MCT/Beijing
Climbing China’s Great Firewall has been a goal of many tech startups. A successful launch there, with its booming population of more than 1.3bn, could establish sales even greater than in the US.
But it has been a frustrating courtship. China has barred Facebook and Twitter from consumers, amid efforts to stifle political dissent. Other companies have chafed under rules that benefit local Chinese companies against American tech firms. And those that do break through find an audience with different sensibilities than domestic consumers.
It’s an act that requires patience, persistence and perhaps most challenging, the realisation that, for once, Silicon Valley isn’t running the show.
Even Facebook said on Wednesday it is pursuing a goal that’s modest by company standards: connecting Chinese businesses with Facebook users outside that country. “We are seeing China-based companies use Facebook to reach the global audience, and we think we have an important opportunity just with their export market and we’re focused on that for now,” said Chief Operating Officer Sheryl Sandberg on a call with investors.
Looming large is the Chinese government’s strict control over information, which can place US tech companies in a tough position – let the Chinese government censor information and stay in China, or refuse and risk getting kicked out. Yahoo gave information about an activist’s account, resulting in his arrest in 2004. That caused legal troubles and verbal bashing from US politicians for the Sunnyvale firm, said Greg Autry, an adjunct professor of clinical entrepreneurship at the University of Southern California’s Marshall School of Business.
Google censored some search results at the urging of the Chinese government when it launched Google China in 2006, but cyber attacks originating in China made the Mountain View company skittish. In 2010, Google ceased censoring results and redirected Chinese traffic to servers in Hong Kong.
The Chinese government’s reach can also affect the pocketbook. Authorities require tech companies that deal in satellites, transportation, energy and finance to enter joint ventures with Chinese companies or be controlled by them, analysts said. Those partnerships may not be favourable to US businesses, Autry said.
“The market has always been held out as El Dorado, but it rarely delivers for American companies, and that’s not accidental,” he said.
Despite the challenges, some Bay Area startups are willing to play ball. Redwood City’s Evernote Corp launched a Chinese version of its note-taking service in 2012 under the name Yinxiang Biji, or “memory notes.” Evernote said it has more than 10mn users in China - roughly one-third as many users as it boasts in the US and Canada.
“It could be a huge market for us,” said Linda Kozlowski, Evernote’s vice president of global operations. “There’s great potential there.”
Prior to the launch, Evernote realised some Chinese users were using its English language version, but its speed was slow because of server issues between the US and China. So Evernote opened an office in China, but warned users in a blog post that “Chinese authorities may have the right to access their data according to current regulations.”
Still, consumers have a choice of whether to use Yinxiang Biji or Evernote International, which is hosted on US servers.
“Basically, we give the user the option of where they want to be,” Kozlowski said.
But winning over users in China is another hurdle. Evernote built US buzz in the classic startup mold: lure early adopters and promote through social media. In China, Evernote played up real-life connections. The company hosts in-person events – a recent outing drew thousands at a high-end mall in Beijing beside the food court, she said. “They like the hype,” said Darlene Chiu Bryant, executive director of trade group ChinaSF.
It’s also important for foreign companies to be careful in selecting their Chinese name, said Bryant. She points to Toyota’s Prado, which in Chinese was called Ba-Dao, meaning “controlling, manipulative or dominating.” The name has since been changed to Pu La Duo, which means “pull more.”
Career networking site LinkedIn launched in China as Ling Ying - meaning “leading elite” - in 2014. The social network lags behind Facebook in US users, but with 5mn members it now has a leg up in China.
“They are tapping into a market that is really big, and there aren’t any strong local competitors yet,” said Si Shen, CEO of Beijing mobile social gaming network PapayaMobile.
Shyam Patil, senior vice president at Wedbush Securities, said the Chinese version of LinkedIn is even more focused on job postings than the English version. He suspects that if the Chinese version were to become more interactive and similar to Facebook, as the English version of LinkedIn has positioned itself, it would “probably increase government intervention for them in China.”
LinkedIn spokesman Doug Madey said the company recognized that it would have to adhere to China’s rules.
“It’s clear to us that in order to create value for our members in China and around the world, we will need to implement the Chinese government’s restrictions on content, when and to the extent required,” Madey said in an e-mail.
Another challenge: China’s homegrown startups. Microblogging service Weibo is a clear Twitter rival, and social app WeChat, which boasts about 350mn active users, would compete with Facebook if the Menlo Park social network entered China, said Gartner research director Brian Blau.
“Having early access to them is a big advantage because the users would grow up knowing these companies and brands,” Blau said. “The longer they wait, the less they’ll be able to have that influence on those Chinese consumers.”
If Facebook were to enter China, the company’s value could surge by $3 to $4 a share, said Victor Anthony, a senior analyst at Topeka Capital Markets. That’s assuming the company can penetrate 30% of China’s Internet users. Anthony said after talking with Chinese tech experts, they “believe it is a matter of when, not if, Facebook enters China.”
