Last Updated Dec 20, 2010 11:53 AM EST
Is Facebook interested in China? Put it this way: Does Starbucks (SBUX) like to sell coffee? When your company has ramped up at such a rate that it may have already started to max out its existing markets and there's another area that presents opportunity, of course you explore it. The question is how? There is already enormous competition and Facebook, challenged time and again by privacy issues and scandals, would have to cooperate with the Chinese government. That alone would represent a swarm of public relations stings that would guard China's financial honey. The combination combined factors of competition and PR could make the opportunity a costly one.
China is a difficult market to enter, as many companies have learned. There must be a Chinese partner. Purely local ventures often receive favor from the public. For all Google's global muscle, when it left China, its annual income was about $500 million, but it only had a small slice of the search market, with Baidu taking the majority.
Working with Baidu could work in Facebook's favor. The company has the reach to Chinese consumers, and that might be enough to help combat Tencent, which supposedly has 637 million instant messaging accounts. Take that with a shaker of salt, because China supposedly has 440 million Internet users. Who knows how many people have multiple accounts, shifting online identities with hopes of eluding the eye of the Chinese government?
Still, that's a hefty head start, and Tencent plans a social networking site. Having a nationally-focused service would likely work in China, where the government restricts access to foreign news and services. Combined with the nationalistic preference for local offerings, Facebook would confront significant barriers to success.
Facebook has not dominated every market it has entered. For example, Orkut is still the leader in Brazil. Nevertheless, Facebook wouldn't have to be the top social network in China to do well there. The $500 million annual revenue mark that Google had achieved before it left would represent almost half the total roughly $1.1 billion revenue the company is estimated to produce this year.
The bigger question for Facebook is whether privacy concerns elsewhere in the world could more than balance Chinese revenue. The company and Zuckerberg get one slap after another from the public and regulators over how it handles consumer privacy. Every time Facebook takes a step to supposedly provide greater safeguards, it does something to set people off again. Clearly China would demand censorship and access to what Chinese users were doing.
But how much further could the country push Facebook? Would it require all communications worldwide that mentioned China? Would it want to track the Facebook activity of expat Chinese? Would Zuckerberg acquiesce? Given the company's previous behavior, no is not the automatic answer. Even suspicion of cooperation could put potentially increase regulatory interest in many countries and put off consumers.
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