martin Lau, you know, 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 Didi, in Meituan Jiangping, in Pinduoduo. 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 is just, just happened, uh, recently happened, but is, is now in the news. So the official accounts thing, it's very basic, like very, very very basic very lightweight in early 2017 they essentially turn official accounts into this slightly more advanced thing called mini programs which which were mini apps but apple didn't like that so now they're many people 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 um but uh this 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. You know, this might sound like 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 Pinduoduo.

So, you know, the company that just went public here in the US, it's like two years old, is, you know, I forget what the market cap will have to cover it next season, like, you know, 30 billion plus market cap, I believe. And David, what does Pinduoduo do? It is a mini, it's a mini program. It's a shopping experience. I've seen videos, I haven't, I haven't actually done it. but, uh, so I may be butchering this listeners correct us if, if we are, but it's a sort of like gamified shopping experience that is all conducted through a mini program on, on WeChat. And what's great about that is like the friction, the distribution friction to get this in front of people is zero, you know? and, and that's important because like

this, the, the target market for Pinduoduo 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 WeChat accounts and like they can interact. So they don't, they don't have, you know, JD accounts, but they can interact super seamlessly just through the Moments news feed and a mini program with Pinduoduo. It makes a lot of sense. All right, listeners.

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huntress.com slash acquired or click the link in the show notes. Our huge thanks to Huntress. There's a couple things I want to revisit in this sort of evolution of WeChat that I think are interesting and important. Do you know about QQPay and sort of what that was before WeChat Pay? Not in any depth. So apparently, and I didn't realize this, so early on Tencent sort of thought 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. And they shut it down. So it's interesting that when 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 microtransactions as your roots to then thinking about peer-to-peer payments instead of just buying virtual goods on your platform. Another 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. I'm not going to go into 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.

And they seeded people's accounts, right? And so they ended up with just little bits of money in their account, but 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 custom and I believe around the new year of red envelopes and gift giving and giving money. And we we've already talked about Deng Xiaoping and the cultural revolution here. So we're not going to go to 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.

One 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 no 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 two to three percent interchange fee it's like 0.6 percent and so we chat 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 yeah to get built on on wechat interesting okay so that's wechat a few kind of miscellaneous fun things along the way to catch us up to today that that also happened at tencent corporate in 2013 uh 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, like they've figured like

this 2013, two years earlier, they had, they're already on the road. They figured out like how messaging can build an amazing, huge business around it they view snapchat as an opportunity to do that in the u.s they think they have the right playbook they can bring it to snap and and do it do it here they're in talks to do a big strategic investment in the company instead evan spiegel rejects it decides to pursue his own kind of know, vision for the company as a camera company, not a commerce 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 good relationship mutually beneficial relationship what's interesting about that though if you remember from our long ago snap ipo episode snap ipo'd with a very interesting um governance structure by interesting you mean multiple classes no governance structure you know there's multiple share classes uh in public us tech companies is is not new facebook has it with you know super voting shares that the founders control i think um did google pioneer it or did... Google pioneered it, I believe. It was a media company thing, actually, from back in the day. Yeah, the New York Times has it because the family votes differently than...

Yeah, the 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. Anyway, tech has kind of perverted this. takes this to a whole new level of not only just getting super voting shares that uh he and his co-founders gonna keep the the shares they sell 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 as it wants there's no actual teeth that it has uh 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. So. Right, 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 um which which would have been crazy like that would have been a crazy high price for that time like we the world went nuts with instagram going for a billion like this would have been a banana's number totally and the the the facebook the rumored facebook uh offer for snapchat was three billion um so this is great but again again, you know, Tencent recognizes the power of WhatsApp and they see like, man, this is our gateway to Europe, uh, of doing,

running the same playbook there. Progress on the deal though, apparently gets delayed because Pony Ma has to have back surgery. And so he's kind of out of the game and like, there were 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, uh, I don't know. I wasn't there for the, we weren't there for the conversation, but, uh, I have to imagine that the, the prospect of Tencent owning WhatsApp had a lot to do with both the speed and price that that deal got done. And other couple of 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 purists. They're like, No, we can't do that. Like, you know, League only works, you know, on desktop. We 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 um so they have their studio start going and building what is effectively a clone of league of legends um 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 uh have retained a small stake and but they but they have control of the company they operate in control interesting so they start working on honor of kings internally and they end up releasing it and it's it's all riot ip like riot goes to them and they're like you you have all of our champions in here i believe i read that honor of kings does two billion annual revenue in china it's crazy i mean it's the most popular mobile game in china maybe the most popular mobile game in in the world i think it is the most popular mobile game in the world uh has 200 million monthly active users almost all of which are in china so basically one-fifth of 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 uh Tencent and Riot is a little strained. Well, especially because Riot's like, oh, 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, is also huge in North America, too. They don't yet have like the crown jewel in North America yetica yet i mean they have riot but league is is not on mobile well fast

forward to recent times when did pub g come out 20 17 or 16 i'm not sure but last few years last few years pub g this korean game maker uh blue hole player unknown battlegrounds player unknown battlegrounds uh releases a beta version of a game called PUBG, Player Unknown Battlegrounds, with this concept 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 an 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. They did have all of the Battle

Royale stuff in development. So it's not like they just saw PUBG and were 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 pivots and becomes all about battle royale and is now um 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 major mobile internet using continent in the world. Yeah, it's 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.

Now, 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 in 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 startups 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 has 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 prescient. And before we drift too close into tech themes here, it is worth pointing out the very recent things that have happened with the company. So 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. This 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. In 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? Mention them and go into tech themes a little bit? Let's do it with the one. I was thinking about what to do and what would have happened otherwise. I think we basically basically covered it the most interesting thing to me is like what if xiaomi had built wechat if if me chat had succeeded but again i don't think it could have because of like the the ios android like the cross-platform you know aspect and the network graft yeah and the the network graft 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 uh some gaming regulation that china has right now where we're not going to get fully into it but um 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 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, Tencent's business is really going to be hurt by this. Probably not. Like Tencent's probably the one that's going to be able to sort of have their moat 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 again think about how global this business has become who else but tencent could bring non-chinese developed properties to china

now if like there's a ton of right like you think uh you think epic is gonna like do that directly with the chinese government like no way yeah you don't you don't get to enter china without a partner like tencent the other company that i 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 uh we've painted a picture uh 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. ByteDance is the biggest threat to Tencent out there right now. And it is a very, very real threat. It's so interesting. Like, you know, 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 ByteDance started a couple years ago i believe it was a news aggregator app totiao to start um of aggregating content and news uh into a reader on you know on on mobile devices has morphed and changed into that plus video aggregation and micro video production they acquired musically which was uh folks in the u. probably remember, was a big kind of music

video lip syncing sing-along app co-developed here and in China. That became part of ByteDance. With that, all that has gotten merged into TikTok. Which is crazy if you haven't tried it. You guys all need to download TikTok and be prepared to be confused and have your mind blown. And it 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 yeah i don't know 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 like older. We are actual grandpas. Than at this moment on the podcast. 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 eyeballs are. And that is why ByteDance, a company founded, David, I think you 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 still held at 70 or slightly below. Yeah, and their last share tender was in the 50s or 60s. So what? Like, okay. Incredible. what like yeah okay uh incredible um so uh count that as the the sort of major credible threat if there if byte 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 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 kimberlite like you know our lp program it's a direct result of this. Like, you know, in the old world, like podcasting 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 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 ten cents core products do well in china and to the

extent that they aren't doing well in china uh 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? You alluded to the Berkshire Hathaway thing. I'll go out on a limb and say, Tencent's core products were copies of things that were doing well elsewhere, 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 are they sort of a very good sort of ruthless cutthroat investment and, and copying company? Both, of course. So okay, this was my other tech team, too. This is such a great great question i'm so glad you asked it and and that it's come out in this episode this is a core question that people have asked for years about tencent like don't they just copy everything and i think we've tried to paint the picture throughout this episode of you know going back to that pony mock one of his few you know public quotes of like 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 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 WeChat is so powerful in China has never worked anywhere else. That's why WhatsApp is so powerful in Europe and as doesn't really work, you know, in the US and and, you know, all the things that work here,

like they're just these elements like take the US, for example, iMessage is the market is so fragmented, because iMessage 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 iMessage 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, you know, monopolies, like everybody's always asking, when is Tencent going global? Why aren't Tencent's products working, you know, elsewhere around the world?

And this is it is that like they can't, you know, like 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 like, what 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 Didi works is super different than the way Uber works in the U S is different than the way the Indian ride sharing companies work. Uh, like you need to accept cash in India. Like you would never use cash with uber in the u.s 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. That it's a conglomeration of local markets, some of which are going to be very dominant, others you're going to be fighting for scraps, and in others you're going to have nothing. Yeah, I mean, I think that the 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 is like based on whatsapp if we're messaging and that china is based on wechat like and when i need to interact with you know 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 like the whole value prop of air 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,

is, uh, I believe is succeeding to a greater extent than other Western companies in China, um, because of this pressure to like make it all one, one network. Well, speaking of networks, my 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 if you have the product right or even if you have the product you know within spitting range of the 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 any 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 the most growth at that time. But there's a pretty interesting thing going on now 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 big 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 um what ben thompson has uh talked about for years now 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 stance. But legally, like, you know, 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? Yeah, 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, NASPERS 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 Tencent stock. At that time, it represents a 5,500x from the 32 million to their $175 billion of shares in Tencent. I'll take it.

Was it 32 million they invested initially or was it 20 million? of shares in Tencent. I'll take it. Was it $32 million they invested initially or was it $20 million? They 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 diluted down to owning about a third of the company. And then they got diluted 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 dilution in the IPO. Well, anyway, whatever. At this point, talk about rounding errors. Yeah. And 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 so 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 not only 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 and the ability to get liquid on that while naspers still owns 31.2 percent of 10 cent their investors do not look at anything they do other than that ownership as valuable. Sort of like Altaba, like we talked about in the Alibaba episode. There are two ways that you can invest in Tencent. Like you can go buy Tencent stock on the Hong Kong Stock Exchange, or you could go buy NASPR's 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. There certainly, there are, you know,

other candidates are Excel's investment in Facebook, which was gosh, what was it? It was like 10 million for just under 10% of the company, or even Peter Thiel's angel investmentBank, I believe, I'm thinking back to the Alibaba episode, they start exiting some of the Alibaba stock, right? Uh, along the way. And certainly Yahoo, when they had come in and invested a billion dollars for 40% of the company, they exited, uh, 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, this 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, this is the way VC 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. It'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 going to go with this as number one. Please drop it in the Slack or hit us up, acquiredfm at gmail. if uh if you have other opinions but i it's hard to imagine hard to imagine a better investment i don't know what nasper's governance structure is but like that they've held it for so long and still do like what uh 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 got to 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. Carbouts. Yeah.

So mine is president Barack Obama as one of the first podcasters ever so there was an amazing uh i can't even remember where i found this maybe reddit on barack obama's u.s 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 Wayback Machine preserved it. So we'll put the link in the show notes here to click through and look at it. But there's a page that has, I don't know, 20 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. And 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 if there's first few years, it was just a dribble of people here and there. It was a kludgy thing to do. You know, you make this weird RSS feed thing.

I guess it's still a kludgy thing to do. 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 click this button that says podcast rss which i think just literally takes you to an xml file and then there's a third button called audio oh no way oh my god i hadn't seen that that's awesome incredible that's incredible well you know what uh company we still haven't covered on this show audio indeed that's what we should do that we should we should uh we should title the episode audio i'll be a little in joke all right um my carve outs uh i have two

which i know is against the rules, but a, we skipped carve outs a couple of times this season. Uh, but B because this is the last episode of the season. I, I, I have good reason here. The first is, is timely. So it has to be now. It may already be a little past, but, but let's revive it. Go listen to Kara Swisher's interview with the Google walkout organizers, friend of the show, Kara Swisher, friend of the show kara swisher yes friend of the show kara swisher incredible everything you know 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 uh everything going on just really really great in in true style you know she is of course opinionated but she brings out like from six people all at once. I can't imagine interviewing six people remote, some in person, some remote brings out their stories and the purpose of the Google walkout and everything behind it in a way that is 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 uh that came to me as i was just browsing twitter sometimes every now and then i'm like twitter like this is just like a cesspool i'm ready to give it up and then like they they hit you with the gem um alan iverson i wrote this is your jam really amazing this is my jam alan iverson it's a it's a gem this i'm not i'm not kidding this is like an incredible gem alan iverson writing for the players tribune writes an incredibly long piece just about him and his story and like it's so

cool i grew up in philadelphia like watching alan iverson you know play and like everything of course at the basketball player alan iverson he changed so many things like there would be no you know everything about what the nba is today comes from alan iverson 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 now all these nba players are empowered like lebron is being lebron you know and staff is being staff like uh it's uh it's so good can't recommend it enough uh 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 was misunderstood in so many ways at the time then 10 20 years later come back back and be able to write about it and hear it from his perspective. Awesome. Well, adding to my Instapaper.

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all acquired listeners get $1,000 of free credit. Vanta.com slash acquired. 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 aren't subscribed and want to hear more, you can subscribe from probably 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 it's making sort of a meaningful impact on Acquired and what we're able to do as far as travel to guests and being able to promote the show more, bring on more listeners. And really, it's kind of funny, like we 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.