A professional social network like LinkedIn (NYSE:LNKD) is clearly valuable. Its market cap is an impressive US$9 Billion and last traded at US$92.
Yesterday, news broke out that LinkedIn Founder, Reid Hoffman met with major internet companies in China to discuss plans to enter China in a more measured way. More specifically Hoffman met with search engine Baidu, e-commerce giant 36Buy.com and Facebook like social network RenRen.
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Like many other international online social networks, LinkedIn has found it difficult to really penetrate into China. Last February access to the site was blocked by the Great Firewall. However, it would be too ignorant to assume that its shaky accessibility is the reason why it has not attracted as much traction as inside China. Currently the site is not blocked, so let’s examine why LinkedIn does not lead in China and why they will have a hard time seriously entering the market.
1. LinkedIn is not in Chinese
Currently if you access the site in China, it will be in English. Of course most Chinese are more comfortable with Chinese language and don’t want to struggle with using an English product. However I know more and more Chinese are using LinkedIn, commonly they are the more international type who studied abroad or work for a big international company. The point is, this group of people (English speaking/international Chinese) is not the majority. Presumably, LinkedIn would localize to Chinese when they do enter China seriously. Even if LinkedIn has the best technology and product, it doesn’t guarantee its success. In China, professional relationships are driven by much more offline activity, so LinkedIn’s product advantage may not help that much.
2. LinkedIn is a market follower not a leader in China
The ironic reality of China is that since Chinese is still the main language and there are higher barriers to jump over, an American internet or mobile company can be big everywhere else but not in China. The time it takes for an foreign company to localize and figure out their market entry strategy into a new foreign region is the time local companies use to do it for them, that is, clone, localize, ‘innovate’ and launch. Already there are at least 5 major Chinese professional social networks, Tianji, Wealink, Ushi, Hengzhi and Jingwei. Tianji leads with over 6 million users and as of 2011, LinkedIn only had 1.1 million but that’s a good effort for not even really trying.
3. Even Chinese Online Professional Social networks struggle in China
A measure of this is that, there were 44 million LinkedIn users in America alone in 2011 compared to Tianji’s 6 million in China. So if China’s number 1 is only about 13% of America’s number 1 in terms of number of users, it proves the market is still at its nascent stages. As we wrote back in July last year, despite China having achieved incredible economic and social growth, the reality is, China only opened up to economic reform in the 1980’s so it hasn’t had a relatively long time to develop a very large pool of business professionals. This reasoning inspired a post last year, “Short of Business Professionals, Why LinkedIn Does Not Work in China.” Other challenges in China to make a professional social network work in China are finding loyal users, maintaining the quality of users and encouraging online interaction. You can read more about that here.
My belief is that although LinkedIn has a tough battle ahead to become the number one player in China and must navigate all the other historic and cultural milieu, China still represents a huge opportunity. China is developing so quickly that given a few more years, things could be very different. The amount of Chinese business professionals is bound to explode. With a lot of cash, Hoffman and LinkedIn has no reason to not try and enter China seriously.