What Facebook And China Should Tell Us

Includes: F, FB, GM, GOOG, MCD
by: Dana Blankenhorn

Facebook (NASDAQ:FB) is a hit in China. Not as big as Google (NASDAQ:GOOG) Plus, but a bonafide hit, with 63.5 million users, despite the government "banning" it, with firewalls supposedly preventing people from accessing these, and other sites.

The numbers come from Global Web Index, which finds the G+ audience, at 106.9 million, even exceeding that of China-based 51.com, which has "just" 84.87 million.

Imagine. A site you're not supposed to see has more users than one anyone can see.

The media coverage of this story is also very interesting. While Google has almost twice as many Chinese users as Facebook, it's Facebook and Twitter that are noted in headlines about this story.

Now, these audiences are difficult to monetize, as they officially don't exist (according to the government). Putting Chinese ads in front of Chinese users from outside a government-sponsored firewall raises all sorts of nasty issues.

But as Dara Kerr writes at Cnet, "China's Great Firewall is permeable."

This is precisely what I found on my own visit to China a few years ago. China is not the absolute dictatorship we think it is. There are gradations in freedom, depending on education, on social class, and on wealth. Many people know how to use proxies to jump over the firewall, and the government does not go out of its way to catch most of these people. They need sound minds that feel free to fuel their increasingly-technological industries.

The more education you have, the more likely you are to gain access to proxy tools, and the more likely you are to know how to use them. China tolerates this because it wants its elites, and future elites, to have intimate knowledge of American science and business practices, but this also gives these elites access to American culture, and American values, which then filter down into the larger population gradually.

What this means for investors in Google and Facebook is less important than what it means for companies like General Motors (NYSE:GM), Ford (NYSE:F) and McDonald's (NYSE:MCD). The American brand is powerful in China, while the China brand is mainly feared or just tolerated in the U.S.

This is something that many American companies continue to capitalize on, and Internet companies can in fact start capitalizing it. By placing ads for American brands in front of Chinese consumers, and American branding messages, these companies can not only make money but help increase goodwill within what is, almost by definition, the upper end of the Chinese market.

Disclosure: I am long GOOG, F. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.