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  • Andrew Collins

4 Things We Can Learn From China’s “Facebook”

According to the latest reports on users and revenue, former Chinese social media king, Renren, is puttering out into digital insignificance à la Myspace. With the growing number of Chinese tech companies looking to expand internationally and the lifespan of social media platforms become increasingly short-lived, it’s important to understand what went wrong to gain insight into the large yet very misunderstood Chinese digital world.

The Beginning Renren started as a complicated tangle of domain names and consolidated businesses, but basically the Renren as we know today was founded by the current chairman and CEO Joseph Chen in 2005.

As Renren’s base continued to grow, even the west began to take notice of Renren, particularly after Facebook and Twitter were banned in China in 2009. An analysis from Venturebeat in 2010 deemed it the “most popular, most open, and best-financed social network in China.” And indeed, their aggressive marketing campaigns to expand beyond universities, foray into gaming, and attempts to monetize put it ahead of the clutter of networks vying for ascendancy in China’s digital arena. Renren’s hotly anticipated IPO debuted in May 2011. The buzz was twofold: this was one of the first social media companies to go public- not even Facebook had gone public- and the west was just beginning to appreciate China’s growing presence on the Internet. Renren priced its IPO to raise $743 million, and in the first day, saw shares soar over 30%.

Cracks Even before going public, however, a few cracks were starting to show: the financial and user reports coming out of the companies were a little, for lack of a better word, sketchy. The audit committee chairman, Derek Palaschuk, resigned after a few of their reports drew criticism from research firms. The company also changed the number of users it had gained in a quarter by a few million, later attributed to a typo. Renren did state in it’s filings that it found a “material weakness” and a “significant deficiency” in its internal financial controls, but it was largely ignored.

Steady Decline User numbers and share prices started to flatten, then decline, and though there was a brief uptick in 2012, the general downward trend continued. This was due partly to the evolution of social media in China. The rise of microblogs (called Weibo, led by Sina Weibo) around this time started to become popular, filling the void between banned western social media and the frustratingly slow as well as sparse news dissemination from China’s traditional media outlets. The content forwarding feature available in Kaixin001 and Renren was improved and became the staple in the new Weibo model.

Additionally, a major appeal of microblogs lay in its mobile compatibility. Smartphones started being produced on a mass market level in China in 2009, and have continued to skyrocket. Because advances in technology allow people to get onto the Internet without lugging a PC, or even a laptop around, mobile devices have increasingly become the preferred method of accessing the Internet- in fact, today, over 80% of Chinese netizens access the Internet via smartphone. As a result, the way people use the Internet has shifted: users consume more information in smaller bites, reading the news, commenting, and communicating with others on-the-go, making microblogs a lot more convenient than desktop-friendly Renren.

In 2013, the social media environment mutated again, this time with Tencent’s messaging app baby, WeChat. Increasing censorship on Sina Weibo was a partial factor in the push into messaging apps, but WeChat had a lot of other appealing features. Firstly, WeChat used QQ to lead into it. It was really easy to build a Wechat profile from a QQ profile, and since QQ was one of the earliest Internet portals (founded in 1999), everyone had a QQ profile. WeChat was also primarily mobile-based, and it’s easy to upload photos to WeChat’s “moments” feature, like Facebook’s feed on your phone (and photos are always popular- they increase engagement). As more people started posting their photos to WeChat, it became a little redundant and inconvenient to post them on Renren again once a critical mass was reached.

Renren’s tried new approaches- more emphasis on mobile, gaming, and investing in other companies, but has yet to find the silver bullet.

Fail It’s ultimately a combination of factors that left Renren in the social media dust. Externally, there was the changing and increasingly competitive landscape, but internally, Renren failed not only to adapt to the technological changes within China, but also the expectations of an international company.

Though the “Facebook of China” was a catchy moniker often attached to Renren, it was misleading. Renren never had the market dominance Facebook had, or still does, and the slew of homogenous competitors fractured the market. Coupled with the slow adaptation to mobile and lack of innovation (updates were almost all literally copy and pasted from Facebook changes), Renren not only failed to retain their original student user base but also failed to attract the younger students, who had other options.

Because of the obstacles at home- many foreign companies and technologies are either outright banned or lack the guanxi to make the right connections- many Chinese companies, while successful and perhaps ahead of their peers in China, fail to maintain their competitiveness internationally. Additionally, more competition means that companies are held more accountable, and the lack of transparency that might be acceptable in China becomes less so internationally. Whether or not Renren’s questionable financial reports and user data was a due to a lack of transparency or lack of understanding of the market, those should have been clues that the company was perhaps not ready to go public.

Who cares? As mentioned earlier, more and more Chinese companies are looking to go public and more international brands are looking to enter the Chinese market, but with little knowledge on both sides, there’s a potential for huge loss.

But with China playing a larger role in the world, we can’t just ignore it or its companies. While we can’t control how much a Chinese companies knows, or even predict government policies, there are a few lessons we can take away from Renren:

  1. Ignore the hype.  Much of the intense hype surrounding Renren’s IPO was just that, namely that the heady combination of the words “China” and “social network” distracted many from several red flags.

  2. Keep up with the general trends, but be aware that specific platforms/sites move very quickly. Official numbers for platform users and revenue are often unreliable, but the government, through agencies like the China Internet Network Information Center, releases numbers on statistics like mobile users and outbound travel, which can give insight into growing markets.

  3. Make sure the company is adaptable: One of the biggest factors of Renren’s downfall was not jumping on the mobile trend quickly enough.

  4. Remember Beijing: And of course the politics behind Chinese companies can’t be ignored. China’s been making headlines across every sector these past few years, with oftentimes conflicting and confusing predictions, but the only thing we can say for certain is that we really just don’t understand China, mostly because it’s hard to know exactly what’s going on. And in a country where the government ultimately has control over everything, from the media to businesses, the government’s agenda, not always aligned with the market, will always win. Though Peter Thiel, PayPal co-founder and tech investor, was talking about Alibaba when he said that the company’s “fate is tied to its ability to appease Chinese state officials,” the same holds true for any Chinese company, particularly Internet ones, as China has proven itself almost reliably unpredictable.

For more posts on Chinese social media, check out www.mailmangroup.com/blog or follow us on Twitter.

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