Part 1: Why Facebook Would Have Won If China Were a Free Market (Kai Lukoff)
Part 2: Why Facebook Would Have Failed Even if China Were a Free Market (Alvin Graylin, CEO of mInfo Inc.)

Some hypothesize that the main reason for the lack of Facebook’s dominance in China is due to government protectionism to help out local firms. Given Facebook’s success in the US and many western markets, I can certainly understand why they might have such a belief. However, when we look at the issues in more depth, it’s clear that the root issues lie much more with the realities of the competitive environment that already existed in China, operational issues with foreign online companies in general and Facebook’s lack of local presence/focus.

Below is a Top-10 list of the key reasons why Facebook would have failed in China even if the Chinese government had never implemented blocking on the great firewall of China in July 2009.

10. Facebook had no brand awareness in China and no marketing budget to promote themselves in market

9. Facebook developers didn’t create Chinese games/apps, so had no eco-system or benefits to attract users. And even if they did, the apps/games would not be targeted to Chinese culture/interests

8. Facebook had no operational team in China and thus just can’t compete locally…and didn’t have the local understanding to operate efficiently by Chinese rules. China was not a priority for HQ and never would be.

7. Even if Facebook had a team in China, they would not have the nimbleness to react to local competition or autonomy to operate by local rules. We’ve seen this with all foreign online companies operating in China. (Yahoo, eBay, Google, MSN, etc.)

6. Facebook is a global company with one-size fits all mentality, and China is a place where localization and local culture/norms matter a lot. There is just no way for them to operate a global platform to target local user needs and compete effectively with home grown providers. Facebook servers are centrally located in the US… even basic things like latency and download speeds just can’t match local competitors.

5. Facebook never reached critical mass in China. A social network without critical mass is not attractive. And since most Chinese users only care about other Chinese users, the global network provided very limited value to them.

4. No foreign online companies have ever been able to sustain a market leadership position in China

3. LinkedIn has never been blocked in China and still only exists as a niche product catering to expats in China

2. Even when Facebook wasn’t blocked for several years, from 2005 -July 7th 2009, they only had few hundred thousand users in China.

1. Tencent had a huge social network with over 400 million loyal users in China well before Facebook even entered the market…they were just TOO late and Tencent too strong. Even against local players, Tencent is able to destroy their competition seemingly overnight when they move their attention to specific markets. Facebook would have been no different.

Alvin Graylin is a seasoned technology entrepreneur and business leader with over 18 years of leadership experience, ten of which are in Greater China. Currently, he is the founder and CEO of the leading mobile search provider in China, mInfo Inc.

Facebook image source | Tencent gangster penguin image source

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  • Sunny Ye

    The Chinese market is so unique that internet is not all about technology, actually personally I believe it’s more like 70% culture and 30% tech. The drives in internet success are often trendy cultural catchups that Facebook might simply not catch on fast, and that can be fatal if they are to operate in China. Look at the dominating social platforms most of them has been in China for over a decade, these companies are well connected and they know which buttons to push to get the users hyped up. Facebook’s in for a real challenge if they enter China.

    • Kai Lukoff

      Both are certainly factors, I’d personally estimate it at 50/50 though. And in the case of Facebook, I think it’s like 70/30 tech (and network) over culture (bc of the overwhelming appeal of one global network–now successful FAR beyond just the US/West).

      There are certainly cases where the exact opposite is true though. I think most of Alvin’s points would apply in the case of eBay, which simply got its butt kicked in a free and open competition with Alibaba’s Taobao.

  • Leo Chen

    I think culture is overrated when it comes to social networks. I’d be willing to bet that 80% of the features and interactions that drive adoption/growth are the same globally: picture sharing, status updates, commenting, flirting & stalking… all of which Facebook has a superior product over competitors. Would love to see some data on this… :)

    At the end of the day, on a level playing field, I think the company that puts users and UX first will prevail. RenRen is so great at copying Facebook but failed to copy the user centric philosophy, hence all those annoying banner ads. ;)

  • Robert Hsiung

    I agree that 80% of the functions that drive the most traffic are the same. However, the devil is in the details, and although Facebook is the gold standard for UX on the web for a specific set of users, those users aren’t your common Chinese netizens.

    Looking at Kaixin001′s 转帖 and Facebook’s Like/Share functions is a great example. Kaixin001′s 转帖 allows netizens to build a profile for themselves, while discovering and spreading content. Many spread controversial posts and ask users to add them as friends to accumulate massive amounts of followers. This is something that is very uniquely Chinese.

    Culture and the specific needs of your target segment need to be embedded in product design and development. So thinking about drivers to adoption as cultural vs. tech is not really accurate.

    Chinese netizens have uniquely different needs than their western counter parts. Chinese have been raised in a country of 1.2 billion people and have had to fight for everything. The way I see it social networks to most Chinese netizens are an outlet for them to fight for their share of voice.

    A great example of this is Renren’s event feature. In China, people will create events purely for the purpose of aggregating more friends or getting a message out. They will use a provocative picture or broadcast ads for a bikini party. When the date hits, you may have 1000′s of RSVP’s but no-one ever shows up – unlike events on Facebook. Because you could search for and RSVP to public events people would search for all the hottest events and then RSVP to ALL of them. The “Events” product became more like a Forum, and eventually was stopped when it was mandated that Forums had to be stopped (last year). [Note: I haven't been on Renren for awhile so it may be back up].

    I think Facebook has no chance in China – for all the reasons you list above. There will be a time when users will start realizing they need to build more private connections with those that matter to them. However that time is still awhile off. Meanwhile Renren and Kaixin are constantly changing their product to grow with their users and building a history that will be difficult to leave behind.

    • Leo Chen

      Good points, but I wonder whether user behavior is driving product design or vice-versa? MySpace designed their product in a way that attracted teenagers and ‘encouraged’ spammy behavior + random friend collecting. Then Facebook came along with a better product designed to encourage real relationships. So maybe we’re observing trends that appear to be culturally tailored when in reality, people just don’t have a better product to use.

  • Hannes

    Is the Chinese culture uniquely unique? The Chinese market might be quite special due to sheer size, resourceful local competitors and state protectionism. But is there really a specific cultural barrier in China which does not exist in India, Turkey, Indonesia, Hong Kong or Taiwan? I don’t think so.

    • Alvin G

      How long have you lived in China? If you are familiar with it, you’ll know that Taiwan and HK are nothing like PRC, and their imperial history makes them much more western minded than PRC. (Same for India/Philiphines/Indonedia, etc) In places like Japan and Russia and China, where local players continue to hold leading player positions not only in SNS, but also in search and commerce, etc, there are cultural reasons that account for that…and the lack of sensitivity by western firms for the real differences that do exists between these cultures and the US…

      • Hannes

        Hi Alvin,

        Thanks for your reply. Admittedly I have not lived long in China, and I have certainly forgotten a lot of the Chinese history and politics I studied in university. It is slightly besides the point though. I am always skeptical towards any claims of a culture being uniquely unique. “All cultures are different but ours is more different” kind of statements.

        I understand that’s not your point, but in the discussion about China these days, (not just social media) those arguments tend to surface ever so often. I just don’t buy it and have yet to see any evidence convincing me otherwise.

        Then again stranger things are known to happen and only the fool never changes his mind.

        • Alvin Graylin

          Yes, I agree it’s not any one culture being more unique than all others. It’s about how similar one culture is to the US culture that is influencing the speed/breadth of adoption of US internet offerings… (And why should the US culture be the gold standard for comparing or designating cultural diversity?)

          Also “culture” can comprise a variety of issues related to language, social economic status, historical influences, political system and openess, infrastructure maturity, national development status, etc. All of which can affect adoption rates of non-native technologies and solutions in various countries. When taking all these dimensions into account, it’s not odd for there to be countries where US solutions don’t dominate. In fact, one would expect that there MUST be markets where this happens, even if the technology or solution is in some way “superior” or more elegant than local offerings. The reality of the today in multiple sectors seems to support this expectation…

  • joshfeola

    i agree with some of your points but i think your logic here is circular. it seems that having no operational team in China is a result of government protectionism, not a factor that would hypothetically hold facebook back if the Chinese market were “free”. i think some of the other factors (no local brand awareness, lack of cultural understanding) stem from this same issue.i don’t know what discussions go on in FB hq or in Beijing but i think if they somehow get the necessary clearance to enter China officially and clear the GFW, they will be a major last thing: “And since most Chinese users only care about other Chinese users, the global network provided very limited value to them.” maybe you have data to support this claim, it seems straightforward enough. but i wouldn’t rely on this fact remaining static. as Kai mentioned FB will not soon be toppled as the reigning global network and i (subjectively, i admit) know of many Chinese people who are interested in hooking into this network, even if it means buying a VPN.

  • Kevin Prest

    Is [9] really true? Lots of Facebook app/game developers are based in China, even though Facebook is blocked here – I would not be at all surprised if more Chinese developers were developing Facebook apps than RenRen and Kaixinwang combined.

  • Tanya Tan

    I am a native Chinese user. My experience might be a reference. On my computer I have QQ, MSN, skype, Kaixin and Facebook (don’t be surprised, when you really want something, you can always find a way to get an access to it). I like to use Facebook much better than Tencent’s QQ and Kaixin . Here are the reasons:

    1. You may not believe it, but Chinese culture values originality and QQ lacks of it. QQ itself is a copy of MSN messenger since Day One, and the design of the front and the games is very childish and low. Facebook designers have much better taste in both front and activities. Yes it is a personal taste issue, but I’m sure people in at least Beijing and Shanghai will agree with me, and that is already a population of over 30 million, which is equal to the totally population of both HK and Taiwan.

    2.I used Kaixin no more than 2 weeks after two friends invited me, it just wasn’t that attractive. I think it’s still the design problem, even though Kaixin itself is a copycat of Facebook.

    3.The good point of QQ is that their quality of calls is better than both MSN and Skype and this is why I still use QQ occasionally. It does have loyal local users who don’t use English (If they speak English, they usually have both MSN and QQ).

    4.I agree there is cultural difference and the hideous institutionalization problem does exist, many companies find it difficult, but at least it’s not unfair to Facebook, and hiring right people might help solve the problem.

    Despite of “cultural difference” and institutional problem which every company faces, at the end of the day, users value the quality of the design itself. Besides, English learning , both the language and the culture, is huge in China today. Unlike many conservative and headstrong people in the US, Chinese people today are more willing to “see the world” and “talk to the world”. About 80million people visited the Shanghai Expo this year, surprisingly, more than 95% of them are native Chinese. I would definitely call this cultural trend a “market”.

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