Roadblock To Growth Of New Internet Superpowers Is Overseas

Social game network Zynga is about to be valued at $7 billion as it raises more capital. Groupon was recently valued at $6 billion, and Facebook at $50 billion. These businesses will continue to grow in the US and English-speaking world. They may falter in places like China, Japan, southern Asia and Russia. That may eventually be what hampers their expansion.

Proponents of the infinite expansion of social media say the barriers to entry in large nations like China are weak. Google (NASDAQ: GOOG) found out that was not so. It has also been unable to become the dominant search engine in India or Russia. The future of online search and social media is supposed to be the smartphone. China has 400 billion people online. Many of them use handsets the way Americans do PCs. If Google and Facebook cannot move into both Asia and its mobile networks, their rapid growth could be terminated prematurely.

The New York Times recently reported that Groupon’s growth in Japan was uneven. “The company’s success in the United States quickly inspired a crowd of copycat sites in many of the foreign markets it had hoped to enter,” the paper reports.

China’s Baidu (NASDAQ: BIDU) could hardly be considered a search engine copycat. It is, however, an example of how local online companies can substantially block the success of US businesses as the companies expand. Baidu has about two-thirds of the Chinese search market and by many measures that has grown. Google has had to contend with local search operations in Russia and India as well.

China has blocked the use of Twitter and Facebook. This has probably happened because it does not want its citizens to share their impressions about the government and the rise of democracy in some countries overseas. One of China’s most successful internet businesses is Tencent, a firm which might be hurt if Twitter became successful in the People’s Republic. Some analysts find it hard to believe that China would protect its online industry so blatantly, but is has certainly done so for other business sectors.

It will only take a year or two to see if the huge superpowers of the new internet will be plagued by local versions of their services or governments that will shut them out. Those things, more than their abilities to ward off direct competitors in the West could be an Achilles’ Heel.

Douglas A. McIntyre