Censorship: The Great Enemy of Skype, Facebook, and Twitter

Could Skype be prevented from doing business in China? There are rumors that all VoIP systems originating outside the People's Republic could be blocked. Some analysts see this as a form of censorship. A more cynical view is that China wants to protect the franchises of its state-owned telecom companies including China Telecom, China Mobile, and China Unicom. Such action could threaten the growth potential of Skype and other tech giants like Facebook and Twitter.

The growth of Facebook and Twitter has been mostly in Western nations. Skype probably has a wider geographic customers base, but says that only 6% of its subscribers are in China. Facebook plans to boost marketing in Russia. Whether it will meet with any resistance from the government there remains to be seen. Facebook's new $50 billion valuation is almost certainly linked to its expansion potential outside its home market.

Censorship and the control of voice and personal communications has been less significant in countries other than China. Western companies such Research In Motion have found that some nations with limited free speech rights will only tolerate Western communications technology to a point. India has threatened to shut down the BlackBerry network in its country, claiming that "security concerns" are the reason for this decision. India does not want encrypted data to move freely among its residents.

On the surface, the battle between China and Google over censored search results and the break in to Google's e-mail service in the People's Republic appears to have little relationship with the BlackBerry censorship issue in India. But the issues of communications control in these two countries appear somewhat similar. Local governments are threatened by the free flow of information, so they attack it at its source. The trouble between Google and China did not affect Google's stock price mostly because the US-based search company gets so little revenue from China. Baidu, the local search engine company, has by far the largest market share in China. Certainly, China's move to shut down the Google operation there was a great help to Baidu.

Skype, Facebook, and Twitter clearly understand the value of China's 450 million internet users. At this point, fewer than one-in-three people in the People's Republic are online. The numbers are more staggering in India. Only 7% of India's nearly 1.2 billion people use the Internet. In Russia, 43% of its 139 million people are online. The Russian percentage is still low compared with most developed nations, where the number of people online is greater than 80% of the population.

Facebook's penetration of the U.S. social media market has not peaked, but it is close. One hundred and fifty million people visited Facebook in America during November. Facebook is the most searched term on Google in the U.S. Facebook's new growth in its subscriber base will have to come from overseas. The social network could be very popular in China, but it's banned by the nation's government.

Why China battles Skype, Google, or Facebook will not ultimately matter. Government interests or the interests of local companies produce the same effect on the three firms. China may be the largest single block today to the rapid global growth of microblogging, VoIP, and social networks. India may decide to follow China's example. It is too early to know what Russia will do, but it does have a local search engine, Yandex. Russians use several large social network sites. There is no information yet about whether the central government prefers them over Facebook or whether any of these sites are monitored.

The valuations of Facebook, Twitter, and Skype still depend more on growth rates than revenue or profitability. Yet the places they need to grow to continue their expansion may not be available to them.

Presented by

Douglas A. McIntyre

Douglas McIntyre is editor of 24/7 Wall St.

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