Business-model Dynamics: A Case Study of Tencent Jing-jing DAI, Li SHEN, Wen-fu ZHENG School of Economics and Management, Beijing University of Posts and Telecommunications, Beijing, China ˄Email: 1daijingjing198911@gmail.com, 2shenli.bupt@gmail.com, 3zhengwenfu@gmail.com˅ Abstract - A company with a proper business model appears to have advantages over one with perfect profit model. This paper develops a new framework for explaining how enterprises adopt business-model dynamics to impact their development process. In this paper, to demonstrate how the process occurred we present a longitudinal case study to find out how Tencent acted in every stage. We explore the history of Tencent and analyze his choices and consequences in the view of business-model changes. Our findings indicate that enterprises prefer avoiding major revisions in their business-models, rather than exploring a new one. This forms a major challenge for managers to make a strategic decision. Internet Company. Also we will show you how a native of Chinese Internet companies chooses and builds his own business models, and what his victory over his rivals is like. The remainder of the paper is organized as follows. After this introduction section, the second section provides a literature review. The third section lays out the research methodology. In the fourth section we use a case of Tencent to explore how a Hi-tech company survives in the intense competition. In section 5, we put up the results and present our discussion. The final Section elicits a conclusion and offers some advice for future research. Keywords - Business-model dynamics, Tencent, strategy, dynamic capabilities II. LITERATURE VIEW So far, the research on business models has developed from business model definition via investigating business model components and categorizing business models into categories, to description models [5]. However the academia still has not produced a consensus on the definition of a business model. In the paper we adopt the definition [6]: business model is a blueprint for the way a business creates and captures value from new services and products. With a few exceptions [7] [8] [9], most scholars have taken a static standpoint on business models. By assuming that business models maintain at a stable stage over time and that revision is refused, they are used to investigate the value-creating logic of organizations. But in reality, business models vary as the environment changes. Based on the current studies, more and more contribute to the furtherance of business model dynamics. Although the theory has so far not been meticulously deliberated, from the current achievements in the researches certain valuable insights can be extracted. Llopis, Gonzalez, & Gasco [10] clarified the importance of human resources/people to the changes in the process of business models. Burkhardt and Gerard [11] indicated that how enterprise culture impacts the business models during the extension of the enterprise. Several researchers have described and analyzed technology and market-related forces to be the most important external driving forces of business-model dynamics. In this paper, we try to use the framework of the literature [4] (see TABLE I) to analyze business model dynamics of Tencent. Tencent’s business-model changes can be divided into I. INTRODUCTION Nowadays globalization is becoming a prevailing trend. The rapidly changing and uncertain business environment means that the biggest challenge and intense competition facing Chinese Hi-tech companies is how to enhance their enterprise competence and gain competitive advantages. A large number of studies have established that a proper business model is the most significant tool that Chinese Hi-tech companies adopt to maintain competitive advantages [1] [2] [3]. Many scholars lay a conclusion that the survival of Chinese Hi-tech companies to a great extent in the modern era depend on required capabilities in the connection with the transformation of business models. Despite an increasing number of reports on business models of Chinese Hi-tech companies, many questions have not yet to be fully addressed, for example: Why do Chinese Hi-tech companies stubbornly adhere to the "imitation" strategy as their business model at the start-up stage of the companies? Is it a principle or strategy that only big companies with business model dynamics can survive in competitive environment in E-commence? What are the changes and challenges that Chinese Hi-tech companies must face in terms of the media, E-commerce, copyright, and technology innovation to seek a most proper business model? In this article author tries to using “Business-model dynamics: key issues model” [4] to analyze and explain these problems. Our case study attempts to make substantial contributions to literature, demonstrating how business model dynamics can be used to analyze an ___________________________________ 978-1-61284-449-7/11/$26.00 ©2011 IEEE  has been acknowledged by numbers of local and national awards in the past thirteen years. The considerable number of users and high profit clearly demonstrate its capacity for innovation, thus providing insights that help us better understand the business model dynamics. These features allow us to analyze the dynamic capabilities that contribute to the companies’ capacity for sustainable innovation. The data was collected between 1998 and 2010 in the form of reviews of companies’ public reports and in-depth semi-structured interviews with relevant managers. The following section highlights the most important features of the Tencent’s case with regard to company background, imitative innovation, specific advantage of technology-based firm and diversification strategy. TABLE I BUSINESS-MODEL DYNAMICS: KEY ISSUES Individual agency and business  model  dynamics Distinguishing between the different types of business-model change Creating a new business Creating a new Businessmodel business model Model (by established (by start-up Creation companies) companies) BusinessModel Extension Adding new processes that do not affect the company’s business model BusinessModel Revision Replacing processes that have a significant effect on the company’s business model (‘major’ revision) Adding new processes that affect the company’s business model: Outside the company (implies replacing old processes by new ones) -it is Business-Model CreationInside the company -it is Business-Model Revision- Replacing processes that do not have a significant effect on the company’s business model (‘minor’ revision) IV. CASE STUDIES: TENCENT Background Abandoning/removing processes Business(closing down a business area or unit, or the entire Model company) Termination Companies tend to avoid major business-model revision Source: (André Cavalcante, Kesting & Ulhøi, 2010) four stages: Business-model Creation, Business-model Extension, Business-model Revision and Business-model Termination. The business-model creation category refers to the transition from “business ideas” to getting a new business model starting up and running. And the extension means adding activities to an existing business model. While the revision means removing something that modifies an existing business model or adding it for a better process. Here, termination means abandoning/removing processes. Founded in November, 1998, Tencent has grown into one of the Chinese largest and most widely used Internet service portal. Since its establishment over the last decade, Tencent has maintained steady growth under its useroriented operating strategies. On June 16, 2004, Tencent Holdings Limited (SEHK 700) went public on the main board of the Hong Kong Stock Exchange. Currently, Tencent takes "providing users with a one-stop online life service" as its strategic objective, based on which Tencent completed a business layout, built QQ, Tencent (QQ.com), QQ games, and paipai.com. The platform of these four networks has become the formation of China's largest online community. Looking forward, Tencent remains committed to enhancing its development and innovation capabilities while strengthening its nationwide branding for its long-term development. Imitative innovation There is word that ridicules Tencent as a company “always to imitate, never to be beyond”, and also joked that: "take other people's way, left no way out for others." But simply described as an imitation strategy, it is not objective for Tencent. In fact from the PC client terminal, desktop web applications to the phone APP software, the development strategy of each product line of Tencent is not just to "copy", but to follow the "Imitation, follow, catch more, monopoly" strategy. III. RESEARCH METHOD Given the early stage of empirical research into business model dynamics with regard to value creation, we used an exploratory case study research strategy that applied qualitative methods. The adoption of a qualitative methodology is consistent with the fact that business model dynamics are embedded in firms’ organizational routines and processes [11]; thus, they are very difficult to identify through quantitative measures. In an attempt to fill the research gaps in the literature, we investigate an outstandingly innovative firm in Chinese Internet industry, namely the Tencent Technology (Shenzhen) Limited Company. The company was chosen for two reasons: (1) Tencent has been in operation profitably for more than a decade with huge profit and users’ support. (2) Tencent Specific advantages of Technology-based firm The biggest competitive advantage of Tencent is his customer group which accumulated during the years of development as a Personal Instant Messaging pioneer. QQ seems to be the synonym of Network Communications in China now. The total number of registered QQ accounts has reached 1 billion and the number of All-time peak concurrent user accounts has increased up to 10 million.  The customer group of Tencent becomes a powerful and unique weapon in the uncertain environments. for entertainment purposes. In November of the same year, Tencent realized that portal has a great prospect and entered into the portal. Different from other comprehensive portal such as sina, Tencent built his own "entertainment" portals at a high speed, by using its own advantage in huge custom group. In addition, Tencent launched the innovative mini pop page, bound it with the QQ software, and effectively promoted the portal to the public. In the year of 2005, Tencent began to recognize the opportunities brought about by the e-commerce, and soon he launched "paipai" to occupy a seat of electronic commerce. These applications mentioned above, developed in the past thirteen years, have added new processes that affect the company’s business models, which make Tencent a successful full-service Internet company. To be exact, it is Tencent to have created such new business models. In addition, Tencent authorized East Lee Bank the use of its brand, in order to develop the traditional product like clothing. Which is included in the outside the company and created a new business model. Tencent cooperated with bank to launch online payment for “paipai”, which is included in the outside the company and has a significant effect on Tencent’s business model. Launching new services such as RTX and micro-Bo to meet the needs of customers also has a significant effect on the company’s business model, and it can be categorized in the inside the company. Diversification strategy From simple chat to online life, Tencent experienced ten years of unusual. Following the strategy of one-stop online living, Tencent has established seven main business lines, including IM (Instant Messaging) Service, Online Media, Wireless Internet Value-Added Services, Interactive Entertainment Service, Internet Value-added Service, E-commerce and Online Advertising Service. These business lines almost involve all kinds of Internet services and most of them have turned out to be successful. So it is also called "enemies of the whole network." V. RESEARCH RESULTS AND DISCUSSION Business-model dynamics: key issues of Tencent Business-model extension At this stage, Tencent has already defined its core repeated standard processes. Then, Tencent becomes more skillful and familiar with the procedures related to the execution of his tasks. At that time, he focused on offering products in better ways and in broader geographic areas. Since 2003, Tencent has provided various types of client applications and value-added services, including Internet value-added services and mobile value-added services, which can be regarded as adding new processes that do not affect the business model of Tencent. Meanwhile, Tencent seized the opportunity in the period of rapid development of Internet in China to enter the entertainment industry, developing the business of "QQ Games" and other online games. For now, Tencent has become one of the leaders in the game industry and then gives its instant messaging system a new location – TABLE II BUSINESS-MODEL DYNAMICS: KEY ISSUES OF TENCENT Distinguishing between the different types of business-model change Meet consumers’ demand for Main business BusinessInternet instant messaging by was wireless Model paging solutions developing OICQ. Creation with Carriers. Tencent's dynamic business model Business-model creation The business models of Tencent start with a business market vision [7]. At first the main business of Tencent was wireless paging solutions with Carriers. But soon Tencent found that wireless paging service was going downhill and OICQ was more and more popular in the world. What’s more, there already existed some OICQ users in China. Huateng Ma, one of the main founders of Tencent, believed that OICQ would have a bright future. So the Tencent’s motivation for business-model creation is the perception/understanding that there exists an attractive new business opportunity for OICQ. The preliminary idea always undergoes several changes before the business model is finally put into practice. Like Tencent, which is mentioned above, its main business is Wireless Paging System at the beginning, whereas it focuses on instant messaging at last (see TABLE II). BusinessModel Extension BusinessModel Revision Provide various types of client application. Provide valueadded services for telecom companies. Offer various types of online advertising. Outside the company˖ Authorize East Lee Bank the use of its brand, with developing the traditional product like clothing. Inside the company˖ Casual Game Platform (QQ Game) News Portal (QQ.com) C2C (paipai) Search Engine (soso) Online Community (T’s Friends) Outside the company˖ Cooperate with bank to launch online payment. Inside the company: /DXQFKQHZVHUYLFHVVXFKDV RTXDQGPLFUR%RWRPHHW WKHQHHGRIFXVWRPHUV Constantly update the client software and application. ,QFUHDVH IXQFWLRQVRI 44DQGRWKHU DSSOLFDWLRQV Tencent tends to avoid major business-model revision  Each success of Tencent’s business model is not an accident. They all have a series of processes: (1) The analysis of the external environment; (2) The definition of new opportunities for innovation; (3) The responsible strategic for new opportunities; (4) Finding the new partnership; (5) The cooperation and competition; (6) The new competitive advantages and an ending with the existing cooperation. Business-model revision Revision implies intervening in existing processes, which in turn implies to follow a different direction and/or to explore alternative ways of doing business. At the stage of business-model extension, there are many applications which can replace processes that (do not) have a significant effect on the business model of Tencent. Fig.1. Business Relationship of Tencent Business Relationship The Fig.1 shows the relationship of Tencent’s major business areas: the instant messaging is the core of Tencent’s business, and the clients and search applications are the basement of other applications. Relying on the core and the basement, Tencent pushes himself into the entertainment, portal, e-commerce fields quickly and successfully, as the instant messaging provides a large number of potential users and offers a good way to promote. On the other hand, the users in these areas can also become the users of the instant messaging; therefore, the two sides are both promoted. In this process, original business model of Tencent is improving and updating continuously. So that Tencent can have a better respond to the complex external environment of the Internet. Tencent’s choices and consequences As we’ve already known Tencent’s dynamic business-model, the question arises: what ‘parts’ are business models made of? We contend that they are composed of two different sets of elements [12]: (a) the concrete choices made by management about how the organization must be operated, and (b) the consequences of these choices. And we analyze Tencent in the aspects of his choices and consequences. Important choices in its business model - and their consequences - as illustrated in Table III. TABLE III TENCENT’S CHOICES AND CONSEQUENCES Choice Developed OICQ Small process of the software QQ software associated with the application of multientertainment (music, games, space, farms, etc.) Membership, distinguish the level of the users Developed the virtual goods in QQ Show, low price Developed telecom valueadded services early Early development of casual games platform Applies the enterprise with the instant messaging software "RTX" Acquisition Foxmail Enter in portal, e-commerce and other fields Introduced So-So Tencent Mini Home Moves forward Tencent synergistic business model Consequence Developing fast and becoming the biggest IM server Attracts more users Having developed for over ten years, Tencent has formed a good business model to adapt the complex Internet environment. Next part we will talk about the synergy of Tencent from the point of business model. Fig.2 is a representation of Tencent's synergistic business model. The model has three cycles. The two aspects constitute the source of Tencent’s income: one is the individual subscribers, impacted by the scope economy; the second is the enterprise subscribers, based on the social influence and brand value. The main resource of Tencent’s users is from the QQ instant messaging service platform. Tencent expands a series of Internet value-added services, mobile wireless industry value-added services, interactive entertainment business, online media business and many other services on the base of the platform. The final goal is to achieve the basic strategic of "online life" for the loyalty users of QQ. At the same time, Tencent maximizes the efficiency of the user resources, copying the IM platform to the others in the simplest way. Increasing coordination between the various business penetrations, Tencent can quickly operate the other business platforms and users. Consolidate the "entertainment" based instant messaging market position Low cost and a lucrative system Low cost and profitable Mobile QQ meets the customers early, seize the lead of the valueadded telecom business market A number of game users, large market To seize the enterprise communications market QQ email is more professional To achieve "one-stop online life" goals More convenient for other applications Tencent(QQ.com) is well known Attracts new users, maintain the old users  company. This article provides a useful tool for analyzing and forecasting the possible changes and innovation. REFERENCES [1] Håkansson, H. (ed.) 1982. International Marketing and Purchasing of Industrial Goods: an interaction approach. New York. Wiley. [2] Powell, W.W. 1990. Neither market nor hierarchy: Network forms of organization. In L.L. Cummins and B. Staw (eds.). Research in Organizational Behavior. 12, pp. 295-336. [3] Achrol, R.S. and P. Kotler. 1999. Marketing in the Network Economy. Journal of Marketing. Special issue 63. pp.146163. [4] André Cavalcante, S. Kesting, P. Ulhøi, J. 2010. Business Model Dynamics: The Central Role Of Individual Agencyˈ Proceedings of The 2010 Academy of Management Meeting in Montreal, Canada, August 6-10, pp.15-19. [5] Pateli, A.G.G.M.G. 2003. A Framework for Understanding and Analysing eBusiness Models. In, 16th Bled eCommerce Conference, Bled, Slovenia. [6] Chesbrough, H. and Rosenbloom, R.S. 2002.The role of the business model in capturing value from innovation: Evidence from Xerox Corporation’s technology spin-off companies, Industrial and Corporate Change, 11(3): 529-555. [7] Andries, P., K. Debackere, and B. Van Looy, 2006. Effective business model adaptation strategies for new technology based ventures. In 9th PREBEM Conference on Business Economics, Management and Organization Science. Amersfoort, The Netherlands. [8] MacInnes, I. 2005. Dynamic business model framework for emerging technologies. International Journal of Services Technology and Management, pp. 6, 1, 3-19. [9] Vaccaro, V.L. and D.Y. Cohn, 2004. The Evolution of Business Models and Marketing Strategies in the Music Industry. JMM - The International Journal on Media Management, 6 (1 and 2): pp. 46-58. [10] Reyes G., J. Gasco, J. Llopis. 2010. Information Systems Offshore Outsourcing: An Exploratory Study of Motivations and Risks in Large Spanish Firms. IS Management 27(4): 340-355. [11] Gina Burkhardt, Diane Gerard, 2006. The lever for changing the business model at Learning Point Associates.17 AUG . DOI: 10.1002/joe. [12] Shafer, S. M., Smith, H. J., & Linder, J. C. 2005. The power of business models.Business Horizons, 48(4), 199– 207 [13]Eisenhardt K., and Martin, J. 2000. Dynamic capabilities: what are they? Strategic Management Journal, 21, pp.11051121 [14] Casadesus-Masanell,R. and Ricart, J.E. 2010.From Strategy to Business Models and onto Tactics, doi:10.1016/j.lrp.2010.01.004 Fig.2. Tencent synergistic business model Note: The mark "+" represents a positive relationship between factors, and "-" represents a negative relationship. VI. CONCLUSION At an exploratory stage, Business Model Dynamic Theory is not yet perfect, but it is still valuable for scholars. More and more attention is paid to the maneuverability of Business Model. This paper applies the “Business-model dynamics: key issues model” [4] to exploring the distinguishment between the different types of business-model change. By discussing three topics which referred in section 3, our case study shows that companies prefer avoiding major revisions in their business-models, rather than exploring a new one. The paper aims to investigate how it can improve the competitiveness of Hi-tech companies by analyzing their business model to contribute towards sustainable development in an uncertain environment. At the same time, this paper provides a philosophical stance to give a better understanding of business models of enterprises. Managerial implications In essence, business-model dynamics is a unique capability of enterprise to recognize the change in the uncertain environment by the will to promote and implement such changes. As a start-company, the founders should visualize what the business model of their future enterprise will be like and prepare for the actions needed to handle a new change. For an established company, Manager’s decision to venture the business model is quite significant, since the business processes of the company have already been securely established. Future research The Business Model is of great significance to the development of an enterprise. There are many crucial illustrations for further research such as an assessment of Changes impacting on the established business model of a