LinkedIn Takes New Step In Slow Road To China

Jan.22.14 | About: LinkedIn (LNKD)

Online professional networking leader LinkedIn (NYSE: LNKD) took a big step towards entering the lucrative but tricky China market last week when it created a new China chief position and filled it with an industry veteran as it explores a formal service launch. The move was just the latest in the company's slow and careful approach to China, and could boost its chances of success in a market that has proven difficult for other global giants like Google (Nasdaq: GOOG), Yahoo (Nasdaq: YHOO) and eBay (Nasdaq: EBAY).

LinkedIn's latest China move came when it named Derek Shen as new president of its China operations (English article). Shen is a veteran in China's young but quickly evolving Internet sector, boasting a decade of experience including stints at Yahoo and Google. In 2010, he left the big western firms to found Nuomi, a group buying site that was recently purchased by leading Chinese search engine Baidu (Nasdaq: BIDU) in a deal valuing the site at more than $250 million.

Shen will be based in Beijing, but LinkedIn was careful to point out that the appointment didn't represent a formal service launch and instead was aimed at helping the company to further explore the market. That fact was underscored by the absence of a Chinese language option on LinkedIn's home page, a key component of a formal China service.

Shen's appointment had been widely rumored for the last few weeks after word leaked out that LinkedIn had hired a marketing agency to expand its China outreach. The company made an earlier move into the market with its launch of a Chinese-language mobile app targeting mainland users. That app now has 4 million users, indicating the company's active promotion of the software.

LinkedIn's latest move into China comes as newly released government data showed the country now has some 618 million Internet users - double the population of the entire United States - underscoring the market's huge potential. China already has several homegrown LinkedIn copycats with names like Tianji and Dajie, but none has the depth and international reach of the U.S. company that made an IPO in 2011 and now has a market value of more than $26 billion.

In making its latest step into China, LinkedIn will likely take a long and careful look at what it must do to succeed in the market, including complying with Beijing's strict standards for self-policing the content on its site. Such requirements are especially relevant to LinkedIn and other social networking services (SNS), which rely on user-generated material for a big majority of the content on their sites.

The inclusion of some sensitive material is believed to be an important factor that has led Beijing to shun offshore sites operated by major foreign companies like Facebook (Nasdaq: FB), Twitter (NYSE: TWTR) and YouTube. Google decided in 2010 that it couldn't comply with Beijing's rules and shuttered its China search business, which it moved to Hong Kong.

Rules involving content are one element, but certainly not the only one, that have led many of the top foreign Internet names to stumble badly in China. Even before its withdrawal from the China search market, Google was already struggling to compete with leading homegrown search engine Baidu.

Others to try and fail in the market include Yahoo, which ultimately shuttered most of its China business, and eBay, which also stumbled in the face of competition from leading e-commerce firm Alibaba. Last year also saw troubled online recruiting firm Monster Worldwide (NYSE: MWW) withdraw from the market, while leading global e-commerce firm Amazon (NASDAQ:AMZN) has also made relatively little progress despite years in the market and a recent major expansion.

Many observers and analysts attribute these global giants' lack of success to their inflexibility, which often includes relying too heavily on Western business models that aren't well suited to China's fast-evolving Chinese Internet environment.

LinkedIn's China approach looks smart and well-planned, aimed at avoiding the mistakes of its other global peers. In addition to moving slowly to better understand the market's challenges, LinkedIn has also found a good local leader in Shen, whose background includes not only work at Google and Yahoo but also the founding of his own successful Internet company.

Facebook, which has also expressed a strong interest in China, would be well advised to follow LinkedIn's example in its own potential future bid to enter the market. While it's still too early to say if LinkedIn will ultimately do well in China, its careful and low-key approach look like all the right moves to improve its chances of success if it decides to move ahead.

Bottom line: LinkedIn's naming of a China head is the latest step in a slow but prudent approach to the tricky market, boosting its chances of success.

Disclosure: No positions