fb-pixel Skip to main content

LinkedIn’s China startegy: Compromise

Limits on speech, ties to homegrown firms help it grow

HONG KONG — For US technology companies from Microsoft to Facebook to Google, China is a difficult, even impossible, place to operate.

But the social network LinkedIn has found a way to do business, by being willing to compromise on the free expression that is the backbone of life on the Western Internet.

LinkedIn’s experience provides a blueprint, and perhaps a cautionary lesson, for Silicon Valley as it tries to crack the vast Chinese market. Other US tech companies are watching, wondering if LinkedIn will find an equilibrium between free speech and Chinese law.

“Over the next five years, things will continue to progress in a positive fashion over there, so it’s important to be there today,” said Kerry Rice, an Internet analyst at Needham, a brokerage. “If LinkedIn figures out how to navigate the operating environment in China, clearly other companies will try to imitate that.”

Advertisement



LinkedIn’s global English-language site has attracted 4 million Chinese members, without much attention from China’s government. But the company wanted to reach more of China’s estimated 140 million professional workers, and so in February it introduced a Chinese-language version.

That site has attracted about 1 million new members and seems to have the government’s tacit approval. It is functioning without blockages even though the authorities have cracked down on other services, including Instagram and Yahoo, in reaction to the prodemocracy protests in Hong Kong.

The secret of LinkedIn’s seeming success?

Aside from its willingness to play by Chinese rules on expression, the company has relinquished 7 percent of its local operation to two well-connected Chinese venture capital firms.

Having such a relationship with homegrown firms is crucial for foreign Internet companies seeking to operate in China, experts say.

“The government needs to know who they can call, and as a foreign company you need to know before your site gets shut down so you have a chance to do something about it,” said Duncan Clark, founder of BDA China, a consulting firm. “That’s worth a lot, to have that channel.”

Advertisement



A spokesman for LinkedIn, Hani Durzy, said that it opened a Chinese-language site because of its “belief that the creation of economic opportunity can have a profound impact on the lives of Chinese individuals, much as it has elsewhere in the world.”

“While we strongly support freedom of expression, we recognized when we launched that we would need to adhere to the requirements of the Chinese government in order to operate in China. So the decision to proceed in China was one that we weighed heavily.”

On the Chinese- and English-language sites in China, the company censors content the authorities consider politically sensitive, using software algorithms and human reviewers.

People whose posts are blocked get an e-mailed form letter advising them that an item they posted contains “content prohibited in China” and will not be seen by LinkedIn members in China.

LinkedIn also does not provide Chinese-language users with certain important tools — like the ability to create or join groups or to post long essays — that allow people elsewhere to have public discussions and form communities.

Although LinkedIn’s strategy has given it access to Chinese speakers, analysts say it poses risks for the company’s reputation and growth strategy.

Like many other US tech companies, LinkedIn, of Mountain View, Calif., has promoted itself as dedicated to free-market principles. Too much censorship could cause users to flee.

Advertisement



What’s more, if LinkedIn’s business grows larger in China, that could give the government leverage to make demands about what type of content is permissible globally.

Google, which once acceded to China’s demands to censor content, noisily reversed course in 2010, moving to deliver uncensored results to Chinese users from servers in Hong Kong and souring its relationship with the authorities to this day.

Twitter has been blocked in China for years and says it will not censor posts, because to do so would “sacrifice the principles of the platform,” said Colin Crowell, vice president for global public policy.

Vine, a short-video service owned by Twitter, operates freely in China without “any special arrangement,” Crowell said.

Although Facebook — the world’s largest social network, with about 1.3 billion monthly users — is blocked in China, it has not given up on getting in the country. But it is trying to use commerce to pry open the door, selling ads to Chinese companies and government organizations that want to reach consumers outside China.

China’s closed markets have given a huge head start to four home-grown companies that dominate the Internet there: Alibaba in e-commerce, Baidu in search, Tencent in video gaming and instant messaging, and Sina in social networking.

LinkedIn itself faces competition from local rivals like Zhaopin and 51Jobs.com, which both have more users than it does in China.

LinkedIn’s partnership with two local players — China Broadband Capital and a Chinese affiliate of Sequoia Capital, an American venture capital firm — has helped it manage its relationship with government officials.

Advertisement



CBC was founded by Edward Tian, a well-connected investor and former entrepreneur who once ran a telecommunications company with the son of a former Chinese president, Jiang Zemin.

The firm has helped bring at least one other Silicon Valley company, Evernote, into China.

“There have been a lot of problems with companies like Facebook and Twitter,” said Kevin Wang, a CBC spokesman. “We think one of the key reasons is the lack of communication, even the absence of communication, between these companies and the Chinese government.”

The local partners have a strong incentive to help LinkedIn succeed. Under the partnership agreement, they can buy an additional 21 percent of the joint venture for $20 million if certain conditions are met.

LinkedIn does retain control of the venture, securing the bulk of the profit as well as the risk.

Under Chinese law, the joint venture will eventually need to obtain an Internet content provider’s license to keep operating. The license has some benefits, but also some downsides; once granted, the company will be required to store information about its Chinese users in China.

Doing so would make it much easier for the government to demand information on, say, dissidents who used the service, a conundrum that tripped up Yahoo nearly a decade ago and prompted that company to essentially pull out of the country.

Despite the challenges, LinkedIn is optimistic about its efforts in China.

Advertisement



“In the end, the most important consideration for us was providing an opportunity for millions of Chinese professionals to significantly expand their economic opportunities,” said Durzy, the LinkedIn spokesman.

“We want to get it right in China, so we will continue to listen and learn.’’