TO REACH CHINA, LINKEDIN PLAYS BY LOCAL RULES

Original Story: nytimes.com

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

But one company, 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 American tech companies are watching with great interest, wondering whether LinkedIn will find an equilibrium between free speech and Chinese law that it can live with.

“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 firm. “If LinkedIn figures out how to navigate the operating environment in China, clearly other companies will try to imitate that.”

LinkedIn’s global English-language site has attracted four million Chinese members without gaining much attention from the Chinese 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.

The Chinese-language site has attracted about a million new members and seems to have the tacit approval of the government. It is functioning without blockages even though the authorities have cracked down on other Internet services, including Instagram and Yahoo, in reaction to the pro-democracy protests in Hong Kong.

The secret to 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 web 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 advises foreign companies on China’s tech sector. “That’s worth a lot, to have that channel.”

A spokesman for LinkedIn, Hani Durzy, said the company 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,” he added, “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 that the authorities consider politically sensitive, using a combination of software algorithms and human reviewers. People whose posts are blocked get an emailed form letter advising them that a posted item contains “content prohibited in China” and “will not be seen by LinkedIn members located in China.”

LinkedIn also does not provide Chinese-language users 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 American tech companies, LinkedIn, which is based in Mountain View, Calif., has promoted itself as dedicated to free-market principles. Too much censorship could cause users to flee.

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

The company has already stumbled a bit in its entry into the Chinese market. It angered some non-Chinese customers, who found that posts they made in English while in China were blocked globally as part of the company’s effort to protect its Chinese users from anything that could attract unwanted government scrutiny. LinkedIn moved to loosen its policy last month, allowing posts blocked in China to be seen elsewhere.

Some also say LinkedIn has not communicated clearly how and why it is censoring content.

For example, Bill Bishop, a media commentator and tech investor in China, said content he posted about China from a connection in the United States was blocked by the service. When he inquired why, the company inaccurately responded that it was because he had posted the item from China, when the real problem was that he had listed China as his work location.

Other tech companies have weighed the risks of trying to satisfy the Chinese government and taken a different approach.

Google, which once acceded to China’s demands to censor content in the country, 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,” according to Colin Crowell, the company’s vice president for global public policy.

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

Although Facebook — the world’s largest social network, with about 1.3 billion monthly users worldwide — is blocked in China, it hasn’t 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.

Facebook is also studying the experience of Instagram, its separately operated photo-sharing app, which is growing quickly with only occasional blockages by the Chinese government.

“We think this is an exciting opportunity,” Dan Neary, the company’s vice president for Asia and the Pacific, said in a statement.

Analysts say LinkedIn is well positioned to be acceptable to Beijing because it can argue that it makes the employment market more efficient, ultimately spurring the economy. China’s Internet regulators often argue that the main goal of development of the Internet should be to bolster economic growth.

China’s closed markets have given a huge head start to four homegrown companies, which 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.

C.B.C. 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 company 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 C.B.C. 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 use 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.

“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 Mr. Durzy, the LinkedIn spokesman. “We want to get it right in China, so we will continue to listen and learn."

LinkedIn Earnings - Soaring Higher than Forecasted

Story first appeared on USA Today -

Online professional-networking service LinkedIn's fourth-quarter performance added another line to its sterling resume as a public company.

LinkedIn's fourth quarter earnings came in far above Street expectations, boosting the stock in after-hours trading.

The results announced Thursday extended LinkedIn's uninterrupted streak of exceeding analysts' projections for both earnings and revenue. It marked the seventh consecutive quarter since LinkedIn's May 2011 IPO that the company has pulled that off, to the delight of investors.

The run of pleasant surprises is one of the reasons that LinkedIn's stock has tripled from its initial public offering price of $45. The shares surged $12.11, or nearly 10%, to $136.20 in extended trading after the numbers came out.

Wall Street's embrace of LinkedIn contrasts with the cold response given to other Internet services that have gone public during the past few years. Most of them are trading below their IPO prices. The most notable is Facebook, whose stock is worth about 25% less than it was when it made its market debut in May.

Although both run websites devoted to connecting people with common interests, LinkedIn and Facebook are targeting different audiences. Facebook focuses mostly on letting friends and family share good times and swap stories, while LinkedIn concentrates on helping people advance their careers and helping companies fill jobs.

Facebook, which is based in Menlo Park, is the larger of the two services, with more than 1 billion active users and $5.1 billion in revenue last year. LinkedIn, which is based in Mountain View, California, has 20 million account holders and revenue of $972 million in 2012.

But LinkedIn is growing more quickly, partly because it's less dependent on advertising than Facebook and most Internet services. In the fourth quarter, advertising accounted for 27% of its revenue. The remainder comes from various tools that it sells to help recruit workers and glean more insights from the information that its users post on its website.

LinkedIn earned $11.5 million, or 10 cents per share, during the final three months of last year. That marked a 66% increase from $6.9 million, or 6 cents per share, a year earlier.

If not for the costs of employee stock compensation and certain other charges, LinkedIn said it would have earned 35 cents per share. That was far above the average estimates of 19 cents per share among analysts surveyed by FactSet. Analysts excluded certain items from their calculations.

Revenue soared 81% from the previous year to $304 million — about $24 million above analyst forecasts.

LinkedIn's revenue outlook for the current quarter and all of 2013 were roughly in line with analyst estimates, setting the stage for the company to clear those financial bars once again.

Losses Posted for Facebook

Story first reported from USA Today

Ending a tumultuous day for social media companies, Facebook posted a loss Thursday in its first test as a public company.

Investors fled the social-networking giant in after-hours trading following a quarterly loss of $157 million, which included one-time charges related to the accounting of stock awards disclosed amid the botched initial public offering on May 18.

The social-networking giant, which went public in May with an eye-popping high valuation, reported on an adjusted basis a profit of $295 million, or 12 cents a share, on revenue of $1.18 billion for its second fiscal quarter. That met the consensus estimate for the quarter.

The company's stock plunged 11% in after-hours trading to $23.77 after losing nearly as much during the day's trading session. And the stocks of other social media companies slumped further, among them Zynga, Groupon and LinkedIn . The stocks had fallen during regular trading, even as the broad market rallied. Zynga had released disappointing earnings Tuesday after the close of regular trading, giving investors pause.

Meanwhile, a problem at Twitter's data centers took the micro-blogging site offline for several hours, affecting millions of its users. Google Chat also crashed.

The stakes could not be higher for social-networking giant after its much-anticipated IPO fizzled amid questions about its online and mobile advertising business. Its initial valuation of $100 billion is now $60 billion.

There was some good news. The social-networking giant's revenue of $1.18 billion for its second fiscal quarter compared to consensus estimates of $1.15 billion.

It was the first quarterly report for Facebook as a public company. It's unusual for a company to miss estimates on its first quarter as a public company, says Jay Ritter, professor of finance at the University of Florida. When companies go public, they typically have a solid outlook at least for the first few months.

Seeing Facebook's earnings coming in roughly in line with expectations was a disappointment for investors who have been hoping for more, says Jordan Rohan of Stifel Nicolaus. "Investors still hung to the hope that Facebook would rise to the occasion," he says.

Investors response to Facebook's report shows just how jaded Internet investors have become, he says. "It takes a particularly special performance for a stock to go up on its earnings," he says. "That's the rhythm of this quarter earnings period."

Facebook had warned investors that the quarter wasn't going to be a stellar one, by updating the risk section of its prospectus, Rohan says. "A company wouldn't do that unless the results were going to be uninspiring," he says.

Rohan continues to rate the stock a "hold." "This quarter's fundamentals don't seem to change the story of the outlook," he says.

"They have to show they can justify" even that lower valuation, says Lucy Jacobs, chief operating officer of Spruce Media, a technology platform for social-media advertising. She said Facebook has made several changes to goose ad revenue.

Like nearly every business in social media and beyond, Facebook is betting a large portion of its future on mobile ads. Yet few companies, including Facebook, have been able to capitalize on the promise. The popularity of mobile devices comes, in part, from their lack of ads.

CEO Mark Zuckerberg said mobile is a huge opportunity on a conference call with analysts, but he downplayed a rumored mobile phone from Facebook, adding that it "wouldn't make much sense." There had been speculation prior to the call that Zuckerberg might skip the conference call.

The market for the ads that dot smartphone and tablet screens is expected to soar to $10.8 billion in U.S. sales by 2016, from an estimated $2.6 billion this year, says research firm eMarketer. That's a tiny slice of the $169.5 billion market for media ad spending in the U.S.

Google has the early lead in the U.S. in monetizing mobile, with 51% of the market, largely due to its success with mobile search ads, says Noah Elkin, an eMarketer analyst. Phone numbers embedded in mobile ads on Google's click-to-call feature, for example, generate about 15 million calls per month.

Facebook barely registers yet, though the company has the potential to rake in $2.54 billion from mobile advertising, according to researcher Chitika. Facebook Sponsored Stories — an ad form that appears on a member's Facebook page and generally consists of a friend's name, profile picture and an advertiser the person "likes" — now appear in a user's Facebook mobile news feed.

 Debra Williamson, an analyst at eMarketer, says mobile is where it's at right now.

Until early this year, Facebook had no real mobile strategy, she says.
The company's challenges don't end there.

In the U.S., where Facebook makes most of its advertising revenue, the social network is not drawing new users. In May, 158.01 million unique visitors logged on to the network, compared with 158.69 million in April, according to market researcher comScore. Facebook says it has more than 955 million members worldwide.

Underwriters of Facebook's IPO lowered guidance in May, suggesting the company would earn about $4.8 billion for 2012 — a billion-dollar drop in confidence that fed market uncertainty about the effectiveness of Facebook's advertising machine.

Social-gaming leader Zynga's woeful results on Wednesday — it lost $22.8 million in its most recent quarter — underscored Facebook anxiety, since Facebook depends on Zynga for about 12% of revenue.

Zynga CEO Mark Pincus blamed some of its problems on changes Facebook made to its platform.

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LinkedIn Stocks Seem Immune to Danger

Story first appeared on CNBC.

After a day of rumors and investigations, LinkedIn has formally acknowledged that some of its users passwords have been compromised.

This is the worst privacy and security news to slam the business networking service yet.

The company apologized and encouraged “best practices” to update passwords.

This is no small deal: by some reports it impacted over six million passwords, about 4 percent of LinkedIn’s users. But still, LinkedIn’s stock has been remarkably robust. At one point today it sank about 1.2 percent, but it closed the day up 9 cents, and it’s up nearly 50 percent year-to-date. Today not a single analyst issued a note in response to the news or changed a rating or stock target.

So why is the stock immune to a hack attack?

LinkedIn’s built a strong reputation on these matters. The great efforts LinkedIn has made to stay out of the spotlight on security and privacy concerns seems to have paid off. The company hasn’t drawn the outrage and concerns that Facebook has when it comes to privacy issues. This is partly due to LinkedIn’s focus on business, rather than the personal photos and details people share on Facebook. By its very nature of enabling people to share their professional profiles, there is simply less risk.

A number of Wall Street analysts say that they do not expect this news to at all impact LinkedIn usage. Why? These hack attacks and the need to change passwords are perceived as a cost of doing business in today’s digital world. As long as no one gets hurt, as one analyst put it, it’s not a big deal.

Perhaps most interesting, today’s hacking news follows media storm over LinkedIn’s mobile app violating personal privacy by improperly downloading and sharing personal details from users calendars, including conference call dial-ins and private notes. Users complained about the mobile app, and LinkedIn responded by changing its policy—it no longer downloads or shares the notes section of appointment reminders. When this news came out, the stock barely moved—ending the day less than a percentage point.

The company plans to update its privacy policy to give users more control sometime in the next few days.  We’ll hear when LinkedIn does its next quarterly report if there’s been any impact on LinkedIn traffic. But Wall Street certainly thinks that users will take today’s news in stride; they’ll change their password and perhaps click on through to connect with the service.

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LinkedIn Website Hacked

Story first appeared in USA Today.
In the latest blow to online confidence, the accounts of some users of business-networking site LinkedIn and dating site eHarmony were compromised after users' encrypted passwords were posted on the Internet.

Many of LinkedIn's 161 million members worldwide, who use the site to form professional connections, were also bombarded Wednesday by e-mail from unfamiliar parties urging them to click on links to verify e-mail addresses. LinkedIn and eHarmony join the list of several major websites, including retailer Zappos.com, that were hacked in recent months.

Wednesday's cyberattack on LinkedIn, which affects as many as 6.5 million users, came on the heels of a discovery that LinkedIn's mobile app on Apple devices tracked users' calendar events and synched them to its server without users' knowledge, a practice that could violate Apple's privacy regulations.

The encrypted password hash codes, which can be deciphered to uncover users' passwords, could give the hacker access to users' accounts once the codes are cracked, according to an IDC tech industry analyst.

Some of the passwords that were compromised correspond to LinkedIn accounts, the company confirmed in a blog post on its site Wednesday. In another post, LinkedIn urged users never change your password by following a link in an e-mail, since those links might be compromised and redirect you to the wrong place. The company also said it would send users of the affected accounts instructions on how to reset their passwords and that these instructions would be devoid of any links.

Late Wednesday, eHarmony said the passwords of a "small fraction" of its users had also been compromised. The site, which says it has more than 20 million registered online users, did not say how many had been affected. But tech news site Ars Technica said it found about 1.5 million passwords leaked online that appeared to be from eHarmony users.

It's unclear who was behind the hacking, but several tech analysts encouraged users to change passwords on the sites and create unique passwords for every social-media account. If you have the same password on multiple accounts, change them right now. If the hackers get one password and all of your passwords are the same, they're going to have access to all your information.

The LinkedIn incident underscores the importance of passing data-protection legislation and that it forecasts a shaky future for online consumerism. How many times is this going to happen before Congress finally wakes up and takes action? More people are becoming antsy about providing their personal information online, and that's not good for the future.