Li Ka-Shing overlooks QQ?
Last month it was reported that Li Ka-Shing, one time plastic flower manufacturer, 11th richest man on
the planet and Hong Kong billionaire upped his stake in Facebook to more than $100 million according 
to published reports. Li previously invested a reported US$60 million in Facebook in November 2007.
That means that he now owns nearly 1 percent of Facebook, assuming the deal was made at the same $15 billion valuation that had been placed on the company since Microsoft's US$240 million of October 2007. If the valuation has dropped, he owns even more!
Li, who is chairman of port conglomerate, real estate speculator and telecom company Hutchinson 
Whampoa, told reporters on his company's conference call:
"Facebook is doing very well and we could have some synergy between the 3G services of Hutchison and Facebook, so the customers could use Facebook on mobile phones."
Certainly, mobile is the biggest opportunity for social networking in China, with close to 600 million mobile users in the middle kingdom, versus less than 30% of that for China's web uses--172 million users. Facebook may be considering this as a move to enter the China market by thinking it can get "on deck" with the Chinese carriers, resulting in tens of millions of users very quickly. If Facebook thinks this is access to China's mobile silk road, ask yourself how much of CMCC does Li Ka Shing own? Answer: 0%. Such simplistic theories are easily dismissed.
An Investor First
The "Chinese Way" prefers to do business with a local Chinese provider. Better joss with a local who can then go global, than a loa wai company entering China. The cultural reveloution was not that long ago, and just as economic nationalism is expressed with US consumers (Buy American!), the same happens in China. Facebook will not so easily enter the Chinese market on the coat tails of Li, especially since mobile operator Hutch 3 (Li's primary property) in Hong Kong has no formal commercial presence in the mainland. Better to deal directly with the Chinese, something Facebook's new COO, Sheryl Sandberg is likely to be the only one in the building who has ever sat across from a Chinese functionary, from her prior experience at the US Treasury Dept.
Plus there are rumors that Facebook is seeking a revenue return for Facebook subscribers who utilize mobile operator text and mobile messaging through their Facebook account. Whoa--they think they will get operators to pay them for messaging traffic. A very bold commercial position which would be an attempt to realign the mobile messaging business. This is an opportunity that I've surmised in the past and that I think is possible where social networking services could capture messaging traffic if they approach it correctly--not by confrontation with the mobile operators but through co-opting. Perhaps they think China's social silk road runs through Li Kai Shing. Perhaps they think they can leverage CMCC much as Apple has in taming the Dragon? Clearly University Ave is a long way from Tsim Sha Tsui and I don't think the Cuppertino business case is the one to follow in China.
What will QQ will do?
Who is QQ you ask? For the uninitiated or overly
western centric in the audience, QQ is the world's largest social networking service with over 300 million users in China, with revenues exceeding US$523 million. That's almost 4x Facebook's estimated US$150 million in revenues. With an operating profit of US$224 million, and 21% of its total revenues of US$334 million 
generated from NON ADVERTISING MOBILE revenues of $110 million perhaps Li Kai Shing should have invested in TenCent the owner of QQ.
QQ is still growing. Notably, the ad market is largely untapped - mostly due to the misunderstanding of IM and SNS by ad agencies and brands in China. Lots of work to convince those folks that a service that attracts so many millions is, perhaps, a media in its own right. Probably why Li Ka Shing invested in Facebook in the first place. He gets it that it is an emerging media platform, not a simple application.
Comments