Facebook’s China challenge

Could it crack the market?

Jenny Li Jie

PHOTO: AP / Zuo dongcheng

Arts, culture & society, Science and technology, Trade and industry | Asia, East Asia

4 January 2017

With the possibility of Facebook returning to China now on the cards, Jenny Li Jie looks at the economic implications of a potential re-entry into the world’s largest IT market.

China is one of only a handful of countries where the world’s most popular social network is banned, but it does have its own versions of Facebook with similar functions. Since Facebook was excluded in 2009, these native social media sites have evolved and gained enormous popularity. Now that the possibility of Facebook returning to China has been flagged, the question is whether it will be able to break into the fiercely competitive local market.

The Internet in China is a very interesting phenomenon. The Great Firewall has blocked not only Facebook but other web giants such as Google, Amazon and YouTube from being accessed in the country. However, all these websites have a corresponding Chinese equivalent. For Google, see Baidu, for Amazon see Alibaba, and for YouTube see Youku. With the largest population of Internet users globally, the Chinese IT industry is able to be self-sustaining even in isolation from the rest of the world. Today, Chinese IT moguls are not only earning fat profits at home, but some are also exerting considerable influence internationally. For example, the 2016 Singles’ Day Online Shopping Festival – the ‘world’s biggest shopping event’ – created by Alibaba attracted global consumers from more than 200 countries.

There have been three main Chinese versions of Facebook that have evolved and blended different social media features over time. The first, Renren, tapped into the most popular online virtual community among university students before 2009. Renren featured many ideas from Facebook such as instant posting, commenting and sharing news and stories. Then in August 2009, one of China’s biggest internet companies Sina Corporation launched Sina Weibo, a Chinese microblogging website where users can post with a 140-character limit, mention or talk to other people, add hashtags and repost content from other peoples’ timelines.

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Weibo represented the second version in China’s social media evolution. Weibo transcended school alumni networks to provide a user-friendly and open platform for people from all walks of life, a virtual community where one can befriend anyone, known or unknown. After launching, Weibo quickly attracted hundreds of millions of subscribers and became China’s largest social media site. A sizeable body of previous Renren users migrated across to Sina Weibo, and Renren soon lost its competitive edge.

For a time, Weibo reshaped Chinese netizens’ online surfing habits. People became addicted to it, whiling away their time following the updates of the people they followed, particularly celebrities.

However, Sina Weibo’s good times did not last. Tencent Corporation, Sina’s business rival since the beginning of China’s Internet era, subsequently came up with WeChat in 2011. This cross-platform mobile phone application integrates a huge range of functions including social media, text messaging, online gaming and add-on services such as e-payments, e-tickets and other public services. According to Kantar China statistics, the penetration rate of WeChat among Chinese social media users has increased from 64.5 per cent in 2013 to 75.9 per cent in 2015, while the figure for Weibo dropped sharply from 58.8 per cent to 35 per cent over the same period.

If Facebook re-enters China, it will face fierce business competition from these already established social networking sites. Carving out a share of the market will be a battle and, in most cases, it is a winner-takes-all game: only those who can attract the attention of the most netizens and maintain a gigantic and stable user base will survive. China is a unique market; its social culture and peoples’ online behaviour are distinctly different in many respects from those of their international peers. EBay losing its competition with local latecomer Taobao, and Microsoft MSN being squeezed by Tencent’s QQ, are evidence that without a deep understanding of Chinese customers’ online shopping and communication habits, even the strongest global IT giants will struggle to succeed in China.

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The reason why WeChat has now outperformed Weibo in just a few years is because it captures the nuances of Chinese people’s networking habits. Although both are open platforms, WeChat is smarter because it is built on the concept of “my friends circle” (朋友圈), where a subscriber only shares his or her posts with people they know, rather than a virtual unknown friend. Unlike Western people who are more willing to show themselves in public fora, Chinese people tend to be introverted and more often than not express themselves only in front of acquaintances, a nuance deeply rooted in the country’s clique culture. Moreover, concerns over Internet-based financial scams and the hacking of personal information have prevented Chinese people from publishing on a platform where everyone can see what they post and potentially trace them online.

WeChat’s add-on services, like e-payment, also demonstrate its good relationship with the Chinese banking system, a sector still monopolised by the Chinese government. Nowadays online payments are so popular in China that in most major cities, nearly all shops ranging from big department stores to small self-employed restaurants have installed WeChat to facilitate payment. This is another important reason why WeChat can maintain popularity among Chinese netizens of all age groups. If Facebook enters China, e-payment will be a very difficult area for it to infiltrate because opening the banking business to this foreign company would be considered highly risky. Understanding how to do business with the Chinese government will be another fundamental challenge for Facebook.

Of course from the opposing perspective, with abundant capital, rich global experience as well as first-class international IT and management talents, Facebook’s entrance into the Chinese market would put considerable pressure on indigenous social networks. Competition between local companies and the international behemoth would make the Chinese IT industry more vibrant and diverse, which is good news for Chinese netizens and the industry as a whole. The cake of the Chinese market is big and palatable – the challenge for Facebook is how to have a bite.

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Li, Jenny Jie. 2017. "Facebook’S China Challenge - Policy Forum". Policy Forum. http://www.policyforum.net/facebooks-china-challenge/.

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