Facebook in Asia: The challenges of China, Japan and Korea

With Facebook closing in on 500 million members, Reuters looks at Asia, a region many are tipping as a potential growth market for its push towards 1 billion users.

The article looks at the difficulties and challenges Asia poses for Facebook.

Facebook is already an Internet juggernaut with nearly 500 million registered users worldwide. Now it is turning to Asia – where it is still under represented – for user growth as its core Western and developing markets start to slow.

“Asia is absolutely important for Facebook,” said Atul Bagga, a social networking analyst with ThinkEquity based in San Francisco. “China is number one in terms of users and Japan is the highest in terms of monetization.”

Facebook currently has one million users in Japan and South Korea, while it is blocked in China. By comparison, Mixi has 15 million users, South Korean leader Cyworld, a unit of SK Communications, has more than 25 million, and China’s Qzone, a unit of Tencent, has 350 million.

Facebook, which has found itself at the centre of several privacy protection controversies in recent months, could be looking at an uphill climb for acceptance in both Korea and Japan, where Web surfers jealously guard their privacy.

China is a unique market that appears ‘locked’ from the outside, only accessible in those companies that officially move into China and work the Chinese way.

Despite this outlook, Facebook membership is growing in Korea – doubling in the last three months – while Japan is seeing growth in Twitter, while Facebook numbers remains low for now

The article goes on to look at China in more detail.

In China, home to the world’s biggest Internet market with 420 million users, privacy concerns play a distant second fiddle to Beijing’s obsession with information control.

Frustration with China’s stiff self-censorship rules led Google to shutter its China-based search service earlier this year. Twitter, YouTube and Facebook are all blocked in China, and local social networking and search sites exercise strict self censorship in line with guidelines from Beijing.

And yet the market potential is huge: Tencent is expected to make $871 million in revenue this year from Internet value-added services — up 49 percent year-on-year — with most of that coming from Qzone, according to analyst reports.

A government survey last year found nearly one-third of all Internet users were active social networkers and each social networker had an average of 2.8 accounts.

“China is a really big market obviously, but to play in it there are the regulations you need to follow,” said Credit Suisse analyst Wallace Cheung.

Even if it agreed to play by China’s rules, Facebook could face issues similar to other foreign firms such as eBay and Yahoo, which all retreated from China in the face of stiff competition from homegrown players with a better understanding of local tastes.

People like to blame regulations for the failure of foreign business in China, but the truth is it’s more the American corporate culture that is the reason,” said J.P. Gan, a partner at Qiming Ventures, which counts Chinese social networking site Kaixin001 among its investments.

While interesting advice is dealt to Facebook on how best to enter and compete in the Chinese market.

At the end of the day, Facebook’s best chances for success in Asia may come through teaming up with local partners, either through joint ventures or acquisitions, analysts said.

In markets like those, given Facebook’s value, it’s probably better to buy than build,” said ThinkEquity’s Bagga.

It remains to be seen how Facebook would go about acquiring a social network to give it a foothold in the market. Then there is the issue of acceptance, both from the government and Chinese internet users themselves.

Though India is moving towards Facebook at the expense of Orkut, China, Japan and Korea are a different hurdle altogether.

Whereas countries in Southeast Asia succumbed to Facebook features and applications, which then dominating networks like Friendster and Hi5 were unable to match, Korea and Japan have locally relevant, games-oriented social networks which all effectively cover the functions and usability Facebook offers.

In the same way that Southeast Asian markets used a hook – predominantly social gaming – to get early adopters on-board, before word spread and membership sign-ups increased as users’ peer groups arrived on Facebook en masse.

The new challenge for Facebook is to find a hook with context and relevance to Korea, and particularly, Japan. Gaming is out of the question already, such are the current offerings in the market already, so it will be fascinating to see just what Facebook tries in these markets.

As for China, again it will be a interesting spectator sport to be if Facebook tries to crack the market and how they go about doing it.

Facebook in Asia has, to this point, seen a lot of organic growth without any great focus – or even regional office presence – so we can expect activity in the region to heat up as it becomes a key market for growth.