In early April, we all read the news of Facebook’s planned entrance into China. At first, when we read the headlines, we thought this could be the riskiest move ever for Facebook, as western applications, services and companies have traditionally had a hard time breaking ground in China. However, as we investigated thoroughly, we found that they planned to do it through a partnership with Baidu, China’s leading search engine. Undoubtedly, the partnership will help Facebook to overcome the challenges of their Western counterparts, but their entry into the Chinese market doesn’t stop there. In order for the partnership to work, Facebook and Baidu will create a net new social network that will NOT operate as an extension of Facebook. So now it’s all making sense and Badu’s agreement and involvement seems logical. But what’s in it for Facebook? There is nothing in it for the brand, as they are going in with a new platform and the revenues will clearly be split amongst the two businesses, so the full revenue and capitalization of the project, will not be recognized by Zuckerberg. Well, given the Chinese audience makeup and a recent trends report published by Netpop Research, we argue that the move will work for Facebook:
Why Zuckerberg’s Baidu Partnership is a smart one
- Smart Partnership – as we’ve mentioned, the Chinese market is virtually impossible for a Western company to penetrate. There is the business of building trust, market and mind share and without that, you inevitably do not have a business. Facebook’s partnership will give them all of the above, and lead to a smooth path to entry into the market, with an almost immediate usership and recognition, given Baidu’s market dominance.
- Marketable Audience – with China’s 1.5 billion people, compared to all North America’s 529 million, the revenue opportunity, even if split with Baidu, makes this an obvious plus.
- Search relevance – assuming that Baidu integrates the new social network into their already dominant algorithms, Facebook could tout search prevalence and relevance for their advertisers using business pages on the new social network
- Share Stats:
- according to Netpop Research, 42% of Chinese Web users post items to microblogging sites (i.e Twitter), compared to only 10% of US Web users.
- 92% of Chinese Web users participate in social media in some way, this in contrast to 72% of US Web users
In factoring all of the above and recognizing that Facebook made an estimated 1.2 billion in revenue last year, their entry into China could add an additional 750 million in revenue, assuming we evaluate the average user as we would in North America and assuming some of the revenues would be shared with Baidu, given the partnership.
