INTERNET: Twitter Flits to China with First Country Chief

Bottom line: Twitter’s naming of its first China managing director indicates the company is re-thinking its China strategy, and may mark the start of a campaign to get permission to launch a Chinese version of its service.

Twitter names first China chief

Nearly a year after the departure of its former CEO, social networking high-flyer Twitter (NYSE: TWTR) has just made a baby peep that indicates it may finally be contemplating a serious move into the heavily censored China market. The move comes in the form of a low-key executive appointment, which had company co-founder and current CEO Jack Dorsey announcing Twitter’s first managing director for China.

Before I predict an imminent arrival of Twitter to China with this appointment, I should stop and say that Twitter’s new path looks similar to one forged by 2 other Internet giants, Facebook (Nasdaq: FB) and Google (Nasdaq: GOOG). All 3 of these companies are currently blocked in China due to information that China considers sensitive on their online services. But Facebook has indicated it wants to launch a version of its social networking site in China, and Google reportedly is taking steps to launch a Chinese version of its Google Play app store.

Both companies have been laying the groundwork for an eventual China debut by opening Beijing offices to sell advertising and other services to Chinese companies for their global platforms. That appears to be what Twitter is doing now with its appointment of Kathy Chen, a former executive with Microsoft (Nasdaq: MSFT) and Cisco (Nasdaq: CSCO), as its first China managing director. (English article; Chinese article)

There are no additional details in the reports, except a quote from Chen that indicates her main duties will include creating more value for Twitter’s advertisers and other partners. Reports last year indicated that Twitter was already quietly courting China-based advertisers, so Chen’s appointment would seem to make that effort more official. (previous post) One media report noted that Chen appeared to be based in Hong Kong, though it’s quite possible she could move to Beijing in her new role.

Despite its popularity, Twitter has been under big pressure to boost its stalling growth and find a formula for sustainable profits. China could certainly help it in that drive, boasting the world’s biggest markets for both Internet and smartphone users. What’s more, Chinese are far more addicted to social networking services like Twitter than many of their western peers. That’s because many use such channels as much for getting news as for socializing, in a country where official media are often distrusted.

That reality has helped propel the rapid rise of Weibo (Nasdaq: WB), China’s homegrown equivalent of Twitter, which soared to prominence after the original Twitter was blocked by Beijing in 2009. Unlike the original Twitter, which lost $90 million in last year’s fourth quarter, the much younger Weibo has been in the black for more than a year now and posted a $19 million profit in last year’s fourth quarter.

China Flip-Flop

Twitter made headlines in the run-up to its 2013 IPO when Costolo said China wasn’t a place where his company could do business, a reference to the nation’s strict self-censorship laws that most western companies are reluctant to follow. Costolo appeared to change his tone slightly when he made a surprise trip to Shanghai in 2014, where he visited the university where I teach. But he was careful to avoid Beijing, showing his trip wasn’t designed to meet with government leaders.

Fast forward to the present, when Costolo is no longer with Twitter, following his resignation last year due to the company’s sputtering performance. I said at the time that Costolo’s departure could auger a re-think to the company’s China strategy (previous post), and Dorsey’s naming of a China managing director seems to indicate that such a re-think is indeed happening.

All that said, it’s probably far too early to say that Twitter will be launching a China service anytime soon. After all, Facebook opened its Beijing office nearly 2 years ago and still hasn’t received permission to operate a China service, despite aggressive lobbying by founder Mark Zuckerberg.

At the end of the day, it will take more than just a sales office to get Twitter into China. Previous reports have indicated that Facebook would probably have to form a joint venture with a local partner to launch a service in China, and even then the service would have to be completely separate from its global site. Twitter would probably have to follow a similar path, and would probably need to embark on a strong lobbying campaign lasting at least 2-3 years before getting permission from Beijing for a China-based site.

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