I haven't written about Facebook (Nasdaq: FB) in a while, mostly because the company hasn't made any concrete moves into China lately despite previous assertions that it would like to enter the market. But the company's newly announced plan to purchase the popular WhatsApp mobile messaging service for up to $19 billion looks like a good opportunity to revisit the topic, and what this deal might mean for Facebook in China. Facebook's own site has been blocked in China since 2009, making it inaccessible to the vast majority of more than 600 million Chinese web surfers. But WhatsApp is widely available, even though it competes with the wildly popular rival WeChat service from local Internet giant Tencent. (OTCPK:TCEHY, HKEx: 700).
Let's kick off this latest look at Facebook in China with a quick recap of its biggest acquisition to date, which will see it buy WhatsApp for $4 billion in cash, $12 billion in stock and $3 billion in restricted shares (English article). The deal is the world's largest tech acquisition since Time Warner's (NYSE: TWX) $124 billion merger with AOL in 2001 at the height of the dot-com bubble of the late 1990s. The deal will give Facebook access to 450 million members of WhatsApp, which is popular in both North America and Europe.
Now that we've looked at the bigger deal, let's zero in on the implications for China. As a user of both WhatsApp and WeChat, I can personally testify that the former is a relative non-player in China, while the latter has become an instant messaging giant in its home market over the last 2 years. I use WhatsApp to communicate with many of my friends outside China, and use WeChat to stay in touch with nearly all of my China-based friends.
In terms of functionality, I do think that WeChat is a bit better than WhatsApp. One of WeChat's most popular features is a Facebook-like function that lets people share photos and links with their friends, and WeChat also has several GPS-linked features that WhatsApp lacks. In my view, WhatsApp's biggest potential attraction for Chinese users is the fact that it's not based in China, and therefore is less likely to raise suspicions that it monitors its users for politically sensitive content.
A number of non-Chinese friends have told me they're reluctant to use WeChat because they think their conversations may be monitored. Many Chinese may feel the same way, meaning they might be tempted to try out WhatsApp or other non-Chinese products like Japan's Line. That general suspicion about domestic products and services leads many Chinese to already prefer global e-mail services like Google's (Nasdaq: GOOG) Gmail over homegrown products from companies like Sina (Nasdaq: SINA) and NetEase (Nasdaq: NTES).
Facebook co-founder Mark Zuckerberg has said several times that he wants his service to be a truly global product, and that China is an important part of that equation. He has made several trips to China to check out the market, and was even rumored at one point to be in talks about a joint venture with leading search engine Baidu (Nasdaq: BIDU). But tough conditions from Beijing have prevented any deal up until now, including a likely requirement that Facebook set up a separate China service and actively monitor the site for politically sensitive content.
So the new question becomes: How is the WhatsApp acquisition likely to change Facebook's China approach? My guess is we won't see any major moves on the China front this year, as Facebook will be more focused on integrating WhatsApp with its own operations. But we could see some quiet promotions by WhatsApp targeting Chinese users as soon as next year.
If Facebook takes that approach it will need to be careful, since Beijing can easily block access if it feels threatened by the service. I did a quick poll of a few of my friends who follow the space, and all agree that WhatsApp is unlikely to be blocked if it takes a careful approach and remains faithful to its core function of letting individuals communicate on a one-to-one basis. If WhatsApp can do that and steer clear of other politics, it might be able to find a limited but lucrative audience of Chinese white collar workers attracted by the app's more international image and exposure.
Bottom line: Facebook could make a push into China next year using its newly acquired WhatsApp mobile platform, and could score modest success among more educated demographics.
Disclosure: No positions.