Facebook IPO: China features throughout

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Facebook may be blocked in China, but the world’s most populous nation features throughout Facebook’s IPO prospectus filed last night to the Securities and Exchange Commission.

Here are the references (my comments in bold):

Facebook sees China’s social networks as key competitors
We face significant competition in almost every aspect of our business, including from companies such as Google, Microsoft, and Twitter … We compete broadly with Google’s social networking offerings, including Google+, and also with other, largely regional, social networks that have strong positions in particular countries, including Cyworld in Korea, Mixi in Japan, Orkut (owned by Google) in Brazil and India, and vKontakte in Russia. 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.

China’s blockage is a risk that Facebook may face elsewhere
It is possible that governments of one or more countries may seek to censor content available on Facebook in their country, restrict access to Facebook from their country entirely, or impose other restrictions that may affect the accessibility of Facebook in their country for an extended period of time or indefinitely. For example, access to Facebook has been or is currently restricted in whole or in part in China, Iran, North Korea, and Syria. In addition, governments in other countries may seek to restrict access to Facebook if they consider us to be in violation of their laws.

Facebook is still very hungry to enter China
We plan to continue the international expansion of our business operations and the translation of our products. We currently make Facebook available in more than 70 different languages, and we have offices or data centers in more than 20 different countries. 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.

China’s lack of Facebook penetration highlighted as a key hurdle for Facebook’s ambition
There are more than two billion global Internet users, according to an industry source, and we aim to connect all of them. We have achieved varying levels of penetration within the population of Internet users in different countries. For example, in countries such as Chile, Turkey, and Venezuela we estimate that we have penetration rates of greater than 80% of Internet users; in countries such as the United Kingdom and the United States we estimate that we have penetration rates of approximately 60%; in countries such as Brazil, Germany, and India we estimate that we have penetration rates of approximately 20-30%; in countries such as Japan, Russia, and South Korea we estimate that we have penetration rates of less than 15%; and in China, where Facebook access is restricted, we have near 0% penetration. We continue to invest in growing our user base, particularly in markets where we are relatively less penetrated.

Admission that China may, in fact, be impossible for Facebook
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.

One board member’s China fund garners a mention
James W. Breyer has served as a member of our board of directors since April 2005. Mr. Breyer has been a Partner of Accel Partners, a venture capital firm, since 1987. Mr. Breyer is also the founder and has been the Chief Executive Officer of Breyer Capital, an investment firm, since July 2006. Mr. Breyer is also a co-founder and has been co-lead on the strategic investment committee since inception of the IDG-Accel China Funds.

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