Facebook Inc. has broken through the language barrier.
For years, the U.S. company’s dominance in the $10 billion social media industry was limited outside the English-speaking world by local copycats. Those sites are now losing traffic as Facebook’s global reach, games and music drive membership.
Hyves, which like Facebook started in 2004, was overtaken as the biggest Dutch social network in August, with its 7.2 million visitors topped by the U.S. rival’s 7.7 million, according to researcher ComScore Inc. (SCOR). In Germany, the number of users for VZ Netzwerke, formerly known as StudiVZ, more than halved to 8 million in September from a year earlier, while Facebook visitors rose 43 percent.
Marc de Vries, chief executive officer of Amsterdam-based Hyves said.
“Dutch people who want to connect with an international friend, they cannot use my platform. I’m such a small company in this global network world and I can never compete on an international level.”
Facebook, which has raised $1.5 billion from Goldman Sachs Group Inc. (GS) and Russia’s Digital Sky Technologies, needs to keep the site growing before a possible initial public offering. While Europe’s fragmentation, with almost 50 countries, has helped create sites with local languages, news and discussion forums, the global scale of Facebook makes it increasingly difficult for them to compete.
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Shelved Deal
Facebook’s decision to offer the site in several local languages helped the U.S. network to “be super-local in Europe and now it has just mastered Europe,” said Jan Rezab, CEO of researcher SocialBakers. Facebook started Spanish, German and French versions in 2008 and later added languages such as Russian, Dutch, Danish and Italian.
In Germany, Europe’s biggest economy, the owner of former market leader VZ Netzwerke last month shelved a potential sale or initial public offering for the site amid declining user numbers and worsening financial markets, according to a person with knowledge of the matter.
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StudiVZ, an abbreviation for “students’ directory,” was started in 2005 and sold in 2007 to Georg von Holtzbrinck GmbH for 85 million euros ($116 million) following initial success. StudiVZ was renamed VZnet Netzwerke in 2009 and then VZ Netzwerke this year.
Competing With Facebook
Marc, Oliver and Alexander Samwer, three German brothers who run investment fund European Founders, sold a stake in StudiVZ and acquired a holding in Facebook in 2008.
Marc Samwer said in an interview.
“They will always be more successful from a product point of view and national or regional sites will always have a hard time to compete.”
In 2011, the Samwer brothers sold their Facebook stake to focus on early- stage companies.
Alexandra Kuehte, a VZ Netzwerke spokeswoman, declined to comment on a sale or IPO of the site. VZ Netzwerke aims to lure users with distinctive platforms for students to focus on specific interests. The approach of rivals to “offer everything to everyone” won’t be successful in the long term, she said in an e-mail, adding that management is working on strategic positioning of the site.
Facebook, which has more than 800 million users worldwide, is still trailing some local rivals such as Vkontakte in Russia, Nasza-Klasa.pl in Poland and Draugiem.lv in Latvia.
One Billion Users
Facebook founder and CEO Mark Zuckerberg said last year that the Palo Alto, California-based site is aiming for 1 billion users globally in the next few years, with Russia among the markets Facebook must conquer. The business is valued at about $68 billion, according to SharesPost Inc., an exchange for shares of private businesses.
VZ Netzwerke and other local sites have been described as copycats, modeling themselves on Facebook in style and functionality, or adopting popular aspects of Facebook to compete. VZ Netzwerke, then known as StudiVZ, using a red color design instead of Facebook’s trademark blue, bore such similarity that Facebook claimed Berlin-based VZ Netzwerke had illegally obtained its source code.
Nate Elliott, an analyst at Forrester Research Inc says.
“StudiVZ was a straight copy of Facebook but in red.”
Facebook filed a lawsuit against StudiVZ in 2008 in California and Germany for infringing the site’s design and features. StudiVZ denied the claims and the German court rejected Facebook’s suit. The California case was settled with StudiVZ paying an undisclosed sum to Facebook and allowing the German site to continue operations.
‘Rip-Off Merchants’
Vkontakte, or “in contact,” the biggest social media site in Russia, has a blue banner and a heart button, similar to Facebook’s “Like” button. The site resembles Facebook’s 2008 design, saidMike Shaw, director of marketing solutions at researcher ComScore in London.
Shaw, who predicts Facebook will overtake Poland’s Nasza-Klasa in user numbers within a month or two said.
“It is exactly set up like a Facebook wannabe. Once these sites have accepted they’re just rip-off merchants of Facebook, it becomes quite straightforward to watch what’s going on on Facebook and get your internal developer to do exactly the same.”
Hyves offers a “like” function equivalent called “respect.”
Facebook is the third social media site in Russia, with 9.3 million regular users compared with Vkontakte’s 34.3 million and 27 million users of Odnoklassniki, which means “classmates.” Facebook grew 67 percent in Russia since September 2010, while Vkontakte and Odnoklassniki grew 13 percent and 44 percent respectively, according to ComScore.
‘Good Chair’
Vladislav Tsyplukhin, a Vkontakte spokesman, said the Russian site remains “superior in terms of agility, technology and design.”
He said.
“It does not matter who made the first chair, it is important which one is the good chair.”
Networks in markets such as Russia are still able to fend off Facebook because the local population has fewer international contacts, said Gartner Inc. analyst Jeffrey Mann. He said.
“In markets such as Russia there are plenty of people who really just communicate with other Russians.”
Facebook is outgrowing local sites because of innovation and global popularity, Elliott said. Zuckerberg has stayed ahead with the site’s application ecosystem, incorporating games such as FarmVille and CityVille from Zynga Inc., and its recent unveiling of the Timeline, a new version of Profile pages.
LinkedIn, Badoo
In September, Zuckerberg unveiled new ways for members to use the social network to share music, movies, TV shows, news and activities such as cooking and exercising.
Some sites such as Hyves are now trying to escape into a niche market by not setting a minimum age. Facebook only accepts people who are 13 years or older. Business network LinkedIn Corp. and social media dating site Badoo have benefited from an alternative focus to Facebook, growing 24 percent and 67 percent respectively in Europe since September 2010, according to ComScore.
For the pure copycats, any resistance will be futile as the momentum is with Facebook, ComScore’s Shaw predicts.
He said.
“In a year’s time there won’t be a single European country, including Russia, where Facebook is not leading.”
COMMENTARY: In a blog article dated March 23, 2011, I commented that Facebook had reached a critical inflection point sometime in late 2010.
According to critical inflection point theory, the total number of social network subscribers is a finite number. As you near the inflection point, growth in social media pentration begins to dramatically slow down, and the total number of social media users eventually peaks. In the case of Facebook, I put this number at about 1 billion members. This is Zuck's number, not mine, just so we are clear about that. Facebook claims they now have 800 million users globally at the end of September 2011.
In a blog dated February 5, 2011 titled, "Facebook Will capture 67% of Global Social Media Revenues in 2011, But Can It Reach 1 billion Members?", I provided evidence that Facebook's North American penetration has already peaked and growing in low single digits. This has also been confirmed by several social media experts. Most of Facebook's user growth will be international, namely from Asia, Europe, Latin and South America.
If you look at the Global Social Network Pentration graph (see above), you will note that many of the markets in which Facebook is now entering internationally have very high social network pentration rates. This includes Indonesia, Brazil, The Phillipines, Russia, India and Malaysia. I am not including China, because Facebook is banned from operating there. China has an estimated 485 million internet users, and approximately 430 million social network users, so the penetration rate is in excess of 80%. Social network users is expected to grow to 488 million by 2015.
Facebook is also facing some big challenges as it expands internationally, including language barriers and distinct differences between social networks in foreign markets and in the U.S. There is no such thing as a "one-size fits all" social network, and many foreign countries are grounded on local relationships. In Japan, although internet pentration is low by U.S. standards, it is primarily mobile and dominated by youth. Anybody over 50 is missing in action. They just don't use social networks.
Courtesy of an article dated November 7, 2011 appearing in Bloomberg
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