Emerging-market Social Networks Defend Their Turf

Social networks have been dominating technology industry headlines in recent weeks.  LinkedIn's red-hot initial public offering in May intensified speculation as to when Facebook (which recently hit 750 million users) will go public and allow a closer look at its finances. New entrants are stirring up the space as well. The strong start for Google+ indicates that while Facebook is the unquestioned market leader, there is plenty of room for innovation.

While Facebook is being challenged in its home market, it is also facing stiff competition in a number of important emerging markets, such as China (Tencent) and Russia (V Kontakte and Odnoklassniki). In some cases, cultural and political factors can influence the success of social networks. The Iranian government's limiting of access to Google's Orkut and censorship efforts against Twitter and Facebook have allowed local networks, such as Cloob, to spring up and fill the market opportunity.  Yet in other countries, the need for competitive advantage and the hunt for elusive profitability have led to innovations that keep consumers loyal to local brands. China's Tencent QQ instant messaging service allows users to buy "Q coins" at 1 Q coin per RMB, which allow users to buy virtual goods including items for games or accessories for a user's avatar.  This is similar to the Facebook Credits payment system. As Tencent's earnings show, catering to the Chinese consumer culture of playing games and charging them for virtual goods has led to a huge payoff. By facilitating the purchase of digital goods, these networks can spark an entire industry of games and applications that bring in additional revenue.  

Multinational firms doing business in these markets can benefit by paying attention to trends in the social networking space, given the sector's status as a bellwether for consumer technology tastes and preferences. Capitalizing on these trends requires paying attention to social and political factors, finding a way to capture revenue from innovative revenue models and building software with local device capabilities in mind (many emerging-market consumers access social networking sites through their mobile devices, for example). By engaging social network users, firms can not only gain an in-depth understanding of their client's tastes and preferences, they can add potentially lucrative new sales and marketing channels as well. 

Emerging Markets Go Social

Online users from emerging markets are more engaged in the Internet than their counterparts from developed countries. So concludes a recent survey of nearly 50,000 online users from around the world. User engagement - as determined by levels of usage, behavior and attitudes towards the Internet - is far higher in Egypt and China, for instance, than it is in countries such as Finland and Japan. Internet users in emerging markets are also more engaged in social networking, instant messaging and blogging than email and static Internet pages, which are more heavily used in developed counties. And people in emerging markets are becoming avid online users despite having less access to affordable and reliable high-speed Internet than in developed countries.

The results of this survey comes on the heels of a host of reports underscoring the increasing global importance of social networking. A recent report published by Intuit on the 20 trends that will shape the next decade cites social networking and collaboration as key trends that will infiltrate education, work and life. The McKinsey Quarterly spotlights the impact of digital communities, networks and collaboration on the business landscape while also focusing in on how Asian countries such as Malaysia, China and India differ in their Internet usage habits and content preferences. What is clear from these reports is that - while individuals in emerging markets have become increasingly digitally savvy and connected - they are still thirsty for content, tools and services that will enhance their experience as citizens, consumers and employees. 

Unleashing this demand will require creative product, partnership and promotional strategies with a little help from improving infrastructure. There is an opportunity for multinationals to make social networking tools available on low-end devices, still pervasive in the developing world, while fostering the development of localized applications. Bringing in new partners such as advertisers and other third parties to defray the cost of the device and services to the consumer can improve accessibility and catalyze further network effects. Finally, there may be opportunities to utilize the Internet as a sales channel and social networks as a promotional vehicle, but companies may want to tool their approach to local usage patterns and preferences.