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Overseas growth challenges Facebook

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Boston Articles
February 06, 2012|By Hiawatha Bray
  • Facebook CEO Mark Zuckerberg.
Facebook CEO Mark Zuckerberg. (AP File Photo )

Few companies have grown as rapidly as Facebook Inc., but with most US Internet users signed up for the social network, its future expansion will have to be overseas. And that won’t be easy.

Last week, Facebook revealed it plans to raise at least $5 billion in a public stock offering this spring, and is reportedly seeking a market value as high as $100 billion. That means the company must convince investors it can continue its dramatic growth.

In the United States and Canada, six of 10 Internet users are Facebook friends. Although close to 80 percent of its 845 million users reside overseas, Facebook has not been able to crack markets that offer the most potential for growth, including some of the biggest economies in the world.

Fewer than 15 percent of all Internet users in Japan are on Facebook, for example, and the social network has nearly zero penetration in China, where the company has repeatedly said it wants to expand.

That means getting past significant social and political obstacles, analysts said.

“China is, as far as I can tell, pretty much off limits to Facebook,’’ said Rocky Agrawal, a principal analyst at Redesign Mobile in San Francisco. The Chinese government bars its citizens from direct access to Facebook, nudging them instead toward censored, home-grown social networks like Renren and Sina, he said.

Even if China opened the door, its policies could be problematic for Facebook, said Josh Bernoff, senior vice president at Forrester Research in Cambridge. Government agencies in China would probably want not only to censor postings but to have access to personal data posted by Chinese citizens.

“This is people giving up the intimate details of their lives,’’ said Bernoff, and sharing that information with Chinese authorities is “not something that Facebook is ever going to be comfortable with.’’

Other Internet companies have tried to compromise with the Chinese government.

In 2006, Google Inc. agreed to censor its search results in China. But Google ended the agreement in 2010 after hackers, possibly associated with China’s government, attempted to break into its computers and steal information on the country’s citizens.

Facebook did not return calls for comment, but Bernoff predicted it would try to strike up a joint venture with Renren or some other Chinese social networking service. The resulting network would not connect to the global Facebook service but would give the company a foothold in China, he said.

In Japan, on the other hand, Facebook has a cultural problem. Japanese consumers typically surf the Web under pseudonyms. They have had little use for Facebook, which demands that its members be listed by their legal names, Bernoff said.

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