Bottom Line: LinkedIn's (NYSE:LNKD) rapid growth in China has been aided by its low-key approach to the sensitive market and a high degree of autonomy for its local unit from its distant US-based parent.
US business networking giant LinkedIn is quietly emerging as one of the few foreign success stories in China's social networking (SNS) landscape, using a low-key approach that has helped it steer clear of controversy. I haven't written much about the company since its slightly controversial entry into China two years ago, when it issued a statement acknowledging it would be subject to the country's strict self-censorship rules.
LinkedIn's ability to avoid controversy is probably due in large part to its low-key approach and its choice of an industry veteran with experience in both the US and China to head its local operations. True to his low-key style, company chief Derek Shen is making some minor headlines today with comments at a Shanghai event, including his disclosure that LinkedIn has signed up more than 20 million local users during its first two years in China.
This particular story is most interesting because it provides a template for how foreign Internet companies might succeed in China, especially in sensitive areas like SNS that require site operators to self-censor for sensitive content. Others like Facebook (NASDAQ:FB) and possibly Twitter (NYSE:TWTR) are eyeing similar China entries, and might take note of some of LinkedIn's practices that have helped it steer clear of trouble so far.
Shen said that China is now LinkedIn's fastest growing market and the 20 million local users account for about 5 percent of its global total of 400 million (English article, Chinese article). Shen added that LinkedIn also has 600 corporate users in China, including Internet leaders Alibaba (NYSE:BABA) and Tencent (OTCPK:TCEHY) and telecoms giant Huawei.
He said a major focus for the company right now is further development of its Chinese-language smartphone app, which it quietly launched before formally entering the market. During the event to mark the second anniversary of LinkedIn's China entry, Shen recounted early conversations with his bosses in which he stressed the importance of letting him operate with a high degree of autonomy from the company's US headquarters.
Small Spaceship in Distant Land
Shen used the metaphor of letting China become a small spaceship operating in a distant land from LinkedIn's headquarters mother ship, and emphasized that fast decision making was critical to success in such an environment. That seems to be part of the formula for success in China, and was most recently reflected in the far different fast-food universe where KFC parent Yum Brands (NYSE:YUM) decided to spin off its China unit into a separately run and listed company (previous post).
There's not much else of major interest in Shen's remarks, which is probably the way he wants it to be. Shen himself comes from a rich Internet background in both the US in China, serving stints at Google (NASDAQ:GOOG) (NASDAQ:GOOGL) and Yahoo (NASDAQ:YHOO) offices in California (Shen's profile). He returned to China in 2010 to start his own Nuomi group buying site, which was ultimately sold to search giant Baidu (NASDAQ:BIDU) for around $300 million (previous post).
I can personally testify to the growing popularity of LinkedIn among Chinese users since about a third of the networking requests I get from my own account now come from local users. As China's economy slows and jobs become more scarce, LinkedIn's own profile is likely to continue rising among young people eager to grow their personal business networks.
All that said, one of the missing elements from this story is profitability, which wasn't included in Shen's remarks. I suspect LinkedIn is still losing money in China due to its relative youth in the market, though its addition of big corporate clients demonstrates its ability to make money here. On the whole I would commend Shen and the company for its savvy approach to China so far, and would advise others to study its example as a good template for how to operate in the difficult market.