Facebook (NASDAQ:FB) CEO Mark Zuckerberg recently impressed the world by speaking Chinese during a half-hour interview at Tsinghua University in Beijing.
Although Facebook has been banned in China since 2009, Zuckerberg's attempt to charm an audience of academic and business elite shows just how much he values the Chinese market. Earlier this year, the China Internet Network Information Center reported that there were around 632 million residents (twice the population of the United States) online.
Being able to tap into that massive market would be a huge boon to the world's largest social network, but there are huge obstacles in the way. Over the past five years, other tech giants have been booted from the country, while others were forced to abide by China's draconian Internet regulations.
Let's take a look at three ways Facebook could approach the Chinese market, and the challenges that each strategy could face.
Launching a censored Chinese version
The easiest way for Facebook to enter China is to launch a Chinese version contained within the country, in which users can only connect to each other, instead of international users.
While this would be a form of self-censorship, other companies have adopted the same strategy. MySpace, which was launched in China by News Corp. in 2007, filtered out content regarding religion, politics, and other politically sensitive topics. In 2010, Apple launched a Chinese version of its App Store, which only sells government-approved apps. Earlier this year, Microsoft (NASDAQ:MSFT) was accused of censoring China-related searches by displaying different results for English and Chinese searches on sensitive topics like "Tiananmen Square," "the Dalai Lama," or "Taiwanese independence."
The question is how the public will respond if Facebook kowtows to the Chinese government, especially after Google and Twitter were banned for refusing to "sanitize" their own search queries. Self-censorship is also a tough balancing act. Weibo (NASDAQ:WB) ("China's Twitter") revealed during its IPO filing earlier this year that it had concerns about censoring too much, which would lead to a decline in users, and too little, which could result in temporary shutdowns.
Possible joint ventures
A more conservative approach would be to enter China via a joint venture with an existing social network, like Weibo, Tencent Weibo, Renren (NYSE:RENN) (a Facebook clone), and Baidu (NASDAQ:BIDU).
Weibo, which is owned by Sina (NASDAQ:SINA), reported that monthly active users rose 30% year-over-year to 156.5 million during the second quarter. Tencent's Weibo, which piggybacks off of Tencent's massive Internet empire (QQ, WeChat, and QZone), has at least 220 million monthly active users. Renren, by comparison, is in bad shape -- its monthly unique users dropped 18.5% year over year to around 44 million last quarter. Baidu runs the blogging network Baidu Space, although it's unclear how many users actually use the network.
Back in 2011, Mark Zuckerberg met with executives at Baidu, Sina, and China Mobile, and rumors suggested that a joint venture between Facebook and Baidu would soon materialize, yet it never did. Since Facebook's expansion into China would likely be disconnected from its sprawling international network, it's an uneven trade -- a joint venture would help Facebook more than its potential partners in China. Facebook can offer its brand, but most of Facebook's other features have already been mimicked by Chinese sites.
Relying on stand-alone apps
That brings us to the third idea -- entering the Chinese market via a stand-alone mobile app like WhatsApp, Facebook Messenger, or Instagram.
Of these three apps, WhatsApp is the only one that hasn't been banned by the Chinese government. The numbers are encouraging -- WhatsApp's monthly active user base doubled from 300 million to 600 million users between August 2013 and August 2014, and Zuckerberg previously declared that the app could eventually reach 3 billion users. Unfortunately, the main problem for WhatsApp is Tencent's WeChat, the dominant mobile messaging app in the country. WeChat's user base grew 86% year over year to 438 million monthly active users in the second quarter of 2014.
However, WhatsApp lacks the stickers, social networking features, or social games that Asian mobile messaging apps WeChat, LINE, and KakaoTalk are known for. Moreover, WhatsApp's $1 per year fee (after the first year), while a pittance, could discourage new users from signing up. Facebook Messenger is also unlikely to win against WeChat for the same reason -- it just doesn't bring anything new to the table.
Instagram was available in China, but has been temporarily blocked ever since the protests in Hong Kong erupted in September. Market tracking site App Annie reveals that Instagram was consistently among the top 10 most downloaded iOS photo apps in China since the beginning of the year, although downloads plunged at the end of September. This means that after things return to normal in Hong Kong, Facebook could concentrate on using Instagram, which doubled its user base from 100 million to 200 million between February 2013 and March 2014, as a backdoor into the Chinese market.
The road ahead
It would certainly be tough, although not impossible, for Facebook to enter the Chinese market. As the company's monthly active user growth starts to slow down, it should certainly explore new ways to tap into China's rapidly growing base of Internet users. However, it needs to be extremely cautious about self-censorship, partnering with losing companies, and being crushed by the almighty Tencent if wants to carve out a niche in this notoriously tough market.