News Column

Facebook and Twitter Struggle to Break into China

July 10, 2014

Jianyu Zhao

The history of communication is as long as the history of humans. Although today humanity has access to portable devices like laptops, smartphones, and even Google Glass, they still demand even more connections. That's why companies that facilitate communication like Facebook (FB) and Twitter (TWTR) have come into being and found great success.

The ten-year-old Facebook, with its huge user base, is a vast virtual empire that is still expanding. But the question is: expand to where?

China sounds amazing. With its 1.3 billion population, the Far East country is like a delicious cake and every big company wants to take a bite. During the process of its IPO in 2012, Facebook stated that the company had no market share in only four countries over the world, but one of them was China. Twitter faces a similar situation.

Despite a series of failures, Facebook is again making another shot. According to some "inside information" from a real estate company, Facebook has rented a 8,600-square-feet office space for three years in China'sFortune Financial Center. But the company refused to make any confirmations about the lease. Even if the news is true, the path for Facebook and Twitter to success in China will not be easy.

Political Censorship is the First Bump



The Chinese government's censorship is pretty strict, especially for web companies. Based on various factors, the Chinese government is very sensitive to any fluctuations of ideology. Given the Internet's special characteristics like anonymity, it's hard to censor comments relating to reactionism, even rebellion. Therefore, foreign social media companies have to deal with the political issue before making any difference in China.

Facebook and Twitter can learn a lot from Google (GOOG) 's recent failure in the Chinese Mainland. Google resisted changing its search contents that went against the Chinese government's policies. As a result, Google moved its search servers to Hong Kong in 2010. As for Facebook and Twitter, the first question is whether they can obey the Chinese government's restrictions.

The restrictions usually cover various facets, including protecting the authority's figure, users' private information, and data security, and such-and-such. In India, the Supreme Court warned Facebook over its "improper content." Turkey's Prime Minister Tayyip Erdogan even threatened to ban Facebook's Turkish servers, claiming that his foes were trying to overthrow him via Facebook. Apparently, authorities have a huge fear of social media when there're few controls over them. Thus, Facebook and Twitter, or other Internet companies have to first gain the Chinese government's trust so that they have chances of opening the door to the goldmine.

Ready To Face Cultural Differences



The Pacific Ocean parts North America from Asia. Huge geographic differences lead to widely different cultural habits. Perhaps American firms do a great job in their homeland, while they cannot copy the success in Asian countries. The Chinese market is not always a heaven for American companies.

When it comes to social media companies though, technology is important, what really matters is user experience. Social media is based on communication, which naturally link to human behaviors. What Chinese users are thinking when they socialize may be the core question. Despite Facebook and Twitter claiming that they have localized their products, simply translating English to Chinese does not make Chinese users satisfied at all. Sina Weibo ($WB), known informally as the Chinese Twitter, is one of the major social media among Chinese people. As a popular socializing tool, Weibo meets its target users' needs through several unique designs, notably that they understand the Chinese market.

One example is the threaded comment. The comparitively more reserved Chinese populace tends to be more open on social media. Users, if they are interested in a piece of "weibo", can forward it so that their followers will see it and have reactions. Though Twitter has a "Retweet" button, others cannot see the person who retweets the information. That's part of the reason why Chinese people prefer Weibo. Moreover, the threaded comments easily create "VIPs", or opinion leaders. A famous VIP has millions of followers, and each of his or her "weibo" can be forwarded hundreds of thousand times. Given the large amount of followers, and potential influence, some VIPs use Weibo as a platform to launch numerous activities, such as rescuing lost children and selling clothes. 

In addition to satisfying users' emotional needs, American companies have another defect in the process of localization, which is the management in China, or other Asian countries. It's hard to build a management team knowing both the company and Chinese culture well, which costs the company both time and money to figure out the Chinese market pattern before truly generating revenues.

Shrinking Market And Fierce Competition



In the meantime, the social media market in China seems to be shrinking. Social network sites (SNS) used to prevail. Renren (RENN) , also known as the "Chinese Facebook," once had billions of daily active users. Since it went public in 2011, the stock's price has decreased approximately 77% from $16.80 per share to $3.18 per share. PC-based SNS no longer sits the dominant position. Instead, mobile devices like smartphones and tablets pervade, and humans' social behaviors follow. WhatsApp and Snapchat are great examples for such a trend.

Those in China that have stayed on have tended to lose interest. According to a statistical report by China Internet Network Information Center (CNNIC), users' enthusiasm in some traditional social applications declined. 23.5% of Internet users have reduced use of social networking sites, while only 12.7% of Internet users have increased use by 2013. New social media products can soon lose a feeling of freshness, and thus, it's hard to cultivate users' loyalty. The report states that 43.1% of the people with decreased activeness believe that they reduce use it because of wasting too much time.

Fierce competition from local social media is another major factor that needs to be considered. Comparing with Weibo, WeChat, produced by Tencent (TCEHY) , ranks the second popular social media in China. WeChat currently has 600 million active users in total. Almost every smartphone in China has this app.

Although Facebook purchased WhatsApp, one application with similar functions, for $19 billion in February 2014, the $0.99 price tag on WhatsApp deters Chinese consumers who have gotten used to free online products. Furthermore, WeChat has more functions, such as online banking. Users can make purchases via WeChat, while WhatsApp is simply a communication tool. WhatsApp has found more success in India, where as of  April 2014 they had 50 million monthly active users, making India its largest market.

Some foreign people cannot imagine living a life without Facebook or Twitter, so they somewhat assume that China remains in darkness. In fact, Chinese people enjoy their own social media. Even the Great Firewall of China prevents Chinese people from visiting foreign websites, there're always ways to cross the wall if Chinese people truly want to see what Facebook or Twitter looks like. But as for Facebook and Twitter, or other American firms, they have to ask themselves whether they are really prepared for the Chinese market.


 


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Source: Equities.com


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