Our Space, Their Space and MySpace -- A Paradigm for the Challenges of Going Global

Moving from one's home market into the realm of selling abroad presents a number of unique challenges, even for a company with the backing of a well capitalized conglomerate like News Corp and a dominant position in its domestic market.  From understanding the cultural differences that impact product design and placement, adapting to a more limited availability of complementary infrastructure, facing an array of additional stronger competitors, and overcoming challenges to the company's very business model that can directly impact profitability and investment time horizons, an international business can look very different from the one you have at home.   

Which brings me to the article in last week's Technology Journal section of the WSJ entitled "My Space Aims for Trickier Markets" as it highlights every one of these challenges.  On the one hand, few companies would seem to be better positioned for an easy move abroad than a totally internet based business since there is no bricks and mortar to relocate.  But the obstacles here certainly begin with the need to customize the product to align with differing needs and preferences in foreign markets -- after all, it's not our space, but My Space.

The need for customization includes of course the language of the new target users, but that's only the tip of the iceberg.  Accommodating lesser and greater degrees of complementary infrastructure, in countries with slower internet speeds such as India, the site had to be changed to disable some of the automatic downloading of streaming video.  Conversely, in countries with much faster internet speeds such as South Korea, the content had to be changed to meet the much higher expectations of users.  In countries such as Turkey where social networking is still a developing cultural phenomenon, the site needed seamless tutorials to get people started.  Culturally conditioned to hold the interests of the group over those of the individual, users in Japan were hesitant to list their personal preferences that are so much a part of the U.S. MySpace page profile, but they were more than happy to select from an upgraded array of fan clubs.  Contemplating a move into Israel, the company is developing an internet software platform that will easily accommodate text running right to left for the expected group of users networking in Hebrew.

Does everyone hear the sound of costs going up?  To further challenge the business model, there are obstacles on the sales side of the income statement as well.   While internet use is becoming widespread in many of the new markets MySpace is entering, the idea of internet advertising hasn't caught on to the degree necessary to replicate the revenue streams My Space depends on in the U.S.  This seems to be particularly true in countries that are still moving along the path toward consumer driven capitalism such as Russia.

Overcoming higher costs and the need to develop different revenue streams is easier, of course, if you can go into a new market and own the territory, but the reality is that when a company enters new international markets there is frequently more competition, not less.  In this case, it's not MySpace but their space.  As much as MySpace is the market leader among social networking sites in the U.S., Facebook has already surpassed it in many foreign markets according to the Wall Street Journal piece.  It also faces a roster of additional competitors with names like Orkut, Fotolog, Bebo and hi5. 

So what do all these challenges do to the company's strategic vision for its new market ventures.  According to the Wall Street Journal, executives at MySpace "say launching in these countries won't generate much revenue anytime soon."    Placing what are described as "strategic bets", Travis Katz, managing director of MySpace's international business is quoted as saying "we are looking at places where there is not a ton of money to be made in the next 5 or 10 years."   That may or may not get the CFO of a multinational conglomerate pumped up about the impact of going global on the operating plan, but it can be a particularly tough nut to swallow for a small to medium size company that doesn't have 5 or 10 years to wait before getting a payback on its international business.

Is there a path forward to meeting all these obstacles?  Each market can present unique challenges to a company on both the cost side and the revenue side of the income statement.  Launching into new foreign markets warrants the same type of carefully thought out plan as you should develop for launching and selling a new business idea or product platform.   A detailed and realistic assessment of the size of the opportunity, the costs of capturing that opportunity, your means and costs of financing the venture, and the time horizon from launch to profitability will allow you to optimize your chances of a successful expansion abroad.

Comments

[Thomas]

Interesting commentary and I do agree with most of it. Globalization is happening at an alarming rate. Everyday more companies are faced with the costs of going international whether that is localization of their marketing materials, website, or product documentation.

These social networking sites do have interesting challenges ahead of them. The popular US social networks may take a hit initially, but I think that going international will be beneficial in the end. I use http://importexport.konnects.com to find business contacts in Asia and India. While social networks like konnects can offer to expand the foreign countries' users business opportunities, they will still need to gain market share in those countries.

I think these online social networks like myspace or facebook will benefit by going international but will incur a cost to do it, but in the end will help them grow.

[Craig Maginness]

Thomas:

Thanks for the comment -- and thank you for the link to the networking site that you say you use to make business contacts in Asia. I haven't used social networking sites for this purpose but it makes sense that as more and more people create profiles, it's a good place to make contacts for all kinds of purposes.

If anyone else has any ideas around the usefulness of social networking sites for making business contacts, I'd be very interested in their perspective.

Craig