Facebook IPO: Company unsure on ever striking compromise for “complex” China

In case you have been living under a rock, the year’s most anticipated tech event just happened as Facebook filed for IPO less than 12 hours ago. One of the more interesting topics within the paperwork issued by Facebook is its references to China.

Though the company continues to evaluate the potential of the country, where it is blocked, the documents contain an admission that those at Facebook “do not know” if they will ever find an approach that is deemed satisfactory to both the social network and Chinese authorities.

In the papers, Facebook acknowledges China’s potential but questions whether it can make the necessary compromise:

China is a large potential market for Facebook, but users are generally restricted from accessing Facebook from China. We do not know if we will be able to find an approach to managing content and information that will be acceptable to us and to the Chinese government.

Facebook would need to deal with an expectation that Chinese authorities would be able to impose a degree of control on its service. Sina, and others, has a rumour control team that cleans out unsuitable materials and false rumour, whilst deleting controversial comments and doctoring sensitive topics from trending.

In remains to see whether Facebook could allow that kind of interference. However, on the flip side, the documentation notes China’s vast potential which could be a swaying factor. In other excerpts, Facebook makes reference to the complexities of China, the risk of failure and competitors that are already established in the country’s vibrant social media space:

We may enter new international markets where we have limited or no experience in marketing, selling, and deploying our products. For example, we continue to evaluate entering China. However, this market has substantial legal and regulatory complexities that have prevented our entry into China to date.

If we fail to deploy or manage our operations in international markets successfully, our business may suffer. In addition, we are subject to a variety of risks inherent in doing business internationally

We would also face competition from companies in China such as Renren, Sina, and Tencent in the event that we are able to access the market in China in the future.

The document contains no fewer than nine mentions of the word “China” — which is more direct references than Twitter or Microsoft — and other references to the market which clearly indicate that the country is under serious consideration as a new market for the social network.

What might Facebook actually do were it to enter the country?

In a letter to potential investors, Mark Zuckerberg sets out his key long term objectives, most of which fly in the face of the Chinese government and the influence it exerts on Internet services through its policies and Great Firewall censorship.

Extracts from the letter include the Facebook founder and CEO’s aim to open governments with greater transparency:

We believe building tools to help people share can bring a more honest and transparent dialogue around government that could lead to more direct empowerment of people, more accountability for officials and better solutions to some of the biggest problems of our time.

While he is also intent on empowering people and helping them to be heard:

By giving people the power to share, we are starting to see people make their voices heard on a different scale from what has historically been possible. These voices will increase in number and volume. They cannot be ignored. Over time, we expect governments will become more responsive to issues and concerns raised directly by all their people rather than through intermediaries controlled by a select few.

When we previewed this year for Facebook, China was a major topic, in addition to its impending IPO and growth towards one billion registered users. We suspect that, by the end of the year, Facebook could have a China strategy on the table but entry into the market would take longer, if at all.

Mark Zuckerberg recently said that there was “no immediate path” to becoming available in China. His COO Sheryl Sandberg echoed Zuckerberg’s comments on Facebook’s position in China, calling the blocking of the social network the Chinese government’s “choice”.

Zuckerberg himself is known to have taken a personal interest in China. His girlfriend Priscilla Chan’s family has links to the country, he has taken up learning Mandarin and is curious about the country, having spent time there during 2010.

His visit to China was officially a holiday, but Chinese tech media were reporting rumours abound during his time in the country. According to a report from Bloomberg, Zuckerberg met with Baidu (which is loosely an equivalent to Google in China) and Sina (owner of China’s top microblog) as well as Alibaba.