LinkedIn may find China market not so hard to crack

The nature of its business may make it easier for the professional networking company to pacify the Chinese government than it was for Facebook or Google.

By Trefis Feb 17, 2012 1:11PM
Image: China (© Brand X/SuperStock)LinkedIn (LNKD) may be in talks with major Internet companies in China, according to reports, with plans to enter the lucrative Chinese market. But after what happened to Google (GOOG) and Facebook in the People's Republic, this could be a risky move, and is far from certain.

LinkedIn's success will depend on how it deals with the intense competition from Chinese incumbents, as well as the degree of censorship it is willing to concede to the regulatory bodies in China. LinkedIn Stock Break-up

 
The nature of LinkedIn's business may make it easier for the company to pacify the Chinese government than it was for Facebook or Google. Both Facebook and Google share a fundamental goal in striving to make the Web more open on a global scale. While Google does this with its all-encompassing search engine, Facebook has shown that its social network can play a big role in mobilizing people for a cause, as exemplified in the Arab Spring political movements. This online freedom is the precise reason why China has opposed these companies' presence on its soil without certain concessions, given that the country ranks 174 out of 179 countries in the Press Freedom Index for 2011-12.


LinkedIn, however, is strictly in the professional networking business, and its presence in China would mean connecting Chinese employers to a predominantly Chinese subscriber base. This may not worry the Chinese government to the extent that it would completely block the site. However, given LinkedIn's U.S. roots, the company's flow of information will be thoroughly monitored and scrutinized, and this control could extend to the kind of advertisements that show up on the site. A positive sign is that other companies like Microsoft have navigated these waters through a partnership with Baidu.


China has been known for its highly successful domestic variants of foreign Internet companies that have leveraged the country's scale and are in tune with local preferences and tastes. The key examples are Baidu in Web search, and QZone and RenRen in social networking.


Professional networking is not an exception either, with a host of incumbent Chinese players like Tianji.com and Wealink.com. Tianji has a subscriber base of around 9 million as of 2011 and plans to reach 35 million by 2013. In addition, these incumbents already have dedicated teams to handle censorship-related matters with the Chinese government, an area where LinkedIn lacks the necessary experience. This means that the barriers to LinkedIn's entry would be driven more by competition than by censorship worries.


We currently have a price estimate of $39 for LinkedIn's stock, which is well below the current market price. See our complete analysis for LinkedIn's stock here.

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