Key takeaways
- The most significant company in the video and computer game space is one that people do not frequently think of Tencent, which has a market value of $229 billion (more than the market value of Apple, Google, Microsoft, Sony and EA combined).
- Tencent’s game properties include the biggest PC game (League of Legends), the strongest mobile franchise (Clash, as in Clash of Clans and Clash Royale) and the most important console game company (Epic, maker of Unreal and Gears of War).
- Tencent is also a very progressive company, allowing is investments the autonomy to make decisions and grow.
The most important company in the game industry
I was doing some research last week, when I was surprised at a company with a $200+ billion market value (market capitalization). The company was Tencent, with a market cap $229 billion. For comparison Microsoft has a market value is $479 billion. Apple is at $614 billion. It is definitely more than Sony, who only has a $37 billion market. Want to try EA, forget it, only $24 billion.
While you can argue that Tencent is not a game company (and the bulk of its income does come from other operations), looking closely it becomes apparent that they also dominate in the (western) game space. Among their assets in the game space:
- Clash of Clans and Clash Royale from Supercell. Tencent acquired Supercell this Spring.
- Unreal and Gears of War developer Epic Games. Tencent is the largest shareholder in Epic, probably the most important developer in the console game space. Unreal is the engine (a suite of game development tools) used to create many of the most popular games in the world, from Dragon Quest and Final Fantasy to Moto Racer to Street Fighter to Assassins Creed to Brothers in Arms to…. Not only is it the most successful game development engine, Epic’s first party titles include Unreal (big surprise), Gears of War and Infinity Blade.
- League of Legends creator Riot Games. Tencent controls the largest PC game in the world, League of Legends.
- 8 Ball Pool and Agar.io developer Miniclip is another Tencent company. Miniclip always sems to have multiple games in the top-10 mobile charts and has tens of millions of daily players.
- Kim Kardashian Hollywood developer Glu Mobile. Tencent is a minority investor in the most prolific mobile developer that uses big name IP, such as Kim Kardashian, Nicki Minaj and Gordon Ramsey.
- QuizUp from Plain Vanilla is another part of the Tencent empire, as Tencent is one of Plain Vanilla’s largest investors.
- Skylanders, World of Warcraft, Destiny and Call of Duty owner Activision/Blizzard is also part of the Tencent empire. Tencent owns 25 percent of Activision/Blizzard.
- And there is more. Tencent is also one of the largest shareholders in PocketGems, Dots, Robot Entertainment and I am sure some I have missed.
When you look at the properties that Tencent controls (Clash of Clans, League of Legends, etc), it is clearly the most important company in our space.
The other interesting element of Tencent
In my conversations with people at some of the companies above (and this data is totally anecdotal), Tencent is a very interesting parent. People often group it with Japanese and Korean companies, which are often very challenging to work at. My friends who have worked for Japanese companies complain about how western employees and executives had virtually no autonomy to make decisions (they were all made at the Japan level) and even then decision making was excruciatingly slow.
From what I have heard, Tencent, and Chinese companies in general, are pretty much the opposite and often more progressive than western companies. Tencent has left the companies above very autonomous and business has barely changed on the day-to-day level. Tencent, however, has helped these companies grow by expanding into the Asia. Most surprisingly, in the incredibly cynical game space, I have not heard anyone say anything bad about working for Tencent.
Chinese multinationals are often much more progressive than other Asian and often western competitors. In 2013, I wrote about how Haier (a Chinese white goods manufacturer) eliminated all of its middle management, a concept here that companies (other than Zappos) are just starting to look at. I have never worked at a Chinese company and have actually interacted very little with them, but between Tencent, Haier and Alibaba (the world’s most successful retailer), Chinese companies show many progressives traits that lead to success in the game industry.
The game industry’s most important player
When you combine Tencent’s market valuation with its network of the most important game properties, it is clear that they are the most important game company in the world. Over time, Tencent’s performance will be more parallel to that of the game. When Tencent does well, the game industry does well. When the game industry does well, Tencent will do well.
The Business of Social Games and Casino 
I think the real issue here is that Tencent has acquired – not built – all this western talent. Indeed, it’s not clear it can build any game business outside of China, or even within China – as the bulk of its Chinese games business is based on its PC and mobile distribution muscle, not any creative smarts. This is not to negate the company’s reach, just to better understand what Tencent does best – acquires talent and then let talent do what it wants.
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