Why Facebook is Failing in Japan: a New Kind of Partnering

TechCrunch had an about why MySpace and Facebook are failing in Japan.

I had a glimmering of Facebook’s potential problems in Japan when I noticed that my son Ko was spending the great majority of his time online on Japanese social networking site . He even pays money for the service, although only a few dollars a month. Imagine how many Facebook subscribers would remain if they had to pay.

The reason given in the post for Facebook’s failure is its lack of cultural sensitivity and late entry. But the broader reason is simply hubris, or more kindly, a poor analysis of its real strengths and how to leverage them in Japan. The hubris extends in a number of directions. First, hubris that their US success is due to them being really really smart, as opposed to mostly being lucky. Related to that is the hubris that the brilliant thing they’ve built is the best social networking platform on the planet and will work for everybody, except for the little fact that it’s in the wrong language, which is something real easy to fix (since they’re so smart) with a bit of crowd-sourced translation. Third is the hubris that they can successfully clone the Microsoft go-it-yourself model, ignoring the historical cycles of Japan entry strategies, driven by the way platforms and applications are changing over the decades. Fourth is the hubris that they are so good that they can take their own sweet time playing in the US sandbox and then come in whenever they please and blow away the supposedly lame domestic competition.

The TechCrunch post claims simplistically that you have to partner in Japan to be successful. Actually, those with longer memories know that things are not quite that straightforward. That was definitely the case up through the 1970’s, due simply to the closed nature of the Japanese society and business world. To put it a bit crudely, the price the Japanese levied for admission to their party was a share of the pie for themselves. But as the country opened in the ’80s and ’90s, this was no longer gospel. It became possible to hire Japanese staff into a fully-owned local presence, and Japanese clients opened up to foreign products. The notable example, of course, is Microsoft, who quickly took control of their own destiny in Japan and established a virtual monopoly first with their OS and then, somewhat more painfully, with applications. Part of their success was due, of course, to the same hard-knuckled tactics they were famous for in the US. But it’s also the case that an OS has less cultural dependency than a software application or even a bulldozer. Microsoft’s difficulty in capturing the applications market was due partly to the fact that applications are tied more closely to the culture, but they were helped greatly by their clueless competition such as Just Systems, possessed of febrid visions of becoming the Microsoft of the East, with their own entire GUI OS and application suite, and then virtually spent themsevles out of business trying to realize them.

Yahoo! is often presented as a successful example of a partnering strategy. And indeed Yahoo! Japan is arguably more successful than its American parent, and much more so than US search companies and portals who did not partner. But it’s unclear that the price Yahoo! paid for the partnership was absolutely necessary for its success; to put it another way, to the extent they partnered, the success is no longer really their own to fully enjoy. The search side of the equation, including advertising, it is a horizontal technology which is to a large extent culturally transportable, assuming the obvious language-related technology tweaks for search and business-related marketing tweaks for advertising. The case can be made that in fact Yahoo! Japan is now a millstone around Yahoo!’s neck, and in fact some of the discussions around a potential Microsoft acquisition of Yahoo! explicitly called for a divestiture of their Asian assets. Amazon, which can also be considered a horizontal technology, did just fine with a go-it-alone approach. Partnering in their case would probably have just slowed them down, as hide-bound traditional book distributors told them all the reasons that this or just couldn’t be done over there.

The traditional partnering process is often fraught with confusion on both sides. US companies typically come in with the poorly concealed attitude that they want the Japan side to localize the damn thing and then sell the hell out of it, then wait for new versions from the US, and by the way don’t pester us with all sorts of odd new feature requests. The purity of the main software branch must be preserved at all costs; in many cases the Japanese are not even allowed to touch source code, although of course confidentiality concerns also come into play there. Often there’s even a subtly racist tinge to the way the US side talks down to their Japanese partners. There are implicit comparisons to Europe: “we localized and rolled out in Germany in four months and look at sales there now, so what’s wrong with you guys! You know you can be replaced.” Of course, the same dynamic can play itself out equally well even with a fully-owned local subsidiary.

It all goes back to the question of how accurately the American side views their strengths. Many companies don’t consciously ask this question, simply assuming that their strengths range across the board from their superior raw intellect, to their marketing strategy, to product design, to their code base. A more accurate perspective would be that the major American strengths are usually (1) their high-level understanding of marketing trends, since it remains the case in general that the US is ahead of Japan by six to twelve months in the way markets develop; (2) their access to funding (in many cases); and (3) their code components (as opposed to the complete application level).

Given this, it’s time for a new kind of partnering. One is for the American company to simply invest intelligently in their own sector, the one they know best, taking advantage of their headstart in market understanding. A variation of this to invest widely, in a sort of Darwinian or VC-like strategy. Unlike pure VCs, the American company can also share its views of the global market and some of its code components with the Japanese investee. Another strategy is to throw the code base across to a Japanese subsidiary or JV and let them radically fork it. This leverages the value of the existing US code while unleashing the creativity and local market savvy of the Japanese partner.

But wouldn’t this destroy the global integrity of the product? And, in the case of social networking, prevent people from connecting across country boundaries? In practice, people do not network internationally anyway, especially not between languages. There’s no particular advantage in having the US Facebook and Japanese Facebook share the same platform. What typically happens when this is attempted is counterproductive anyway. The US makes half-hearted changes to their v1 to create v1J, then proceeds with v2 ignoring the v1J fork, then has to reintegrate the v1J changes and yet additional Japanese features to create v2J, which hits the market months after it needs to. Especially in this day and age, where net-level APIs can tie together disparate platforms easily where necessary, a monolithic code base should be the lowest priority.

Granted, Microsoft did eventually get to a single code base for Windows and Office, and is in a much better position globally now for having done so. However, the years of effort and hundreds of millions of dollars required to accomplish this should not be underestimated.

Given where Facebook stands now in Japan, taking any of these options would cost exponentially more than one or two or three years ago, but it’s still not too late. I’d take a stake in a half-dozen fledgling social networks at various stages of development from seed to commercially viable, offering to share expertise and code, across a variety of verticals such as women’s, business, and music. And I’d fork the Facebook code now for Japan, and hire the best engineers not to localize it but to rebuild it. The same strategy should work not only for MySpace, but for late entrants such as LinkedIn as well.

The bonus for the new style of partnering is that it takes far less management time and emotional energy on the US side. And the upside is incomparably greater.

2 Responses to “Why Facebook is Failing in Japan: a New Kind of Partnering”

  1. Martin Says:

    There are a lot of Japanese users now on Facebook but they tend to be the more international ones who work for foreign companies or studied overseas. Mixi has been popular for 2 years now and grabbed the lion`s share of the users. There have been rumors that Mixi may develop their own application layer like Facebook. In the end, I think this is similar to the classic case of Ebay. They were so late to arrive to Japan that Yahoo JP had already locked up the auction market.

  2. Japanese words Says:

    I think a big part of it has to do with where your friends already are. For most people in Japan they are already on Mixi. Like mentioned above, Facebook users in Japan tend to be people who have some sort of international connection.

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