The stock market debut of Chinese social network Renren will have turned heads at Facebook. The sky-high valuation when shares were priced on Wednesday (at more than 70 times 2010 revenues) conveyed a simple message: investors are hungry for growth. And there is no other growth story with the allure of the Chinese internet.
For Facebook, which has itself never known anything but outsized growth, this is a sobering thought. Its high penetration among internet users in many established markets is starting to make it reliant on populous, less-developed markets for continued expansion – and they don’t come any bigger than China.
The US company’s service is blocked by China’s Great Firewall. It had already been exploring ways to get a local foothold, and this week’s events have only heightened the urgency. But a move into China also carries great risk. If handled badly it could turn out to be a defining moment for the company – for all the wrong reasons.