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September, 2017

Why is Facebook still trying to access the China market?

Original article: The Street

Facebook has been blocked in China for a long time. In fact, the last time its services were accessible there, the world was still mired in the throes of the global financial crisis, Shanghai was nearly a year away from hosting the World Expo, and most Chinese people didn't own smartphones. Messaging app WeChat, which boasts nearly a billion users, hadn't been invented yet. 


That was July 2009. Eight years later and Facebook is more dominant than ever - except that it's locked out of the largest market of them all. CEO Mark Zuckerberg has made some high-profile appearances in China over the past few years to try and change that. On the surface, nothing has changed. 


Perhaps that's why Facebook recently hired William Shuai, the former head of government relations at LinkedIn China. LinkedIn has been a rare success story among Western internet companies in China. To be sure, LinkedIn has agreed to censor content Beijing finds objectionable, but its focus on professional networking places it farther from censors' cross-hairs than social networks used for civil-society activity like Facebook. 


Before joining Facebook, William Shuai previously served as chief of government relations at Baidu and as an officer in China's National Development and Reform Commission. 

Analysis:

Mark Zuckerberg has repeatedly said that he believes China is important for his company's future growth. Without going into specifics, he told analysts in 2015 that "you can’t have a mission of wanting to connect everyone in the world and leave out the biggest country." Consequently, Facebook will in the long term "need to figure out a way forward" in China.


Zuckerberg has a point that the company can't be fully "global" without a Chinese presence. But is it necessary? From a fiscal standpoint, Facebook is hardly starved for growth. Yes, revenue growth has slowed over the past year, but it's far from disappointing. Revenue in the second quarter rose almost 45% on an annual basis to $9.32 billion. Profits surged 71% during the same period to $3.894 billion. It was the first time that Facebook's profits exceeded Google's. Meanwhile, WhatsApp now has almost 1 billion daily users. 


It's hard to see where Facebook would fit into China's increasingly closed internet space. First, there's the matter of being approved to operate inside the Great Wall's confines. Facebook would be required to censor its content. It's not unfathomable that a backlash from users - especially the many civil-society activists for whom Facebook is a key platform - could spook investors, harming the company's market capitalization. 


Even if Facebook could weather that storm, its utility to Chinese internet users is questionable. Facebook, its Messenger app and WhatsApp are outside the Chinese mobile internet ecosystem, which is dominated by WeChat, and to a much lesser extent, Weibo. WhatsApp might be handy for Chinese connecting with their friends and relatives overseas, but otherwise, most Chinese consumers have little use for the app. 


Facebook has been moderately successful selling ads to Chinese firms with products and services aimed at the global market. A physical presence on the Chinese mainland could potentially help the company grow that business. But it is unclear where the company's other offerings have potential in China. 

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