Social Networking in China, Where Facebook is Banned

Facebook has been blocked in China since 2009, yet users in the country number 530,520, according to data from SocialBakers. The number of users were expected to exceed 700,000 after Zuckerberg visited the country in December 2010.

October 2011 marked the seventh annual National Cyber Security Awareness Month. China vowed to its control over social media and instant messaging. Of course, there have been talks between Facebook and China, but China still employs strict, national-level censorship. Even if Facebook did enter the Chinese market, things would be tricky, reports Vator.tv.

"While embarking in the Chineses market would be an instant boost in the reach and usership numbers of Facebook, it could also result in negative publicity since entering the market would require censorship and other adjustments to the platform."

Currently, the top three social networks in China are Qzone, Renren and Pengyou. The Chinese social network, QZone, registered 505 million active users as of July 2011. RenRen claims 117 million registered users, but of that only 31 million are active, says BusinessInsider. Pengyou, which launched in December 2010, is China's third largest social network, with users numbering 101 million.

Where Russians Social Network: Odnoklassniki.ru and Vkontakte.ru

Russia's two biggest social networks, Odnoklassniki.ru and Vkontakte.ru account for the yellow dots on this map. Vkontakte.ru is the leading social network in Russia, and roughly translates as "In Contact" according to a post by RussianMarketer.com. As of June 2011, it claimed over 118 million user accounts and 99 million activated accounts. Odnoklassniki.ru, which is more like Classmates.com or FriendsReunited.co.uk, broke 100 million users this past June.

If The Japanese Have Gree, Mobage-Town, Mixi and Yahoo Mobage, Why Would They Bother With Facebook?

In Japan, Gree, Mobage-Town, Mixi and Yahoo Mobage are the biggest contending social networks.

Japanese social networks usually have a strong gaming element that attracts and connects its users. Facebook and Twitter are more about exchanging content and organizing information. In a study from 2010, researchers found that 75.4% of Japanese only accessed social networking sites from their mobile phone.

In March 2011, Facebook became the number six social network after Yahoo! Mobage, Gree, Mobage-Town, Mixi and Twitter. Mobage, which was launched October 1, 2010, passed the 3 million users in five months mark. Gree, Mobage-Town, Mixi and Twitter ranked high as well. This could be because of Facebook's emphasis on using real names, suggests SearchBlog.Asia.

"Japan has traditionally had a unique online culture where people tend to keep their privacy and feel insecure disclosing their personal information online. That is one reason why Facebook first struggled in the market as their rule is to have your real name posted. Mixi however allows users to use their nick name instead. Mixi also has a functionality whereby people can check who has visited their profile as people tend to like to know who has visited their page."

Interestingly, Mixi's features are similar to Facebook. Mixi Check is like Facebook's Share feature, and Mixi Check-In works like Facebook check-ins or Foursquare, tagging a user's physical location on the site. Still, Mixi encourages users to use nicknames on the site, yet on June 29, it changed the view of My Mixi (friends on Mixi) to include friends' full names in parenthesis under their nick names.

The full name is not necessarily a user's real name, like on Facebook. Anyone could use a pseudo name, if they felt so inclined. Still, this update made Mixi more similar to Facebook. Then, on September 1, Mixi launched Mixi Page, which are semi-public web pages for companies, shops and individuals who feel they need their own semi-public web pages. This is a lot like Facebook Pages, actually. On October 11, Mixi released an iPad app and Windows phone versions.

As of February 4, 2011, Mixi had 22.39 million users. In Japan, Facebook has only 2 million users.

Gree, a site that focuses primarily on mobile games, had 23.83 million users, snatching the top spot from Mixi in July 2010.

Mobage Town technically has 24.48 million users, but that's only if you sum up the original, mobile-only network Mobage Town and Yahoo Mobage, which recently launched a PC-based new network with Yahoo Japan.

Where Do South Korean Social Networks Stand?

South Korea is one of those countries that calls itself "democratic."

In South Korea, SK Communications runs the popular social networks Nate and Cyworld, which hold 35 million users total. Accounts on both those sites were compromised in July 2011, after an attack by Chinese hackers.

In December 2010, the newspaper Korea JoonGang Daily reported that the government would be cracking down on pro-North Korea Facebook entries.

"Spreading North Korean propaganda through social-networking sites like Facebook and Twitter will be blocked starting next year, according to yesterday's Ministry of Justice briefing to President Lee Myung-bak on its 2011 policies."

In September 2011, the Electronic Frontier Foundation sent an open letter to the Korean Communications Standards Commission "condemning attempts to shut the public out of their work and urging them to embrace online freedom of expression." Here is a copy of that letter.

A | It is interesting to see that Facebook has almost no presence in the three markets we cover: China, South Korea and Japan. In China, QQ dominates by far with 300 million active accounts, Cyworld has close to 20 million in South Korea while Mixi has 14 million in Japan.

Q | Those are pretty big figures for subscribers. Even so, Facebook has a good portion of them globally and is losing money. Are the Asia social networks making money?

A | One thing to keep in mind is the addressable population: QQ only deals with China, Cyworld addresses seriously only Korea, Mixi is only in Japan. Corresponding penetration rate among Internet users are: 150% for QQ, 57% for Cyworld, 15% for Mixi. It becomes even more interesting when realizing all three are largely profitable. Notably, QQ had 523 million USD in revenues in 2007 and 224 million operating profit, with only 13% coming from advertising! This is more than Facebook's total revenues. Moreover, Facebook was still losing money last year (and likely this year).

Q | How do those services manage to turn such profit?

A | QQ and Cyworld make most of their money from digital goods - from background music to personalization, avatars or casual games. The introduction of an online currency supported by a variety of payment systems has helped lower the payment and monetization barriers dramatically.

Q | Are digital goods the next big thing?

A | It is certainly a great way to monetize a community. The West has been slow at catching up but digital goods are a proven monetization method on the Internet almost since Cyworld launched in Korea in 1999. Casual games are also a great money maker: imagine users were offered attractive high-quality Facebook applications for 10 cents. Many would pay, but today they have no way to.

Q | If it has been around for so long, why is it coming so late to US and Europe?

A | We see two main reasons: first, the West is not looking closely at Asia. When it does look, local successes are usually stereotyped, which prevents deeper understanding. Some great services like Naver's Q&A (which was Yahoo Answers' inspiration) were created there, mainly because the US do not have the lead anymore in Internet infrastructure, so local talent managed to come up with great new ideas. Second, most non-US markets have not developed a very rich online advertising market, and had no choice but to find alternative revenue models. In a way, the rich online ad market has been holding back innovation in the US, and forced most Internet companies to design their service around pageview as a main metric.

Q | Is that a problem?

A | It can be, as the focus becomes to generate more pageviews, not make the service better. Users are mere "eyeballs", while the real clients are advertisers. The revenue mix defines the service DNA. We even came up with a new metric: ARFU for "Average Revenue From Users" (rather than per user, for ARPU). With this in mind, ARFU for Facebook is almost zero, while ARFU for QQ is 87% Internet + mobile combined.

Q | What are the key lessons from those successful services?

A | First, that users are willing to pay for services - even in China! Second, several companies in Asia have already solved a number of headaches on how to make it work and can help save a lot of time by adapting their best practices. Third, that the main barrier is the persistent bias that all US stuff is great, while Asia just copies. I don't think QQ will make a bid on Facebook but there might be a need for a strong eye opener to realize that inspired by the West, Asia has made incredible advances that can now help us in return.

Q | Are those companies trying to enter foreign markets? Cyworld just pulled out of Europe and is not doing too well in the US either.

A | Cyworld tried China, US, Europe and Taiwan. Mixi is trying China. QQ has entered US via a content partnership with AOL on casual games. In most cases, they do not do too well as they send or hire managers and not entrepreneurs. Also, they often face tough competition from incumbent players while they dominate their home market. So they have less market acumen, less hunger and face a difficult timing. Those are the same reason why Facebook and MySpace are weak in those key Asian markets. That being said, the fact that they are not able to succeed themselves does not invalidate their concepts and business models. For instance, Xiaonei in China applied the early Facebook model (alumni) and is doing very well in terms of users. Who would say Facebook is not good even if they fail in Asia? The key is to focus on service concepts and business models, rather than on how well the companies execute them out of their home market. As for Cyworld, it is important to notice that the foreign versions are very dumbed-down compared to Korea's, where they enjoy a mature payment infrastructure and digital goods culture. If so many million people use the service, there must be something to learn.

Thanks Benjamin! Here now is his Media 08 presentation:

Note: +8* is offering free samples of their research on both QQ and Cyworld at www.plus8star.com. Also see ReadWriteWeb's review of QQ last year.