A few days ago, Glenn Solomon, a friend of mine and a partner at VC firm GGV Capital, shared his predictions for 2016. One of them is of particular interest to me. Here is his prediction:
Facebook will officially enter China. The progress Facebook has made in its quest to connect the world is really quite amazing. Every day, over one billion people connect to the service, representing over 1/7th of the globe’s population. That said, Facebook will never fully achieve its goals without operating behind the great firewall of China. To date, the Chinese government has blocked Facebook traffic in China, clearly concerned with the free, unregulated speech that occurs on the site. Mark Zuckerberg now sits on the board of trustees at Tsingua University and has given two famous speeches in Mandarin on Chinese soil. Unlike Google and eBay before him, he’s playing the long game, proving his trustworthiness and interest in China in authentic ways. I’m guessing 2016 will be the year his hard work pays off, with Facebook finally becoming a sanctioned service in China.
I can confirm Facebook is more than serious about China. I have fielded more questions from their market research teams on China than any other subject they inquire about. I’ve spent more time giving presentations on the Chinese social media market and behavioural trends in China than any other market to their teams. Facebook is competing in many markets around the world I study, yet the one they want to know the most about is the one they are not yet officially in. Quite telling.
Glenn’s firm is also very active and knowledgeable in China. Many of his partners are the Who’s Who of Chinese investors. They know this market deeply and it makes this prediction one to take seriously. My interest in this happening is purely educational. I study China deeply every quarter, tracking behaviour, buying trends, e-commerce trends, market sentiment, and a slew of other topics. Given what I know about consumer services in China, I am fascinated to see what happens if Facebook does enter that market. Can they even compete there is a question we must seriously wrestle with. I’m not convinced they have much unique to offer the market, however. I’d love to see what happens if they do enter it. That being said, I do have some data related to Facebook in China worth looking at.
Many in the West may not know this, but many tech savvy consumers in China are adept at using VPN services to access services blocked in China. These consumers pay for a service that basically makes it look like their IP address is coming from outside of China, generally from the US, so they can access services like Netflix, Twitter, Google, and Facebook. Every quarter when I survey global consumers and ask what social networks they have used in the last week, my consumer panel in China returns answers on Facebook. While small, Facebook is accessed weekly by roughly 2.8% of Chinese respondents in Q3 2015. Compare this to the overwhelming leader and Facebook’s true Chinese barrier, WeChat, which is accessed weekly by over 80% of respondents. However, this number has been declining.
Unquestionably, there is some mindshare of Facebook in China, however, it is fading. The environment in China is completely different competitively than anything Facebook has been up against. Yet, they are attracted to the size of the market and the revenue potential. WeChat has an ARPU of near $8 currently and Facebook only has ARPUs in that range in the US and Europe. Facebook’s move to integrate more features into Messenger is a clear attempt to use many of the core features of WeChat and bring them to other markets. Yet, local China internet companies have grown to serve the market and I see Facebook having a difficult time filling holes.
However, if for nothing more than educational reasons, I’d love to see what happens if they are successful and China lets down their wall for them. It may also bring hope to other foreign companies who have had a hard time entering China.