Can Facebook Succeed In China?

In its Q3 2016 results, Facebook (NASDAQ:FB) stated that advertising revenue growth is likely to “come down meaningfully’ going forward. As it inches towards a saturation point in the U.S. and with lower ARPUs (average revenue per user) in emerging markets, the company now appears to be looking at China for growth. While the growing urban population and higher disposable incomes in China have proved to be a boon to several U.S. based companies, Facebook is an exception. Regulations in China blocked Facebook in 2009, and the company is now reportedly building a tool which would supress posts from appearing in news feeds of users from certain geographies to meet China’s censorship requirements. While expansion into China would give Facebook access to its large population of 1.4 billion, ensuring rapid user growth in future, it would come at the cost of compromising on the company’s core mission statement of being more open and connected. Further, Chinese regulations usually are in favor of local companies, so it could be an uphill task for Facebook to find support from the Chinese government and advertisers. With several local players in place in the social media space, even if Facebook eventually re-enters China, it might not be easy for the social media giant to establish its presence and generate revenues from this complicated market.

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China Can Be A Complex Market For Facebook

While censoring content for Chinese users might be viewed as a compromise of Facebook’s core principles, this might not be the only challenge for the company in China. Data and behavior of Chinese users do not paint a very rosy picture for Facebook in the region. The market is already competitive, with local players in place and a limited existing audience for Facebook. Many western companies have taken on local partners to grow in the region, and it is questionable whether Facebook would be willing to do so.

While Facebook’s global appeal and the possibility of connecting with overseas friends can attract Chinese users to its platform, the complexities of the Chinese market will prove to be challenging for Facebook. With that said, China remains a very high-potential market for Facebook. If executed correctly, a re-entry into the market could become a key driver of revenues for Facebook in the long term.

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