CASE 8

Facebook: Business Connections in India and China

Facebook dominates the global market due to its creativity and adaptability. It used approaches that are relevant and useful in different countries. In this case study, we will see how Facebook adapted itself to become one of the most creative and innovative organizations and gained massive success not only in developed nations but also in emerging markets such as India and China. One of its pioneering efforts in emerging nations was enabling videos to work on a low bandwidth as these nations always have had issues with the internet connectivity. Additionally, their campaigns were very consumer centric. For one such video, Facebook stated its mission in the following manner: “Connect with the next billion”. This message denotes the connection with the population of India. Facebook also has a mobile app which is extensively used in India. There are around 1.5 billion active users on this apps on a monthly basis. While connecting with Instagram which is a photo sharing app, there are 300 million users (Thomas, 2016).

BUSINESS APPROACHES FOR INDIA

In India, three billion individuals can access the internet currently. With this extensive usage, Facebook has US $ 3.8 billion ad revenue on a quarterly basis. These in-depth penetrations and bottom lines are achieved by Facebook by using three approaches:

1. Facebook works everywhere: This is an excellent strategy of Facebook as it works with 4G LTE, 4G, 3G, and 2G connections. In most of the places in India, there are persistent connectivity issues. Here, 2G helps in the usage of Facebook. It is so effective that it works with all manners of connections and phones. The product team of the company was successful in creating various formats of this social media platform to match different phones and connections. Another important aspect was the nature of news feed stories and how people loaded them on their phones. For example, when the network is slow, a user would get those stories that they were looking for and load low resolution pictures. More importantly, the users never saw the buffering symbol as it was considered to be very irritating On the same line, users could see the previously loaded pictures and content even when the internet connection was not available. To facilitate this service, Facebook had a new initiative known as 2G Tuesday. It means that on every Tuesday, every employee has to sign up for 2G for an hour to experience slow internet connectivity. This practice helped the company understand what could be done when the internet is slow.
2. All users lead to making money: Facebook had to make money. Thus, it aimed to offer new features pertaining to ads even during slow connections. This is specially seen in the emerging nations such as India.

   To compensate this loss, they focused more on making money from the developed nations such as US and Europe as they have better connectivity. Additionally, in emerging countries, there are creative ways by which the ads are managed. For example, approaches that connect with the regional individuals and use local infrastructure were developed. They used an approach which was really effective known as “missed call” for the Indian market. Users were not using their data plan to make these missed calls. Advertisers were paying the data costs for sending the pictures, content of the celebrity via Facebook. More specifically, they also made adjustments with the ads. They developed slideshows ads that created videos in the low bandwidth. All these approaches enhanced the product experience, thus helping advertisers reach their audiences in a creative manner and Facebook earn their revenue.

3. Enhancing the reach and use of the internet: This approach basically worked for countries like India as the company had to motivate people to use the internet. To do this, Facebook does not focus on the government, local companies, and so on. The company developed ways in which people could easily get online via non-profit organization such as internet. org. Additionally, Facebook had collaborated with the local partners such as free basics which allowed the users to be online without paying so that they could use Facebook and other apps easily (Chu, 2014). This free basic have connection to solar energy sources connected with their network. Thus, it can also work also in those areas where fiber optics cables do not function. This practice helped the company allure new sets of users to come online and join Facebook and increase their ad revenue. Similarly, Google is also floating internet balloons in most of the remote areas (“Forbes”, 2016).

CUSTOMIZED SERVICES FOR INDIAN MARKET

Facebook would like to reach out to everyone and connect with the all the users by letting them know how and when to connect. To do so, Facebook provided hyper-local services website for India. It provided all the relevant information about the local services and the businesses. This information is based on the selection of the user in terms of their location. There are around 80 services that are provided by Facebook. These services include plumbing, hair care, home care, events and so on. These services have user ratings and reviews. This segment is highly competitive in India as there are other players such as Urban Clap, house joy, Quickr services, and so on. These players operate in this space. These players charge a 10–30% commission on each transaction. However, Facebook has the cutting edge over these players as it has more than 2 million registered users who have small and medium businesses in India. These services also helped the company increase the ad revenue and leverage its growth. This resulted in an increase in the average revenue per user increment as there were 4000–6000 orders regularly on a daily basis. Further, this sector is very unorganized and has the potential to grow at US$ 100 to US$ 400 million (Nair, & Kashyap, 2016; Joishy, 2012).

MARKETERS’ CHALLENGES AND APPROACHES FOR INDIA

However, Facebook realized that in India, the advertising revenues are comparatively less than in developed nations such as US and UK. This is because of the low per capita income in this country. Facebook would like to capitalize all the ways in which it could increase the ad revenue with a high and strong user base. Facebook helped the small and medium-sized businesses possess their own web pages so that they could connect easily, and hence, generating ad revenues from them.

Another strategy of Facebook was to connect with the start-ups as they cumulatively raised the funding of US$ 180 million. With all these strategies and approaches that Facebook India has used, the profit after tax increased to 33% and to 16 crores within a year. However, there are 138 million users in India. But the revenues for the company is still lower. The average earning is less than ₹ 9 per user in India as compared to ₹ 630 in the US. These numbers are less in India as many companies in this country started investing in digital and social media platforms but 70% of their budget is provided to Google. Thus, Google has a revenue of ₹ 4000 crores in India after having spent a decade in this country. However, Facebook has forecasted that companies would spread out their budget and invest more in Facebook for their ads in the coming years in India (IANS, 2016). More specifically, Reliance, a telecom company in India, has provided much subsidized rate for internet tariff to all the users in the country and this approach is the game changer for many organizations, including Facebook. Now, the problem in India is about net neutrality. The telecom regulator, TRAI have kept the deployment of commercial services on hold.

Marketers in India think that Facebook is the best platform to disseminate information, especially when they have to target micro-level consumers in terms of their locality. To leverage this opportunity, Facebook is alluring more advertisers and marketers by initiating the services such as Facebook Lite. This service is provided for a large number of users in India who use 2G connections. This service provided them the facility to quickly download their videos with this connection.

Interestingly, a market research company from New York has estimated that by 2019, the digital spend in India would be greater than that of France, Spain, Italy, and Brazil in terms of metrics. For example, companies related to mobile phones, telecom operators, automobile, FMCG organizations, while targeting young consumers, use these platforms extensively. This opportunity is significantly related to the economics of Facebook in India (“Challenges to Facebook International Strategy - The India Case”, 2017).

COMPLEXITIES AND BUSINESS APPROACHES FOR CHINA

Similarly, the same opportunity is observed in China for Facebook as there are multiple users. However, China has blocked Facebook since 2009. This is because Mark Zuckerberg, CEO, Facebook posted his picture on this social media while he was jogging in smoggy Beijing. This post showed China and its capital in a disparaging light. This portrayal would create a negative image of China and its environmental policies. Further, because it was a Westerner who was seen jogging in the smog-filled environment, it created a complicit negative comparison between China’s and the Western world’s living conditions. Finally, Zuckerberg was seen as an outsider with no moral authority to comment on another sovereign nation. Thus, China has further tightened their restrictions on internet freedom in terms of rules and regulations for foreign technology-oriented companies. After understanding these restrictions in China, the CEO of Facebook proposed providing a localized version of Facebook in China. This proposal was approved by the government. But, the company will have to follow some rules:

1. Overlaps: There should be very limited overlaps of this local Facebook version with the international version as the content would be censored. Facebook also has to follow the norms dictated by China Cybersecurity law, and the state administration of press, publication, radio, and film and television. They have clearly dictated the norms that the foreign internet company has to follow to operate in China.
2. User data has to be saved in China: The users’ data is owned by the company. Further, there is an ongoing debate in the US and EU about this issue. However, the Chinese government made it very clear to Facebook that they could use and extract data from Facebook in China whenever they wanted. The China Cybersecurity law has provided the norms to Facebook regarding data storage as well. Companies like Uber, LinkedIn and so on save their data with the local telecom companies in China. Facebook preserves their data essentially in states and countries such as North Carolina, Oregon, Texas, and Sweden. However, in China they might have to share the data when there is a legal injunction by the Government.
3. Develop partnership with local companies: Facebook had to develop partnerships with the local companies in China. This is because China wanted that Facebook to share the experiences and enhance the mutual understanding about people and businesses among common individuals who are from China. They specifically mentioned that Facebook had to find a buddy and share with them the means of running businesses effectively.
4. Develop “great Firewall of Facebook”: China censors the social media and internet data in different ways which are connected with the “great fire walls”. They ensure that the users do not get access to certain webpages and blocked sites related to Google or The New York Times. Further, certain apps and fake IP addresses can be blocked very easily and quickly. China uses different kinds of algorithms to track the post that have used sensitive words and prevent them from becoming viral.

Specifically, they have human censors who manually remove the posts that the authorities have dictated. For example, they may remove the posts that are politically sensitive. Thus, if and when Facebook enters China and starts its operation, it will have to create the largest and complex censorship systems.

In China, users and organizations are screened thoroughly by the Chinese official accounts. Data from the overseas accounts are also saved at the overseas servers. This means that users in China may not see all the posts of their friends who are from outside China. Further, the posts from Zuckerberg were also removed and government-friendly version of Facebook works in China now (Isaac, 2016). However, Facebook has to share data about any users who could be activists, journalists and scientist with the government. If they do not share the data, Facebook would be held responsible for all the activities that users might have undertaken and be punished for the same. Therefore, Zuckerberg stated that while “connecting everybody” Facebook had to investment heavily and underwent severe scrutiny based on different tests (Horwitz, 2015).

WAY FORWARD

India is poised to have a growing and massive middle class in its economy. Further, the spending power of the affluent class will have increased two-fold by 2025. A McKinsey report stated that the average household income would be three times more in India and would become fifth largest consumer economy by 2025. Their global consumption would be around 5.8% by 2020. More specifically, 600 million people would have access to the internet in India by 2020. This connectivity would change the consumer behavior of the users in the country. These global citizens would demand more design, performance, and technology. They would, in turn, become key drivers for Facebook in the Indian market. However, Facebook will have to understand the bureaucracy and regulatory issues in India along with the heterogeneous consumer behavior which originates from various cultures (Mathur, 2016).

Facebook has had a tough time conducting business in China. But, India provides ample freedom to undertake business operations. The language, cost, and workforce is also better in India as compared to China. This is because India has a liberal economy and China prefers Chinese companies exclusively. The issue with Facebook was that it entered very late in India as compared to Google. India is also gearing up for increasing efficiency in business operations and human resources aided by new governmental policies. This would be very beneficial for Facebook. This government is open to listening to the challenges of Facebook such as electricity, education systems, and slow internet speed. Subsequently, Prime Minister Narendra Modi started the new initiative in the country known as “Digital India”—an initiative to connect the length and breadth of India and put villages on the digital map. He also visited the Facebook office in Seattle as a part of his initiative to improve the technology and infrastructure set-up in India.

Facebook will continue to connect people of different countries and deal with their complexities creatively to derive a solution which would be win-win for both the stakeholders. It would thus enable the users to share their opinions, ideas, pictures, and videos within the ambit of norms and regulation of the specific countries. It will also connect users with other social media platforms effectively such as Instagram, WhatsApp, and so on. Facebook would also help the advertisers and marketers by providing them the relevant data so that revenue can be increased and user experience can be enhanced (Abutaleb, 2015).