Tencent is Catching Up to its Counterparts, Ranking Second in Global Patent Applications

06/05/2019

When it comes to innovation, Chinese tech companies are rapidly catching up to their US competitors. That’s what’s happening with Tencent, which ranks second among global internet companies after having submitted over 30,000 patent applications

 

When it comes to innovation, Chinese tech companies are rapidly catching up to their international competitors, especially to their American counterparts. It is what research by Nikkei and Hitotsubashi University in Tokyo reported last March.

That is what is happening with Chinese tech giant Tencent, which recently revealed to have submitted over 30,000 patent applications worldwide with over 10,000 of them successfully granted. It suddenly ranked second by patent applications among global internet companies, second only to its American counterpart Google.

With regard to operating profit, the US side outperforms China by nearly five times, with a combined market value of $2.86 trillion compared to the PRC at roughly $111 billion. But the gap is not nearly as wide when it comes to innovative potential.

 

According to the Nikkei and Hitotsubashi University’s index for “innovative potential”, companies from the Middle Kingdom scored 62 compared with US companies at 64. Not only Facebook, Amazon, Apple, and Netflix but also Alibaba, Tencent, and JD.com are included in the index.

 

This is the result of Beijing’s massive investments in the Made in China 2025 plan, which aims to drive the country to the hi-tech supremacy through digital innovation. Indeed, China’s growing capacity for innovation is driven by the increase in research and development (R&D) spending with local big players investing a huge amount of money to thrive in a rapidly changing industry.

Data revealed that over the past five years, top Chinese tech firms grew R&D expenditure by 430% on average, compared with US companies at “only” 290%. Alibaba alone lifted R&D investments by 470% to over $3 billion.

However, what makes Chinese giants so competitive is also their outside-of-the-box thinking, which has often lead them to diversify the business according to the industry evolution.

 

Tencent patent applications - wechat - cifnews

© 123rf. One of Tencent’s major success is the WeChat messaging app, which has reached a billion users in less than eight years.

 

As mentioned above, in April, during the world’s 19th intellectual property protection day, Tencent announced that it had submitted over 30,000 patent applications worldwide, and the number of patents granted has exceeded 10,000. This makes it the top-ranked tech company in the People’s Republic by patent applications, second only to Google when it comes to global internet companies.

Tencent’s patent applications actually cover both the existing and emerging technologies. They range from instant messaging to email, from advertising to payments, in addition to music, security, location services, cloud, smart hardware, artificial intelligence (AI), virtual reality, and much more.

Tencent QQ alone has applied for more than 3,000 patents worldwide in the past 20 years, with more than 1,500 official licenses. Among them, three patents have also won the China Patent Gold Award.

Today, the Shenzhen-based company is already worth more than the American Facebook and it is listed among the world’s top five giants by turnover. The flagship product is certainly WeChat that started as a messaging app and ended as a comprehensive tool.

 

The company’s investment efforts seem to have successfully offset slower growth with a steady stream of profits. In fact, in the third quarter of 2018, Tencent’s profit increased by 30%, mainly thanks to the gains from its investments.

 

Above all, the success of Tencent resides, however, in a series of far-sighted investments. It has stakes in many international giants like Tesla and Spotify and reached important partnerships with global companies such as Lego and Carrefour. The firm has also targeted Hollywood with the acquisition, for $1.5 billion, of Skydance Media, the production company behind sagas like ‘Mission Impossible’ and of the ‘Star Trek’ science-fiction series.

Nevertheless, Tencent’s road has been long. It all started in Shenzen in southern China, in 1998 when Ma Huateng and Zhang Zhidong founded the investment company, which is now a renowned colossus. Today, not only this is the largest company in China but it is now up for global leadership after having made its triumphant entry into the top five of the most valuable companies in the world.

In 2017, in fact, Tencent reached a record market capitalization of $534.5 billion, making it the first Asian technology company to overcome the obstacle of $500 billion in capitalization. A historic event that has allowed the firm to beat Alibaba’s domestic rivals and to overcome Facebook of around $1.4 billion.

The direct competition with Facebook has actually begun with the purchase of over 12% of Snapchat‘s shares for a value of $145.8 million. A move that anticipated a series of very important financial operations abroad, although, on the domestic front, Tencent’s power was already consolidated by the leadership in the online gaming industry and the role of primary importance played within the bike sharing giant Ofo.

 

Tencent patent applications - shenzhen - cifnews

© Unsplash. Shenzhen. In less than 40 years, Tencent’s home, Shenzhen, turned into the megalopolis of China’s South becoming not only a hub for hi-tech but also the Silicon Valley of the East.

 

Returning to patents, undoubtedly, Tencent has outclassed the competition. Even in the field of network security, it has applied for more than 4,000 patent applications with over 1,000 patents authorized. According to Tencent Security, more than 113 million people were infected with mobile phone viruses in 2018. In response to this situation, the Tencent Security Anti-fraud Lab developed the first anti-virus engine that used AI against viruses, with an accuracy rate of 99.9%.

Nevertheless, the co-founder and chairman Pony Ma recently announced a new turn in the company’s investments to face the next two decades’ challenge of the industrial internet. According to Tencent Holding’s executives, the next 20 years of internet development will center on “2B”, or services to businesses, shifting from the focus on consumers of the past two decades.

 

Tencent’s new direction towards services to businesses is in line with China’s wider ambitions to lift its industries up the value chain and better compete globally in emerging technologies, such as artificial intelligence, in what has been dubbed the Fourth Industrial Revolution.

 

Martin Lau – the president of Tencent’s multinational investment holding company – referred to 2018 as Tencent’s best year in terms of investment since the department was formed in 2008. He said 63 of its portfolio companies over the past 11 years are now listed, and 122 are now Unicorns being valued over $1 billion.

According to Mr. Lau, the combined market value of companies in which Tencent holds a stake of 5% or more has exceeded $500 billion while the company’s own market capitalization now stands at $409 billion. And even in 2019, the Shenzhen firm does not intend to lower investments despite China’s economic slowdown and the increasing pressure of competition in the hi-tech sector.

 

Tencent patent applications - bat - cifnews

© PengBofan. Robin Li, Baidu (left), Jack Ma, Alibaba (middle), Pony Ma, Tencent (right). The 3 China tech-leaders are launching forays in many industries, and often end-up in fierce competitions.

 

Thanks to BAT – the acronym for Baidu, Alibaba, and Tencent – the Dragon is ready to challenge US Silicon Valley. Since 2015, Beijing has decided to bet on technology to strengthen the country’s international recognition with the launch of the Made in China 2025 economic plan, which aims to transform the old factory of the world into a 4.0 industry.

The Chinese government has therefore begun to invest more and more in sectors including robotics, AI, industrial automation, and 5G connection. China, in short, wants to be independent in terms of high technology, an element that will guarantee the political and economic dominance in the future. Therefore, Beijing has asked the three economic giants to accelerate the development of AI in many strategic sectors including transport, cybersecurity, environmental protection and more.

If the American GAFA – Google, Amazon, Facebook, and Apple – get half of their turnover from the international market, BAT have just started their global rise accounting for a total value of almost one trillion dollars of market capitalization.

But in the race for worldwide supremacy, Tencent is certainly helping the BAT trio to climb the ranks of global innovation. And the company’s revelation about patent applications is a clear sign of its intention to overtake Google’s record soon.

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