Is This SINA's Biggest Mistake?

Just as SINA (Nasdaq: SINA  ) was getting ready to monetize its ridiculously popular Weibo microblogging site, the question now is if users will even be around by the time a new social brand advertising initiative kicks in.

SINA Weibo introduced the points-based Weibo Credits this week. It's a system that docks microbloggers for doing things including disseminating untrue information or posting personal attacks. All Weibo users start with 80 points. If a user's rating drops below 60, a "low credit" icon will appear on the blogger's page. If the score falls all the way to zero the account is toast.

There are a few ways to bring a Weibo Credit score higher. Over time, a user with good behavior can restore a marked-down social credit rating. There are also some one-time events to boost a score, including tethering the account to a verified mobile phone number or submitting a user's ID card number, but clearly this is a platform created more to censor the free speakers than to reward those playing by the book.

The kicker here is that errant users are reported by their fellow users. Even though the claims will be verified on SINA's end -- a daunting task, actually -- witch hunts and gaming will happen. Folks tagged with low credit charms and those fearing that they may be censored will simply stop participating.

China takes its Internet filtering seriously.

Renren (Nasdaq: RENN  ) , China's leading social-networking website, requires users to register using their real names. Leading search engine Baidu (Nasdaq: BIDU  ) saw its already significant market share get even bigger when Google (Nasdaq: GOOG  ) staged a partial retreat over Chinese demands to filter out sensitive query results.

SINA Weibo is a hot site, but the company knows that it's going to have to play nice with China's strict government if it wants to keep it that way. The Weibo Credits rollout is simply a proactive move that will assure its long-term viability in the eyes of regulators, but will users put up with censorship?

This comes at a sensitive time. Investors forgave SINA's most recent quarterly report -- one that saw adjusted revenue climb a mere 6% and a quarterly deficit -- because its monetization efforts for Weibo would have a "meaningful impact" on results in the second half of the year. However, if users start to stay away as a result of spite or paranoia, there will be little money to be made off a social site that's going out of favor.

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The Motley Fool owns shares of Google and Baidu. Motley Fool newsletter services have recommended buying shares of Baidu, SINA, and Google. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


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  • Report this Comment On May 30, 2012, at 1:44 PM, BabyBeluga2 wrote:

    If the only question is if users will stick with Weibo, the SINA's future success is assured. The real debate here concerns monetization of Weibo, not user loyalty. Facebook users engage the site an average of 23 minutes per day. SINA Weibo users are on site an average 21 minutes per day. If SINA can monetize Weibo successfully, the stock is terrifically undervalued. For all the attention censorship of the China Internet has received in the U.S. Media, censorship, user registration, and blogging rules have not significantly affected user behavior, according to available Alexa data that is independent of the government.

  • Report this Comment On May 31, 2012, at 8:00 PM, mountain8 wrote:

    One must remember that the Chinese have lived through centuries of censurship one way or another. This is part of their culture, not ours. As such, the measures the government have implimented will not be much of a surprise to them. They live with it everyday. It will not have much effect until they move much more t'word capitalism. I don't think it will effect Weibo growth in the near future for the majority of Chinese.

    We have only begun to experience censurship since "politically correct" took a chunk of our freedom of speech away.

    Google's American moral ethic is what made them backup in china. Same as a Chinese business would have trouble accepting america's unbridled penchant for saying anything as long as they can be an "anonymus source".

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