Does Taiwan's Explosive Facebook Growth Mean More To Come In East Asia?

[Editor's Note: The following article, and the Global Monitor Report data it cites, are from Inside Facebook Gold, our new data and analysis membership service tracking Facebook's business and growth. In addition to monthly Global Monitor data updates, Inside Facebook Gold presents weekly in-depth analysis articles exploring the most critical developments impacting the future of the Facebook ecosystem. Click here to learn more.] Facebook has seen tremendous growth in Southeast Asia over the past several quarters, at the expense of formerly dominant competitors like Silicon Valley companies Friendster and hi5, and locally-based networks. The leading countries in terms of overall growth in traffic have been Malaysia, the Philippines, Thailand, and Indonesia, based on the data we track in our monthly Global Monitor Report. Notably, Indonesia is now Facebook's number three country in the world in total audience size, trailing only the United States and the United Kingdom. And yet, Facebook has seen little growth in Japan and South Korea -- two of the most lucrative markets in the region -- and it is blocked in mainland China, East Asia's largest and fastest-growing market. One country in which Facebook has enjoyed an exceptionally meteoric rise is geographically near to these Southeast Asian growth zones but offers us a unique view on growth throughout Asia. Taiwan's Facebook traffic and engagement are growing as fast as the most standout Southeast Asian success stories, and yet it is different from these markets in one key way. Like the island metropolises of Hong Kong and Singapore, Taiwan has adopted Facebook the way the Southeast Asian markets have. But, culturally and linguistically, Taiwan, also like Hong Kong and Singapore, remains deeply connected to East Asia. What can Taiwan's growth trajectory tell us about Facebook's chances throughout both Southeast Asia and the more competitive East Asia? What opportunities does a strong Facebook-in-Taiwan presence offer for developers all over the world? Today's analysis draws from the most recent data available in our Global Monitor Report in order to examine what Taiwanese Facebook growth could mean for competitors, developers, and advertisers operating in that region. Why we have chosen to highlight Taiwan Facebook's growth in Taiwan has actually slowed since January of this year. Why, then, is it an interesting case to study? Taiwan's growth slowed because it grew so fast in the second two quarters of 2009 that Facebook was actually moving toward market saturation by the end of that year. There are 6.2 million Facebook users in Taiwan, out of approximately 15.4 million internet users in that country. For a country with current total internet penetration rates hovering around 67% (similar to many other developed economies), this means that just over 40% of all internet users in Taiwan are also on Facebook. What's more astonishing is that over 93% of them, or 5.8 million, joined the network in the last three quarters. In short, Taiwan has become a Facebook country. It's not just the fact that the site has reached market saturation, however, but the rapidity with which it did so. It took a whirlwind three quarters for Facebook to jump from fewer than 400,000 total Taiwanese users in June of 2009 to its current 6.2 million. What were the factors that account for this rapid rise, and could they be replicated in Japan, Korea or mainland China (assuming Facebook were to become unblocked in that country)? We've written in the past about China's dispersed social networking landscape, and the unrealized opportunities for application developers on Chinese platforms, but less has been said about Taiwan. While linguistically and culturally closer to China than any other country, Taiwan presents a very different set of opportunities. The two cannot be confused, and yet, Taiwan does present some key insights for growth in the China market. In many discussions related to social networks and social gaming, Taiwan is the East Asian country left out of the 'CJK' - it is assumed to be accounted for, and yet it's not quite 'China,' 'Japan,' or 'Korea.' We would like to highlight Taiwan as a unique, and telling, hybrid that can teach us more about how the Facebook ecosystem can finally make its entry into the enticing yet out-of-reach East Asian market. Taiwan enjoys a standard of living and economy comparable to Japan and South Korea, when adjusted for population. It shares a language with China; although the written language is Traditional Chinese instead of Simplified Chinese, the differences are not major enough to bar mainlanders from reading, creating or otherwise interacting with Taiwanese content, and vice versa. And, it and demonstrates the Facebook growth trajectory of the Southeast Asian countries of Indonesia, Malaysia, and the Philippines. Given Facebook's stellar growth history in Taiwan, can it be replicated elsewhere? We believe there have been two major causes behind Facebook's rapid growth: (1) the takeoff of social games and (2) stagnant competitors. Social gaming drives traffic growth, or traffic growth drives social gaming? We have previously commented that while social network growth is driving social gaming growth, social games are bringing many new (and more) users to social networks. While it's still debatable which, if either, is the causal factor, it is clear that both are following parallel growth trajectories trending steeply upward and that many new users are joining social networks and immediately engaging with games. Meanwhile, across the South China Sea, more and more developers based in mainland China are hitting the ceiling for revenue growth in that market. Only two social networks have 'open' platforms that allow for third-party application development, RenRen.com and 51.com. To date, both networks exercise significant control over app distribution and growth, and command revenue shares as high as 50%. For the ambitious, yet constrained, developers of mainland China, open networks like Facebook are looking very promising. Nevermind that Facebook doesn't have many mainland Chinese users. Increasing numbers of China-based developers creating Chinese-language games for Facebook since mid-2009, as we discussed previously on Inside Facebook. The influx of Chinese developers launching Chinese-language games on Facebook continues, even though very few people in China can actually access the site. In this vein, we're seeing traffic grow for developers creating apps for Taiwanese Traditional Chinese speakers. Below are traffic numbers for Mahjong, by developer God Game, from AppData: Other apps targeting Taiwan show up in Facebook's app suggestions when users set their language to Taiwanese Traditional Chinese: "Developers in the region say that nearly everyone joined Facebook in order to play games like Happy Harvest, published by 6 waves, Pet Society, and Restaurant City. We’ve heard reports of local restaurants giving out Facebook Happy Harvest coins to customers who eat there. There are relatively advanced systems for distributing virtual currency already in place, like mature mobile payments and prepaid cards infrastructure, and these are migrating to Facebook quickly as well," is an observation that we noted in Q4 of 2009 on InsideFacebook.com that accurately sums up the developements we're currently observing. From both the AppData figures and anecdotal accounts like this one, we're seeing more and more Chinese-language users engage with social games on Facebook. Facebook's advertiser tool estimates that there are 5.1 million users in Taiwan who are using the site in Taiwanese Traditional Chinese (as differentiated from Traditional Chinese for Hong Kong). According to the advertiser tool, in Hong Kong, the other market where a form of Traditional Chinese is relevant, there are just over 1 million people using the site in Traditional Chinese for Hong Kong and around 400,000 using Taiwanese Traditional Chinese. Outside of these two markets, there are only a small handful of Traditional Chinese users in the United States and Singapore. What this means is that when we see Facebook applications translated into, or directly developed in, Traditional Chinese -- like GodGame's Mahjong -- we can be fairly certain that they are primarily meant for the Taiwan market. It is unlikely that these games were built or translated for the tiny Traditional Chinese-speaking diaspora in Facebook's other countries. For developers from mainland China, Facebook has become an important channel to reach more monetizable Taiwanese users, who are not so far off culturally and linguistically from the users they've already acquired in large numbers on RenRen.com and 51.com. These Chinese developers, along with their peers based in Taiwan, are now wisely riding the coattails of the site's explosive growth in that country. Stagnant local competitors Facebook is fast becoming Taiwan's top social networking destination for another good reason -- minimal competition. Its primary competitor in the market today is Wretch.cc, a local BBS service-turned-social-network started in 1999 that was acquired by Yahoo! in mid-2007. Wretch, which started out as a photo-sharing and blogging platform, currently offers users the standard suite of social networking capabilities, with slightly increased focus on photos and dating. Wretch currently does not offer a gaming experience, but it does bolster its ads-based revenue channel via a premium 'VIP' tier that offers expanded storage and messaging capabilities. Wretch is ranked as Taiwan's number two destination by Alexa. While Alexa is an imperfect tool for web traffic measurement, it does give a general sense of where sites are in relation to one another, and is one of the few services that does so for non-U.S. destinations. Alexa ranks Facebook as Taiwan's number three most-visited site. Other, smaller competitors include: * pixnet.net - photo sharing, events, blog, recipes, social / content network targeting women * eyny.com - a BBS and yahoo-style content network (focus on news, videos, weather, etc) * yam.com - a BBS and yahoo-style content network * gamer.com.tw - a games network that does not focus on social games At the same time, formerly dominant international competitors like Friendster and hi5 continue to lose ground in Southeast Asia. According to Alexa, hi5 is now trailing Facebook in Thailand, formerly a top hi5 country. In the Philippines, Facebook is now ranked as the number one most visited site, far ahead of Friendster. Likewise, competition for social networking traffic poses a weak threat to Facebook's imminent dominance in Taiwan. As social games continue to increase in popularity, Facebook, which is the only social network with any foothold in Taiwan that also offers an accessible social gaming experience, will be well-positioned to take the lead and stay there. Will Taiwan be Facebook's key to the rest of East Asia? Taiwan is one of the few non-English-speaking languages with over 30% market penetration, according to the data in the most recent Global Monitor Report. As noted earlier, when calculating for market penetration for Taiwan's Internet-using population, this number jumps even higher to surpass 40%. To date, Taiwan, and the much smaller markets of Hong Kong and Singapore, are Facebook's rare, but dramatic, East Asian success stories. Although online advertising is clearly contributing, at least in part, to revenues for Facebook's competitors in Taiwan, we believe Facebook is likely to continue earning the bulk of its advertising revenue from the U.S. and Western Europe, where it has recently invested in expanded sales and business development offices. Advertising will be a part of the value Facebook draws from Taiwan, but will likely not be the biggest revenue stream from East Asia even if the site does take off throughout the region. Instead, we believe that most of the growth we'll see in the coming quarters will happen on the application platform. In the developer ecosystem as it stands today, Taiwanese users are social game consumers. We've seen reports of games like Happy Harvest being culturally relevant even in the offline world, and we're seeing healthy stats in AppData, our independent traffic measurement service, for games that are in Chinese only. It makes sense to us that these games are being made for, and being played by, users in Taiwan. While Taiwan may not be Facebook's immediate foot-in-the-door to the rest of the East Asia, it is certainly looking to be a promising opportunity for developers looking for fresh markets primed for virtual goods-based monetization in which to launch social games. Recall that China's virtual goods industry is estimated to reach 5 billion USD by the end of 2010. Much of this impressive number is a simple factor of China's massive population of virtual goods consumers. But, some of it is surely cultural as well. East Asian consumers have demonstrated a familiarity with and willingness to pay for virtual goods beyond what we're currently observing in the West. Taiwanese users are a much a part of this regional norm as Chinese users, and Taiwan's number two social network, Facebook, is fertile ground for developers. Unlike the networks in China, Facebook is both open to 3rd party application development and provides a self-serve advertising channel for developers to promote their games to achieve massive adoption rates -- and all of this is conveniently contained within the application ecosystem itself. Taiwan represents the next easy market to enter for developers all over the world looking to break into East Asia and begin to monetize the vast Chinese-language market. Facebook will be the channel to reach that audience, and social gaming's popularity will help to grow the channel itself too. If social games are the vector driving Facebook's growth in Taiwan, then it's very possible that social games could help Facebook to finally begin chipping away at the more established (and lucrative) markets in South Korea and Japan. This article, and the Global Monitor Report data it cites, is from Inside Facebook Gold, our new data and analysis membership service tracking Facebook’s business and growth. In addition to monthly data updates, Inside Facebook Gold presents weekly in-depth analysis articles exploring the most critical developments impacting the future of the Facebook ecosystem. Click here to learn more.

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Does Taiwan's Explosive Facebook Growth Mean More To Come In East Asia?

Susan Su

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