Facebook's Start-and-Stop Growth in China, Taiwan and Hong Kong

Odd Facebook traffic patterns have been showing up in the main Chinese-speaking parts of the world over the past few months, based on data from Inside Facebook Gold, our data and research service covering Facebook’s growth, demographics, and monetization in global markets. Taiwan (Republic of China) gained millions of users, and mainland China (People's Republic of China) -- where Facebook is blocked -- gained hundreds of thousands of users over the course of January. Both countries then lost users in the past month, even as neighboring countries posted normal-looking traffic gains. These anomalies are occurring as Facebook finds itself in geopolitical cross-currents. The company has gotten new attention for the role its product has played in helping people organize protests in the Middle East, and as Chinese communist leaders are further restricting internet access in order to preserve “stability” -- and as new rumors surface about deals Facebook may be doing to get into mainland China. We’ll examine possible explanations for the traffic changes further down. First, the numbers. The Growth of Greater China Mainland China itself went from 119,000 monthly active Facebook users at the beginning of January to 694,000 monthly actives at the beginning of February, even though the site is blocked in the country. It had not had any significant growth since the summer of 2009, when it had plummeted from 1 million users to 100,000 users -- almost certainly due to a nearly complete block. Since then, with the average month has showed somewhere around 50,000 and 100,000 MAU. The winter growth has not continued, in any case. As of March 1st, the country has fallen slightly to 659,000 MAU. Meanwhile, Taiwan, the island nation that the mainland Chinese government claims as its own, gained 3.08 million new users over the course of January to reach 11.8 million at the beginning of last month. Before then, growth had mostly been slower, ranging from the ten-thousands to a few hundred thousand new users each month in 2010. However, a surge appears to have started in October, when it grew on Facebook by nearly 400,00, and continued in November and December, adding around half a million new users each month. But traffic dropped over February to almost exactly 10 million monthly actives. It's unusual to see the equivalent of a third of a country's existing Facebook user base join in a single month, then fall off by two-thirds of that growth in the next month. In contrast to the other two places, Hong Kong didn’t show anything surprising. Facebook is not blocked in this "special administrative region" of China, but growth is about what one would expect, given that more than half of its total population is now on the site (typically, countries slow down when they reach those levels of penetration). It grew from 2.83 million to 3.70 million new users over the past twelve months, but then only 21,000 new users in January. It gained an even smaller number: only around 5,000 new users. For developers, marketers, and anyone else interested in the Chinese-speaking market, these changes are significant. Greater China (defined as these three countries) accounts for the majority of the 16 million Chinese speakers on Facebook; out of all countries with significant Chinese-speaking Facebook user groups, South Korea, Malaysia and the United States account for most of the rest, at above one million users apiece. So, to review: Facebook had unusual, hard-to-explain growth in January, that more than dried up in February. What's going on? The Possible Explanations for the Starts and Stops Proxy Servers Social game developers, international residents and outwardly-interested Chinese citizens have long used proxy servers to access Facebook from the mainland, essentially spoofing their internet connection locations to make it appear as though they were located in other countries. That’s not a new trend, and anyway such traffic wouldn't show up for China, it'd show up for the country where the users pretended to be. But it’s possible, given the close business and technology ties between Taiwan and the mainland, that Chinese users have somehow been finding it especially easy to access Facebook through Taiwanese servers. That wouldn’t explain the growth in that country, but it could explain the strangely large February surge in Taiwan. Missing Censorship Another possibility is that Facebook is somehow getting through to China in a limited form, in spite of censorship. We heard last year that the site may not be blocked on some mobile devices, although sources in the country have only been able to confirm that it is blocked on mobile devices. This could also explain the new China Facebook traffic. PengYou, a real-name social network created by Chinese internet giant Tencent, introduced Facebook Connect as a way for users to authenticate themselves when joining, back at the end of December. It's possible that a large but short-term influx of Chinese users who somehow had Facebook accounts tried using this service in China. The authentication required the use of proxy networks, though, so its usage would also not show up as Facebook traffic in China. Facebook Marketing Efforts Facebook has also been building out its local presence in Hong Kong and Taiwan. It opened an office in the former location last month to support its advertising and marketing teams in both places. It also released a customized application on its main Facebook page for the Lunar New Year, a major event throughout Asia -- the app allows you to upload photos commemorating your new year celebration. It's not clear if that app in particular contributed any growth over January, but the company does seem to be putting more work into developing its localization efforts, and perhaps its efforts helped account for the traffic increase in Taiwan. Government Approval Or, perhaps Facebook is somehow appearing in China with the approval of the Chinese government. Facebook founder and chief executive Mark Zuckerberg said last fall that he believes having China on Facebook is an important part of the company’s mission to help connect the world. Given the company's slowing growth in some other parts of the world, getting the country on may be how it can reach its goal of having 1 billion users. One can infer from Zuckerberg's statement that he is willing to work with the government, as many other international tech companies have chosen to do in the past. It's not clear what cooperation might mean for Facebook -- China internet companies typically have in-house teams of censors, who act based on input from the government. Zuckerberg also took a trip to China over the holidays which, while described by the company as a personal vacation, included a number of meetings with leading Chinese entrepreneurs. His visit, and leaked reports of those meetings, brought on heavy coverage in China and around the world. Maybe the trip spurred more users to try to find ways around China’s “Great Firewall” censorship software? Publicity about Facebook has helped drive its growth before. In neighboring Japan, for example, coverage of The Social Network -- the unofficial and unflattering Hollywood movie about Facebook’s early days -- has inspired hundreds of thousands of users to sign up in recent months, sources in the country have told us. Facebook, Sinophile Zuckerberg's statement last year was not the first time the company had expressed interest in China. It registered the Facebook.cn domain name in late 2007. And, Facebook had also looked at getting into China in the first part of 2008, according to sources in the country who we spoke with at the time. That could have involved some sort of special version of the site that gave the Chinese government special access to China-based users. There have been no reports of any special version of Facebook going into testing as of today. But many of China's 1.33 billion people do not have access to the rest of the world -- it’s not impossible that Facebook and the government (or a government-sanctioned company) has done some testing with a far-flung portion of the country. This sounds a lot more possible than it may have seemed just months ago. Zuckerberg met with executives at leading internet portal Baidu during his trip, and the Chinese press (via Bill Bishop) has recently reported that Baidu representatives came to Silicon Valley to discuss some sort of partnership with Facebook. That’s not the only potential China deal on the table. The chairman of China Mobile, Wang Jianzhou, said in late January that he’d also met with Zuckerberg about the possibility of working out a deal. Implications: Facebook's Public Image, Local Competitors, Ecosystem Growth Facebook's Public Image Facebook has been getting reams of positive press in Western media over the role it appears to have played in Tunisia and Egypt, two countries that have recently and apparently successfully revolted against oppressive dictatorships. Protest organizers were, despite some hiccups, able to use Facebook features like Pages to persuade thousands of people to march against their authoritarian governments. The Chinese government followed up last month by making pointed comments about its intentions to further restrict internat access. It also squelched what appears to have been some sort of attempt at coordinated protests around the country. That trend, as this recent New York Times article explains, is going to continue. Given the timing, Facebook's position looks especially awkward. If it does not advance any China effort in cooperation with the government, it will not be getting into the country any time soon. If it cooperates, its recent publicity wins from the role it has played elsewhere will be more than erased. In the event of a China entrance, we expect Facebook to make the arguments that other tech companies have previously made to explain the same decision. It goes like this: Even with censorship, the very nature of Facebook -- its use of real names, its social graph, its easy ways to upload and share photos and videos, its status updates tool, etc. -- will help spread new ideas and make China more "open and connected." Entering China will therefore bolster Western democratic ideals, despite the apparent contradiction. In fact, after Google decided to work with the Chinese government last decade, its then-head of communications Elliott Schrage argued this point in detail in front of the US House of Representatives. Google mostly pulled out of China last year, following its discovery of security breaches coming from inside the country. Meanwhile, Schrage has become the head of communications at Facebook. But even given the validity of Facebook's arguments, and Schrage's experience with handling the issue, we still doubt the company will be able to enter China without considerable damage to its reputation elsewhere in the world. Possible fallout could include negative press coverage about the company and its values, and more hearings in front of politicians championing free speech. The company has no doubt delayed any moves up to this point because it is all too aware of the risks. Local Competitors Beyond the question of political speech, or other activity prosecuted by the Chinese government, there's the larger issue of how Facebook's product might do in the country. After all, the site is intended to be a general-purpose part of people's lives -- a way to share photos, post status updates, organize family events, play games, and all sorts of other things besides political discussion and organizing. Observers in China have cited a variety of other factors that may cause Facebook to fail, including the wide range of established local competitors, and Chinese users' preferences for other types of internet activity (such as anonymous online profiles). Recent trends suggest that Facebook, all other factors aside, has a good shot at the market. Chinese social network RenRen has made itself quite popular through not only requiring users to provide real names, but copying most other parts of Facebook down to the letter (TechRice has a good breakdown of the site). If a Facebook clone can get traction in China, then Facebook itself -- backed by a world of 600 million existing users, an existing Chinese-language user base, a huge portfolio of games, and deals with Chinese companies -- has a great shot. Especially if one looks at all other countries where Facebook has faced established local competitors: Germany, India, Brazil, Russia, South Korea and Japan have been growing in the past year, even though it was just a year or two ago that many pundits believed that Facebook could not enter those markets. Ecosystem Growth and Monetization Larger geopolitical implications aside, all these traffic changes and a China entrance are being keenly watched by companies on Facebook's developer platform. Chinese-speaking users in East Asia have already proven to be a valuable demographic for social game developers; there are now seven titles in Chinese with more than one million monthly active users, for example, according to AppData. Zynga has even been creating localized versions of its hits, like FarmVille, to better reach these users. The recent gains in Taiwan could spur more developers to go after the market -- access to mainland China would get basically all of them excited. More detailed stats are available via Inside Facebook Gold, our data and research service covering Facebook’s growth across global markets and demographics.

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Facebook's Start-and-Stop Growth in China, Taiwan and Hong Kong - A Closer Look

Eric Eldon

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Eric Eldon