* China has world's biggest internet user population
* Facebook likely to see little success in China
* Local competition, political meddling seen as challenges
* Few foreign internet firms have succeeded in China
By Melanie Lee
SHANGHAI, Feb 8 When it comes to China,
Facebook should consider itself forewarned. Cracking the world's
biggest internet population might seem an obvious ambition for
the social networking giant as it trumpets its global growth
before a $5 billion initial public offering, but the chances it
will succeed look slim.
Facebook said last week it was contemplating re-entering
China, the world's second biggest economy, after being blocked
nearly three years ago.
But its offering would likely face intense competition,
political meddling and little commercial success.
Few foreign internet companies have succeeded in China. EBay
Inc (EBAY.O), Google Inc (GOOG.O), Amazon.com Inc (AMZN.O),
Yahoo Inc YHOO.O and most recently Groupon Inc (GRPN.O) form
the list of notable online players who have failed to gain
traction in the fast-growing nation of 1.3 billion people.
"It's actually a bit late for Facebook," said Hong
Kong-based CLSA analyst Elinor Leung, who added that the market
was already quite saturated with local players such as Sina Corp
(SINA.O), Renren Inc (RENN.N), Kaixinwang001 and Tencent
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Facebook first launched its Chinese interface in 2008 but
was blocked by Beijing in mid-2009 following deadly riots in the
western province of Xinjiang that authorities say were abetted
by the social networking site.
"It will be very difficult for Facebook to introduce
something that will allow them to differentiate themselves,"
CLSA's Leung said.
Almost half of China's 500 million internet users use social
networking sites, government data showed in January.
The dominant players among China's social networking sites
(SNS) are Renren and Sina Corp (SINA.O), which is attempting to
turn its highly popular microblogging service, Weibo, into a
full-fledged social network.
WILL CHINA "LIKE" FACEBOOK?
Domestic sites have flourished into self-contained
ecosystems with their own suite of apps, news portals,
micro-currencies and e-commerce options, making it hard for
Facebook, if it gained entry, to compete, industry players say.
"China's SNS space is more crowded and competitive than the
U.S. with multiple large and established players all investing
for long-term growth," said Joe Chen, chief executive of Renren,
which would become a direct competitor with Facebook should the
U.S. giant enter the market.
"Facebook will enter a much more competitive market with a
significantly different culture, business environment and other
characteristics than what it has previously experienced in the
global market," Chen added.
"The Chinese have been social for years, and Facebook would
be just one more option among many," said Sam Flemming, founder
of Shanghai-based social media consultancy, CIC.
"It certainly would have a certain amount of cache,
especially among the more internationalized Chinese and
foreigners living in China, but it would need a big push in
awareness beyond this small group," Flemming said.
Foreigners and Chinese citizens who want to access Facebook
and other blocked sites must use special VPN software to get
around China's firewall to do so, meaning a very limited number
of Chinese currently use it.
CHINA RELATIONSHIP: IT'S COMPLICATED
Facebook would face same the factors that have led to the
failure of many foreign internet companies in China: nimble
local competition, murky government regulation and bureaucracy,
and difficulty in adapting to local tastes.
Complying with Beijing's regulations can also carry a cost
in Facebook's established Western markets -- companies such as
Google and Cisco Systems Inc (CSCO.O) have faced criticism at
home over accusations of cooperating with the Chinese
authorities' efforts to control online content.
Google, considered the most successful foreign internet
company to make a foray into China, managed to secure only 30
percent of the Chinese search market before pulling out in early
2010, after a serious hacking episode and a reluctance to censor
further in China.
It still maintains a presence in the country through a site
hosted in Hong Kong.
"The way for Facebook to be in China would be for them to
build or buy a local team and allow them to craft a product to
suit to local market over the long run. Then they may have a
decent chance to compete, not guaranteeing that they will win,"
said Dominic Penaloza, chief executive of Chinese professional
social-networking site, Ushi.cn.
Penaloza said many foreign internet firms had failed in
China because they were unwilling to give such autonomy to their
Early last year, Facebook was reportedly in exploratory
talks with potential Chinese partners. Analysts said Facebook
would have to manage and censor content heavily in order to gain
Beijing's blessing for entry.
Twitter and YouTube are also blocked in China, while
domestic social networks have to heavily censor and weed out
content that Beijing deems undesirable.
Facebook said in its IPO prospectus that the firm was
evaluating entering China, but notes that the market has
"substantial legal and regulatory complexities".
A walled-off Facebook, or a heavily censored Facebook for
China, may not be appealing to users as Facebook's selling point
is its sprawling international reach and open nature.
"Chinese consumers don't ever want to have some second class
offering or some dumbed-down offering," said Duncan Clark,
chairman of Beijing-based consultancy BDA China.
(Editing by Kazunori Takada and Alex Richardson)
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