Facebook may not be right for China

By Melanie Lee, Reuters

SHANGHAI — When it comes to China, Facebook should consider itself forewarned. Cracking the world’s biggest Internet population might seem an obvious ambition for the social networking giant as it trumpets its global growth before a US$5 billion initial public offering, but the chances it will succeed look slim. Facebook said last week it was contemplating re-entering China, the world’s second biggest economy, after being blocked nearly three years ago. But its offering would likely face intense competition, political meddling and little commercial success. Few foreign Internet companies have succeeded in China. EBay Inc., Google Inc., Amazon.com Inc., Yahoo Inc. and most recently Groupon Inc. form the list of notable online players who have failed to gain traction in the fast-growing nation of 1.3 billion people.

“It’s actually a bit late for Facebook,” said Hong Kong-based CLSA analyst Elinor Leung, who added that the market was already quite saturated with local players such as Sina Corp., Renren Inc., Kaixinwang001 and Tencent Holdings. Facebook first launched its Chinese interface in 2008 but was blocked by Beijing in mid-2009 following deadly riots in the western province of Xinjiang that authorities say were abetted by the social networking site. “It will be very difficult for Facebook to introduce something that will allow them to differentiate themselves,” CLSA’s Leung said. Almost half of China’s 500 million Internet users use social networking sites, government data showed in January. The dominant players among China’s social networking sites (SNS) are Renren and Sina Corp., which is attempting to turn its highly popular microblogging service, Weibo, into a full-fledged social network. Will China ‘Like’ Facebook? Domestic sites have flourished into self-contained ecosystems with their own suite of apps, news portals, micro-currencies and e-commerce options, making it hard for Facebook, if it gained entry, to compete, industry players say. “China’s SNS space is more crowded and competitive than the U.S. with multiple large and established players all investing for long-term growth,” said Joe Chen, chief executive of Renren, which would become a direct competitor with Facebook should the U.S. giant enter the market. “Facebook will enter a much more competitive market with a significantly different culture, business environment and other characteristics than what it has previously experienced in the global market,” Chen added. Analysts agreed. “The Chinese have been social for years, and Facebook would be just one more option among many,” said Sam Flemming, founder of Shanghai-based social media consultancy, CIC.

“It certainly would have a certain amount of cache, especially among the more internationalized Chinese and foreigners living in China, but it would need a big push in awareness beyond this small group,” Flemming said. Foreigners and Chinese citizens who want to access Facebook and other blocked sites must use special VPN software to get around China’s firewall to do so, meaning a very limited number of Chinese currently use it.