| |||||||||||||||||||||||
| |||||||||||||||||||||||
Like many other Internet companies, Facebook Inc. faces pressure to enter China to tap into its burgeoning market for Internet users. But as Yahoo! Inc.'s example shows, that effort is fraught with risk, especially for a social networking firm that must balance the need to protect its members confidentiality with the imperative on the Mainland to obey government dictates. Facebook may have to confront such issues soon. The Times of London reported Monday that the Palo Alto, Calif., company has offered to buy Chinese social networking Zhanzuo.com (which literally translates as "Facebook") for $85 million in what would be Facebook's first acquisition in China. Facebook denied that it plans to acquire Zhanzuo or any company in a China. "In the coming months, internationalization of the Facebook Web site is a priority, and those efforts will support multiple markets around the world," a company representative said in a statement. The company declined additional comment. Facebook has not disclosed its strategy for doing business in China, but it reportedly has registered the Facebook.cn Web site address. Whether the company buys its way into China, teams with local players or sets up shop on its own, it faces tricky financial, legal and ethical terrain in cracking what in a few years will be the world's biggest Internet market. Even Internet companies with international operations in China have struggled there. Yahoo! in 2005 rolled its Chinese operations into Alibaba Group, operators of Alibaba.com, while San Jose, Calif.-based eBay Inc. last year partnered with Beijing's TOM Online Inc. when its own auction business struggled. Even mighty Google Inc. of Mountain View, Calif., trails home-grown Baidu.com Inc. of Beijing for search supremacy in China. "My guess is Facebook, like everyone else, is going to have their hands full there," said Matt Comyns, a managing partner with research firm JL McGregor & Co., which focuses on China. "Committing to the China market is the right thing for them to do, but it comes with a lot of baggage. It's likely going to create a whole new set of management challenges for a young and fast-moving company like Facebook." The challenges are even greater for social networking companies, where members share information and digital content with other users. Jeff Chester, executive director of the Center for Digital Democracy in Washington, said Facebook will have to "tread carefully" to balance its business interests in China with disclosing information to Chinese authorities. Because Facebook collects personal information from its U.S. users for marketing purposes, it will have a difficult time convincing Chinese government officials that such data is irrelevant. "There is a real danger, heightened by the structure of social networks, that it will feed into the government's monitoring system," Chester said. "There's a fine line between helping interactive marketers target users and helping a government build out their digital dossiers." Sunnyvale, Calif.-based Yahoo! experienced this danger first hand as a result of its role in providing information to the government that led to the 2003 jailing of a Chinese reporter. The ensuing public relations nightmare led to CEO Jerry Yang and another company executive being hauled up before a congressional committee earlier this month to answer questions about the episode. Chester, who has criticized Facebook's marketing practices in the U.S., said the company would have an easier time negotiating with the Chinese government if it did not collect user data without the approval of users in this country, or if the company agreed to expunge user data within a certain period of time. "If Facebook had developed a more meaningful privacy policy to begin with, they'd be in a better position to negotiate with the Chinese government," he said. "But the potential for Chinese digital dollars is going to blind Facebook to the potential political consequences of providing their services." Facebook allows members to set up privacy settings to control who can view their personal pages. Once a person posts information, however, they have little control over it. Earlier this month, the company unveiled an advertising platform that allows businesses to track people's activities on the Web and what they are buying, along with delivering targeted ads. Facebook rival MySpace.com, the biggest social networking firm in the world, launched a Chinese site in April. The News Corp.-owned company teamed on the effort with Boston publishing company International Data Group and Chinese venture capital firm China Broadband Capital Partners LP. Even without such formidable competition, flourishing in China won't be easy for Facebook, Comyns said. "China is different than any other country out there, and Facebook isn't immune to the same operating challenges as everyone else does," he said. "But they also have to socialize with the Chinese government and try to be as transparent as possible with what they're trying to accomplish there."  Deal Video
    Community
 Elsewhere on The Deal.comDealwatch
The Deal MagazineCorporate Dealmaker
The Deal VideoCategories
Blog roll
Archives
| |||||||||||||||||||||||
| |||||||||||||||||||||||
