MySpace needs to watch its step if it hopes to do well on the Chinese online social networking scene

--------By Wong Joon Ian

MySpace, the social networking phenomenon that is one of the world's most visited websites, could launch a Chinese site within months, if recent reports are to be believed. The MySpace.cn domain is already active, with a placeholder for a company called Mai Si Bei, a transliteration of MySpace. That means Rupert Murdoch, whose News Corp owns MySpace, will finally become a player in China's internet industry.

This would grant one of Murdoch's great wishes: to gain a foothold in China. That desire has been stifled in the past by the Chinese government, which views foreign media investments with suspicion. Murdoch's attempts to expand his satellite television network's coverage in the past were stopped, leading to his widely quoted comment two years ago that he had run into a "brick wall" in China.

Murdoch will want to maximise returns on the US$580 million (?448 million) he spent buying MySpace in July 2005 by growing its traffic rapidly. It currently has 100 million users, but China could move the needle up significantly. In fact, MySpace under News Corp already has an aggressive international expansion underway: It planned to launch 11 international sites, mainly in Europe, by June this year but hit that target last month. But the Chinese market has been challenging for foreign technology companies. Some of the best and brightest tech firms, from Google to eBay, have retreated ignominiously here.

Chinese users can already create profiles on the regular MySpace, so one wonders what point there would be in creating a MySpace.cn. On the other hand, there have been recent reports that profiles cannot be accessed here, which raises the question of whether News Corp's hand has been forced to enter the Chinese market. If it wants to participate in China's online space, it has no choice but to locate its servers in China, where it would bypass China's nationwide firewall but would come under the purview of China's net police. It must be noted, however, that it is impossible to tell whether MySpace profiles have indeed been blocked by the Great Firewall; figuring out which sites are blocked is mostly guesswork.

Barriers to entry

Local competition is a chief concern for MySpace China. Social networking is old hat now, and there are plenty of well-entrenched competitors to contend with. Sites like Wangyou.com already offer music streaming, voice messages and other features that aren't on MySpace. The ubiquitous instant messaging platform QQ could be another threat to MySpace China's success, though it isn't a social networking website per se. However, it does lead users to other features like virtual worlds and its own currency. According to Sam Flemming, head of internet consultancy CIC, QQ is the "elephant in the room" as far as social networking in China is concerned. "It's almost a part of online life here," he said.

Regulation is another factor. MySpace's early popularity was fuelled by independent artists and their fans who wanted an alternative to major-label dominance in the US. This rebellious spirit is decidedly at odds with China's heavily policed media space. If a Chinese MySpace started censoring content and banning users who touch on "sensitive" topics, there could be a backlash against the brand from its users elsewhere. Youths looking for something to protest against would be only too happy to boycott a service that acquiesces to authoritarian demands.

Indeed, a Chinese MySpace may end up driven more by opinion rather than music. Sage Brennan of research house JLM Pacific Epoch notes that Chinese users do not yet produce much of their own content compared to US users; they tend to favour bulletin boards.

Murdoch faces plenty of other challenges, like management structure. Foreign tech firms that don't cede control to local partners have done badly in the past; eBay and Google are cases in point. Revenue from China's still small internet advertising market is another. Flemming thinks MySpace would have to become one of China's top five most visited websites to gain significant income.

MySpace Japan, launched last November could provide a telling glimpse into Murdoch's China fortunes. A report by the Internet Association Japan found that Mixi, the local giant, had 86 percent of Japan's market before MySpace's arrival, not unlike some of the competition in China. Could Murdoch be running straight into another wall, now that he appears to have scaled the first one?