Should Facebook set up an Asian HQ via establishing a presence in Southeast Asia? With recent statistics from Alexa, ComScore and O’Reilly Radar that demonstrates Facebook’s dominance as an online social networking site in the Southeast Asia market and a drip down effect into India, Cambodia and Vietnam, we provide the reasons why they should do so and the strategies how they can tackle a fragmented market like Southeast Asia.
Sometime back, I broke the news regarding Facebook has almost conquered the whole Southeast Asia market with the exception of Thailand and Philippines. Now, the whole Southeast Asia is overtaken by Facebook (via the Alexa rankings within each country except Thailand). Note that Friendster has lost their last bastion in Philippines. It is a feat that Facebook has conquered a market which they have not set up an official outfit. After all, the whole Southeast Asia market is fragmented, unlike the lucrative markets in India (still held by Orkut but Facebook is gaining traction with them last year) and China (where pundits like my friend Gang Lu just tell Facebook to forget going to China given the dominance of the local social networks and also the difficulty with government regulation as observed with Google China and MySpace China). To be fair, Friendster was the first social network which set up here in Singapore but they have run into difficulties where the problem does not lie with regulation based on other factors from business models to hiring the wrong people to who are established in their industry but not on social networks. Here are some thoughts on why and how Facebook should come to Southeast Asia.
Why Facebook should come to Southeast Asia
There are good reasons why Facebook has not set up a presence in Asia. First of all, they are not familiar with the market in Asia. Second, they are seeking a monetization model that can allow them to grow quickly like the way how Google has done with their online ads model. Most business strategists will suggest Facebook to tap into the East Asia markets which are heavily dominated by local players because they are seduced by the scale of the market. Who can argue against China’s 550M internet users and the success of QQ as a social networking and instant messaging tool? The problem is that Facebook will have to cope with the tight regulation in the Chinese market (given how many times they have turned off Facebook in the split of the second if any political incidents happened). Even if Facebook ignores the Chinese market and goes for the Japanese and Korean market, they are of no match against Mixi or Gree and CyWorld‘s business models of utilizing the high mobile penetration rate in these countries and micro-payments. Benjamin Joffe’s analysis of QQ provided an interesting ratio 8:1 for the revenue generated in QQ are paid by the consumers by mobile or micro-transactions using virtual gifts or games to by online advertising. So, there is not a tight fit unless Facebook finds a model that can harness this form of revenue generation methods.
However, there are interesting lessons to learn from the failures of other Western social networks for e.g. MySpace and Friendster which Facebook can learn from in order to expand into Asia. They are good examples because MySpace showed how difficult for a social network to penetrate in a market where local players are very strong in the East Asia market, while Friendster conquers the whole Southeast Asia market and yet unable to build a sustainable business model because all the users have started to migrate to Facebook.
- MySpace: MySpace is a good example of a social network which tried to enter into the East Asia market (Korea and China). There are two reasons why MySpace falter in those countries. The first relates to the earlier point I made about online micro-transactions. Let’s look at Korea first. The convenience of paying small gifts in CyWorld and the flexibility to pay for small improvements to the user generated account. The “Minihompy” phenomenon in Korea underlies how Koreans pop artistes and politicians have used CyWorld as the platform to promote their latest hits or policies. MySpace Korea suffers from what makes them strong in the US market when it comes to Korea. What about MySpace China? In fact, MySpace China could not mount a serious challenge to the other Chinese networks that ranked after QQ (51.com, RenRen and Kaixin001). The Chinese based social networks tapped on getting the users to pay for VIP privileges (as if they are running a private club) and virtual gifts and made MySpace’s online advertising model virtually useless. A easy way to think about this is the following: micro-transactions generates traffic and traffic complements online advertising. The power of online advertising can be multiplied by consumer interactions within the social network if some form of virtual economics are running in the background.
- Friendster: In some sense, the Southeast Asia market resembles Europe that it is a very fragmented market marked with different languages and cultures. Yet, if you examine Facebook’s dominance in Europe, you realize that Facebook is just as widely adopted in both regions. One should probably ask Facebook the question, “Since you have set up Facebook in Europe via United Kingdom, why not the same with the same approach using Singapore for the entrance to Southeast Asia? Friendster caught on the first wave of social networking fashion in Asia and got an exponential growth of users.
How did it falter so badly today? Two important factors led Facebook superceding Friendster. First, Facebook offers a better design interface, and most importantly, an opportunity for early adopters to work with the open platform and create apps on the network. Probably, I will use Singapore as an example. In early 2008, there are only 300K users and by today, 1.2M users. The first tipping point of Facebook for Singapore happened in March 2008 with the first Facebook Developer Garage followed by the mainstream press publicity that surged the network to its prominence. By now, there are already 3 Facebook developer garages events and the developer events spread to Malaysia and Indonesia through grassroots movement (via E27 and SGEntrepreneurs), and also with developers from the surrounding countries (Malaysia, Indonesia) coming to Singapore for the events. Contrast this to Google Singapore which was set up in 2007, but the developers communities on Android and Maps are only starting to happen in 2008. Second, online advertising is a dominant model in Southeast Asia as compared to their east Asia counterparts. The Southeast Asia market is not very adapted to the micro-transactions model via mobile payments (with strict local national telco companies in control) or the high rates that require users to do micro-transactions. In some sense, Friendster did not have a mobile app except in the Nokia Ovi Store, whereas Facebook app in iPhone and Nokia N97 are heavily utilized by the users owning smart phones.
The important question to address is why Facebook should come to the Southeast Asia market. Three factors come to mind:
- Strong local market online presence in Southeast Asia: If you look at the table I have presented the Alexa ranking of Facebook in three categories: (i) Southeast Asia comprising of Brunei, Indonesia, Philippines, Malaysia, Singapore and Thailand, (ii) Greater Southeast Asia with Vietnam and Cambodia and (iii) India (which is especially closer to the Southeast Asia gateway). MySpace has established presence in India but failed to harness any form of strong market challenge against Google’s Orkut and Facebook. In the table, you will note that Facebook is number 7 in Thailand and Vietnam and number 5 in the India market (close to Orkut). In these countries except for Vietnam (Zing.VN), the local social networks have not reached the reach and coverage in the same order of magnitude like Facebook and Friendster. One can also look at presentation from Ben Lorica from O’Reilly Radar on the demographic trends for adoption of Facebook in Asia where the rate of change for new user growth in Indonesia and Philippines are about 190-200%. India and Vietnam trails with 50% and 71% after these two markets for Facebook user growth.
- Convergence of Language, Culture & Business Models: Online advertising remains to be the most dominant business model in these countries. In fact, the success of East Asian social networks of utilizing micro-payments or mobile payments are totally invisible to this market. Given most countries descended as former colonies of Western powers, these Asian countries maintain a more cosmopolitan population that follow the trends in the US and European markets. Most of the top media buyers are located in Singapore (or Hong Kong) and expand out to the rest of Southeast Asia via this gateway. Companies beginning from the humble origins of Facebook developers have successfully monetized, for example, Tyler Projects with their BattleStations and Mafia Empire are beginning to create an industry of social network games within the region.
- Domino Effect into India and Greater Southeast Asia market: It is known that Facebook has a surge of 1M users in first quarter of 2009 in India, meaning that there is some form of domino effect taking place. This has already happened in Southeast Asia earlier, when Facebook started spreading from Singapore to Malaysia, Indonesia, Brunei, Thailand and Philippines in a rapid manner and eventually superceded Friendster as the dominant social network.
How to make Facebook work in Southeast Asia
How should Facebook position itself in a fragmented market like Southeast Asia? It’s easier to learn from the lessons why Friendster did not succeed and select localization of the Facebook platform within the region. Here are some strategies that Facebook can think about:
- Focus on Sales on Online Advertising: Like Google, Yahoo! and Microsoft who have established a presence in Southeast Asia market, the most common strategy to adopt by these companies are sales and marketing. It also explains why most operations in these markets are lean and mean and do not take into account of localization and harnessing the greater market potential of these markets. Most brand marketers and media buyers are looking into methods and means to use Facebook to promote products and services, particularly the usage of Facebook pages and ads. While most of these media campaigns are deployed by PR agencies and social media marketing consultants, Facebook can work directly with them but focus on localization of the platform to the market.
- Working with the Developer Communities and Expand the Facebook Credits platform: Social gaming and utilities have been the chief focus on how developers can make money from the Facebook platform. A rising tide lifts all boats and generate more usage within the platform. Currently, most users tend to use Facebook for organizing events, spreading information and galvanizing masses using causes and groups and also pushing Facebook ads. Can more be done? Perhaps, Facebook might be able to supercede the East Asian social networks in Southeast Asia market by pushing the credits platform to get local developers in these regions including India and with more apps, it increase Facebook’s market share and ability to monetize using the micro-transactions model.
- Utilizing strong mobile penetration with partnerships with local national players in Southeast Asia countries: Mobile social networking is getting popular within the Southeast Asia market, but limits the ability of users to make proper transactions via their mobile phones. Facebook is practically installed into every Nokia, Blackberry and Apple device and the trends are showing that most users are accessing the social network via mobile, but it only limits to very general functions. For example, in Korea, the CyWorld app taps into the fact that the mobile phone is also the user’s electronic wallet and pushes online sales of music and wallpaper for the MiniHompy. The most difficult part to get this strategy work is to engage the local telco operators, like SingTel (Singapore), CelCom (Malaysia) and AIS (Thailand).
Should Facebook come to Southeast Asia? At the end of the day, it depends on whether they have a scalable monetisation model that ultimately deliver the promise from the US$716M investment from various sources. Google took quite some time to move to this market and yet focus on only sales and marketing than engaging the developer communities until recently. In fact, Microsoft has been the most active in all fronts and engaged very well with the community, given that they hosted the 2nd Facebook Developer Garage for the community. Friendster squandered the opportunity with one, the wrong hire of a CEO who lives in Australia and not focus the business in Southeast Asia; and two, slow in engaging the communities (even with their partnership with the local government authorities in Singapore). Before they ever decide to come here, they should probably work why the rest have failed and then built on that to create a real success of an online Western social networking platform in the Asian market.
[21 Sep 2009] Nicholas Aaron Khoo aka Geekonomics wrote a response entitled Should Facebook setup office in South East Asia in his CNET blog on my post. In his post, he used a different measure using Google Trends to look at how Facebook has superceded Friendster. He also gave two candidates for Facebook’s SEA HQ.
[21 Sep 2009] I did an interview with Michael Netzley in the “For Immediate Release” (Hobson and Holtz Report) podcast episode 485 – Sep 21, and talked about some of the emerging trends on social networks in Asia.
 All Facebook, Facebook Announces 300 Million Milestone And Cash Flow Positive
 TechCrunch, Chinese Social Networks ‘Virtually’ Out-Earn Facebook And MySpace: A Market Analysis.
 Grey Review, Snapshot of Social Networking in Malaysia.
 My recent lecture in Nanyang Technological University, MSc in Technopreneurship & Innovation programme on “Building Online Communities: Trends & Strategies” (in Chinese). I did a case study discussion with the students on a hypothetical scenario with them being consultants to advise on how Facebook can survive in a market like China, and the two most important factors that Facebook has to consider is to work with the authorities and abide by the tight internet regulation and strong localization to the Chinese market drawing ideas from 51.com, RenRen and Kaixin001.
 Thomas Crampton, Ogilvy, comScore: Facebook now rules Asia. The ComScore statistics are presented here:
 Inside Facebook, Worldwide Facebook Mobile Usage Up 300% in Last 12 Months.
 Inside Facebook, Facebook Gains More Ground in Southeast Asia.