China's second-largest Internet company, Tencent started as an online chat service called "QQ" back in 1998. That service caught on among young people in China because it offered them a way to communicate for free, similar to how AOL's (AOL) instant messenger service works.
From there it's blossomed into a website that sells virtual goods at micro price points. With millions of users, that's translated into a fast-growing billion dollar business.
Tencent has used its stickiness with the Chinese consumer to construct strategic partnership in other potentially lucrative niches. In 2012, the company launched a strategic partnership with Disney (DIS) to co-develop animated web content for Chinese consumers.
Tencent hosts a microblogging, Twitter-esque service called Weibo that's catching on among consumers, and it also collects revenues through a Paypal service called Tenpay. To retain its hold in the Chinese marketplace, Tencent has spent roughly $800 million to acquire several dozen Chinese startups.
China is the world's second largest economy, but it will still take years before living conditions are on par with other developed countries.
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