Liz Gannes

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What’s Really Going On With Facebook’s China Plans

Facebook’s tumultuous seven-year history as a company has been smooth sailing compared to what’s coming next: China.

Because while the country is a key global market, doing business there is rife with all kinds of thorny challenges and troublesome compromises.

So, despite its progressively weaker denials, numerous sources said Facebook is preparing to launch in China. Now, the social networking giant is working out the details of a localized Chinese offering and trying to execute them as quickly as is prudent.

Perhaps the most important detail of Facebook’s planned China offering is that it will likely be connected to the greater international Facebook community, rather than operated as an independent social network.

While some had advised Facebook to start with a closed Chinese service, sources said the company seems inclined to launch it as a network linked to the rest of the world.

That’s not a decision without controversy, due to the strictures of operating within an authoritarian state.

When Facebook users outside China connect with users inside China, sources said they will need to click through a warning that any material visible to Chinese users may also be visible to the Chinese government.

Over the past few weeks, NetworkEffect has spoken to numerous sources in and around Facebook about how will come to be.

Picking a Partner

As has been reported elsewhere, Facebook will almost certainly launch its China version in partnership with Baidu.

While Facebook insists that no deal has been signed with anyone, sources within and around the company described Baidu as the most serious competitor.

Alibaba had also been in the running, but sources said its leaders had voiced disagreement with Facebook’s vision for connecting Chinese users to one global social graph, rather than first starting with a closed system.

Alibaba advised the more conservative approach, given that the Chinese political situation is currently quite tricky and the U.S. government would likely find fault with Facebook seeming to play any role in censoring its users in China, said sources.

A source familiar with those talks said of Facebook’s inclination to go with Baidu over Alibaba, “It was an issue of Mr. Right Now instead of Mr. Right.”

Other partners considered included Sina, Tencent and China Mobile, but Sina and Tencent have their own social offerings that were judged to be too competitive with Facebook, said sources.

In the meantime, Baidu–often called the Google of China–is very much like Google in that it has little in the way of social strategy.

Facebook, led by its CEO Mark Zuckerberg, has increased its sense of urgency about having a presence in China. Zuckerberg visited China in December, where he met with entrepreneurs from Baidu, Sina and China Mobile.

Baidu leaders then came to visit Facebook twice in February, at which point some say a deal to work together was struck, although Facebook emphatically denies any official papers have been signed.

Facebook’s current official statement on the matter: “We are currently studying and learning about China, as part of evaluating any possible approaches that could benefit our users, developers and advertisers.”

Baidu had no comment.

The Perfect Time Is Never

Facebook, which is currently blocked in China, finds the market hard to resist despite the ethical implications of cooperating with its government. Zuckerberg said in an interview at Stanford last fall that Facebook determined in 2010 that China was one of the four remaining target countries it was not yet “winning or on a path to win,” along with Korea, Japan and Russia.

Of China, Zuckerberg said specifically: “How can you connect the whole world if you leave out 1.6 billion people?”

Leaders at the company–whose mission is to “make the world more open and connected”–feel it is important to include Chinese users as part of the larger global social network, rather than keeping them separate. The solution they have apparently arrived at is to show the warning messages about connections between the larger Facebook network and the Chinese-censored Facebook.

That sentiment could be looked at as laudable–as it brings a modicum of openness to China–or cynical, in that it requires a major ethical compromise.

That said, Facebook already employs censorship in several countries it operates in currently, such as Pakistan and Germany, in order to abide by local laws.

“It was a very active dialogue inside the company, but there was no other way to operate in China,” said a person familiar with the discussions.

And there aren’t good examples of American Internet companies successfully operating in China for Facebook to draw inspiration from.

Google’s internal moral dilemmas about operating in China are well known. But while Google is primarily a search engine, Facebook’s product is a platform for communication and organizing.

The situation in China is even more challenging following revolutions in the Middle East and North Africa that have been closely tied to Facebook and social media.

Facebook has been careful not to claim any credit for popular uprisings or to align itself as a force of democracy, but others outside the company have made those connections for it.

Facebook currently has about 400,000 active Chinese users, many of whom access the site by evading the so-called “Great Firewall of China” through use of virtual private networks.

Meanwhile, social sites within China are rocketing up in usage and becoming financially significant. Sina Weibo, which is much like Twitter, is said to have something like 100 million users.

And RenRen, the social network that has followed Facebook’s execution step by step, has filed to go public on the New York Stock Exchange with a $4 billion valuation.

Sources close to Facebook said that RenRen’s U.S. fundraising, in particular, is a significant motivator for Facebook to launch its China offering sooner rather than later.

“I would not discount the need for Facebook not to sit by and watch a significant competitor gain that much advantage,” said one person close to the situation.

Nuts and Bolts

Under discussions now taking place, sources said Facebook’s proposed plan could have Facebook and Baidu share the cost of setting up servers in China, and share revenue from the local version of the site. The local partner, Baidu, would presumably manage the censoring of the site and ongoing dealings with Chinese authorities.

As described above, when users outside China opt to connect to those inside China, they would see a warning message about the Chinese government.

As we all know, users are notoriously good at clicking through pop-up warnings without reading them, although this one is sure to get more notice.

Facebook could also use a combination of what it calls input filters and display filters, where Chinese users won’t be able to post or view content that’s objectionable to the Chinese government, but the rest of Facebook can run normally, sources said.

It will be a somewhat complicated technological endeavor to ensure that non-Chinese portions of the site don’t get stored in China.

Finally, Palo Alto, Calif.-based Facebook is considering sending a small group of its employees to help manage operations, but sources close to the company said this issue is still being debated due to safety considerations related to China’s oppressive government.

Ready, Set, Controversy

Net Jacobsson, who led Facebook’s previous effort to enter China–a translated version of the site that was launched around the time of the Beijing Olympics and was live for only a few days before being blocked–said in an interview with NetworkEffect that it’s not just entering China that’s difficult, but what comes after.

Jacobsson is no longer with the company and said he does not have direct knowledge of its current plans.

In addition to complying with rules forbidding political speech, gambling and pornography, as well as government requests for user information, American companies operating in China have to deal with ruthless local competition and incensed and vocal politicians in the United States.

“It will be difficult just trying to manage those two different worlds in a world that is so transparent,” Jacobsson said.

Obviously, Facebook getting involved in censorship in China will be a difficult concept for many people to swallow. In China, censorship is largely expected and normal and citizens are used to reading between the lines.

In the U.S., it’s considered a serious compromise of freedom.

Sources close to Facebook maintain that the company already censors some user contributions in accordance with local laws in Germany, Pakistan and Italy, so abiding by Chinese censorship rules is consistent.

But China’s size, importance and–more to the point–its suppression of free speech are unmatched.

(Please see the disclosure about Facebook in my ethics statement.)