Mark Zuckerberg is pulling off a feat bigger than becoming the world's richest 20-something: thriving in the cyber age even before "friending" the most populous nation and biggest internet market.
Facebook's founder will soon have to "like" China, where his website is banned. A post-offering Facebook will have shareholders demanding that it tap China's 1.3 billion people, and now.
Such is life when your business model is predicated on ever-growing ranks of users updating, sharing and poking to make advertisers and investors rich.
Zuckerberg will certainly face difficulties. Facebook's role in the Arab Spring movement caused many sleepless nights for Communist Party bigwigs. Yet more focus should be on the things China and Facebook have in common - things that may not jibe with Zuckerberg's claims of making the world a better place.
Let us imagine a conversation between Zuckerberg and the Chinese President, Hu Jintao. Zuckerberg might greet Hu as the supreme leader of the world's biggest marketplace Hu might refer to the hoodie-clad American as the supreme leader of the internet world.
"Contrary to what you might think, it will be great to have Facebook in China," Hu might say. "My billion-plus people are used to having no privacy and relish losing even more of it thanks to your blue and white pages. That pleases me."
Zuckerberg might retort: "Yes, Mr President, you will be happy to know that my people, just under a billion users mind you, also look forward to sharing what's left of their privacy with you and me." (Maniacal laughs all around.)
"See, Mr Zuckerberg, we are not so different," Hu adds. "We both exert complete power over populations more eager to surrender it than they realise." Zuckerberg adds: "And you have to admit there's a silver lining here - this will really stick it to Google. Neither of us likes them very much."
China's leaders will expect Facebook to bow to their censorship demands the way Google, Yahoo!, Microsoft and Cisco Systems have. Twitter recently made an about-face, announcing it will block posts on behalf of governments. And Facebook will look forward to mining what it can from China's masses, just as it does America's.
That's probably not the Faustian bargain Time magazine envisioned in 2010 when it dubbed Zuckerberg "Person of the Year". For all the hype about Facebook as a force for democracy, its profit model is predicated on something very different, and its side effects are still being counted.
Wall Street views Facebook as an unstoppable, limitless force, much like economists thinking China can grow 10 per cent forever. Facebook views our privacy as a commodity to be bought, sold and monetised, much as China's government benefits from keeping close tabs on the masses. China's vast supply of low-wage workers comes from the nation's hinterlands Zuckerberg's cheap-labour source is Facebook users.
Just like financiers wary of China, many Facebook users have too much invested in the social-media juggernaut to walk away. Those miffed by Facebook mining their lives for profit think it's too big a phenomenon to blow off. It's one thing for socially responsible investors to steer clear of tobacco and oil stocks China is quite something else.
Facebook's governance structure resembles a dictatorship by requiring investors to surrender rights to Zuckerberg. He now controls 56.9 per cent of voting power and has the right to appoint his successor, a "disquieting factor", Larry Haverty, of Gamco Investors, says. Yet asked whether a growth-stock investor like him wants to own Facebook, he said, "absolutely".
The bulls are so enthusiastic about China and Facebook that they have no time for questions about whether either has peaked. China proved it can grow for three years without US and European consumers. Doing so for two or three more years is another story.
Critics question how many Facebook accounts are genuinely active and how many are duplicates. And what if China goes the way of Japan and South Korea, where social networkers prefer local offerings?
Facebook faces as existential a question as any internet company does: Is it a virtual part of our lives or a real one? Even if some people are on Facebook for eight hours a day or more, does it mean they will reach for their credit cards?
Zuckerberg wants "to change how people relate to their governments". Will such sophomoric idealism survive the Beijing challenge?
Frequently Asked Questions about this Article…
What are the main investment risks in Facebook highlighted by the article?
The article flags several investor risks: heavy reliance on ever-growing user numbers to drive ad revenue, questions about how many accounts are genuinely active versus duplicates, privacy being treated as a monetisable commodity, governance concentration with Mark Zuckerberg controlling 56.9% of voting power (including the right to appoint his successor), and geopolitical or censorship risks if Facebook tries to enter large markets like China.
Can Facebook realistically tap into China’s 1.3 billion people, and what would that mean for investors?
The article says Facebook is currently banned in China and would face major censorship demands if it tried to operate there. Shareholders may push management to pursue China for growth, but doing so could require concessions on privacy and content control — decisions that carry ethical, legal and long‑term reputation risks for investors.
How does Facebook’s business model affect returns and investor expectations?
According to the article, Facebook’s profit model depends on users continually updating and sharing content so advertisers can be targeted. That means investor returns hinge on user engagement and audience scale, and the company treats privacy as a commodity to be bought and sold — a dynamic that can boost short‑term revenue but create regulatory and reputational risks.
Should socially responsible investors avoid Facebook based on the article’s points?
The article suggests it’s more complicated than dodging obvious sectors like tobacco or oil. Some socially responsible investors may be wary of Facebook’s privacy practices and governance structure, while growth‑focused investors remain enthusiastic. Ultimately it depends on an investor’s values and tolerance for the ethical and governance issues described.
How does Mark Zuckerberg’s control of Facebook affect ordinary shareholders?
The piece notes Zuckerberg controls 56.9% of voting power and can appoint his successor, a setup described as resembling a dictatorship and called a “disquieting factor” by an investor quoted in the article. That concentration of control limits ordinary shareholders’ influence over strategic decisions.
Are Facebook’s user numbers a reliable indicator of future growth?
The article cautions investors to be skeptical. Critics question how many accounts are truly active versus duplicates, and it raises the risk that markets like China could prefer local social networks as happened in Japan and South Korea — all of which could limit future user growth and monetisation opportunities.
How do comparisons between Facebook and China help everyday investors understand risk and opportunity?
The article draws parallels: Wall Street treats Facebook as an ‘unstoppable’ growth story much like some economists treated China’s long run of high growth. That optimism can overlook risks — market saturation, governance, ethical trade‑offs, and the difficulty of sustaining rapid expansion — which everyday investors should weigh carefully.
Could government censorship or privacy backlash materially affect Facebook’s investment case?
Yes. The article highlights that China and other governments expect tech companies to comply with censorship and data‑access demands (examples given: Google, Yahoo!, Microsoft, Cisco and Twitter’s actions). If Facebook bows to such demands or faces privacy backlash, it could impair user trust, invite regulation, and hurt long‑term investor returns.
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