Tech

Shira Ovide is a Bloomberg Gadfly columnist covering technology. She previously was a reporter for the Wall Street Journal.

Facebook and China's Tencent are entrenched among the global technology elite, and they are more alike than at first glance. 

Yes, the two companies are quite different businesses. Facebook Inc. makes nearly all of its $36 billion in annual revenue from selling advertising to companies eager to reach the 2 billion people who use its internet hangouts each month.

Tencent Holdings Ltd., which owns the ubiquitous Chinese messaging services WeChat and QQ plus a string of popular computer video games, generates two-thirds of its $32 billion in yearly revenue from luring people to download video games, buy add-ons like virtual weapons and sign up for digital media options including a paid YouTube-like web video service. 

World Powers
The world's seven most valuable public companies are all in the technology sector, and Tencent is among them
Source: Bloomberg
Note: Tencent's market value has been converted into U.S. dollars.

But they're linked this week because Tencent leapfrogged Facebook on Tuesday to become the world's fifth-biggest public company by stock market value. It didn't last long; Facebook crawled back and the company's market value is now neck-and-neck with Tencent's. But the Chinese company's market standing is a useful reminder of Tencent's stunning recent performance. Already huge a year ago, Tencent's market cap has more than doubled in 2017 to $523 billion. That is a remarkable run for a company of its size.

King Kongs
Tecent's stock price has more than doubled this year, outpacing share gains of the other global technology giants. Stock increases in 2017:
Source: Bloomberg

Tencent's surge and the stock gains of other giant technology companies have cemented the industry's hold on the seven top spots of the world's most valuable public companies. Technology titans have a growing role in the lives of billions of people worldwide, spook companies in every industry and tilt the direction of global stock markets. Technology has never been so powerful nor so concentrated in the hands of a few superpowers. 

Facebook and Tencent aren't united solely by their close positions in the stock market rankings. Both took unique advantage of the smartphone revolution to become stars. Each has done well by clever copying of rivals. And Tencent and Facebook each perfectly encapsulate the technology needs and political environments of their home countries. They are so different from one another yet have much in common.

The secret to success for each company is how they became ascendant because of the smartphone. Facebook would not have become so popular and wealthy if it hadn't seen (belatedly) that more people were avidly using its social network on the computers in their pockets and purses and rebuilt its website and advertising business to optimize itself for a mobile world. Few predicted what came to pass: Facebook's news feed turned out to be the perfect advertising-sales machine for the smartphone age.

Like Facebook, Tencent started out thinking only about personal computers. But it developed WeChat, which became essential as China boomed into the world's largest market for smartphones. Now nearly a billion people use WeChat every month, and people use it to pay bills, order taxis, tip street musicians and exchange contact information with business associates. Tencent became inescapable in China because, like Facebook, the company's digital hangouts were perfectly suited to its users' smartphone-dependent lives. 

Tale of Two Companies
Annual revenue is similar at Facebook and Tencent, but the U.S. company is far more profitable
Source: Bloomberg
Note: Revenue and profit are for the last 12 months. Tencent's reported figures have been converted into U.S. dollars.

Both companies also have been clever copycats. Tencent's original product was a knockoff of existing instant-messaging services, and it adapted popular video games like "League of Legends" for Chinese audiences. Facebook's origin story includes accusations of ripping off other people's ideas. And more recently, Facebook has cleverly borrowed tech ideas from Snapchat and even Tencent itself. It's clear that Facebook sees WeChat as a model for its Messenger app, one of many ways in which ideas from China's internet companies are spilling into the rest of the world

Facebook still generates nearly half of its revenue from the U.S. and Canada, although 89 percent of its monthly users are outside those two countries. Tencent's business is more dependent on its home country, where many U.S. internet companies -- including Facebook -- are shut out.

Politically, the companies mirror their home countries. Facebook has ended up in hot water because its digital hangouts were too free and open to nefarious forces like Russian propaganda. Tencent has been criticized for being too quick to censor its internet hangouts to comply with Chinese law. 

Wherever their market value rankings shake out, both Facebook and Tencent are poised to keep their lock on the digital lives of their home countries. And both companies -- like it or not -- are trying to get even more powerful and ubiquitous in the rest of the world, too. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Shira Ovide in New York at sovide@bloomberg.net

To contact the editor responsible for this story:
Daniel Niemi at dniemi1@bloomberg.net