Facebook doesn’t want world domination: it needs it

In many ways Facebook is a very American success: forged at Harvard, warmed up in the crucible of Silicon Valley, and now reaching boiling point by becoming one of the nation’s most valuable companies. But it’s also a very international business, too, with 900 million users spread all around the world.

The company has made no secret of its ambition to make sure every person on the planet is connected to its service. What might seem like hubris, however, is actually necessity: with Wall Street now breathing down its neck, overseas growth is important — investors want to see that however big it has become, Facebook still has headroom left. (Check out our chart of five countries outside the U.S. that could provide Facebook with a lot more users.)

So how will it manage?

First, use its headstart

To understand Facebook’s approach to international growth, it’s worth looking back at the way the company became so global quickly.

From very early on, Facebook had a strong foreign user base. In fact, unlike most companies, it was not really the company’s home success that drove its foreign expansion — it was foreign expansion that fueled its meteoric rise and underpinned its blockbuster flotation.

As early as 2007, the vast international potential was becoming very clear, when London became the single most popular city on Facebook. But then came perhaps its smartest move of all: instead of spending months deciding which markets to target, building local sales teams and internationalizing its product accordingly, Facebook designed a tool that let users translate the service into their own language — effectively crowdsourcing what is usually a slow, labor-intensive job.

And it proved a stunning success: in less than 24 hours, for example, 90 percent of the site had been translated into French. Former Facebooker Andy Johns has called it “the greatest lever” the company had for growth:

It made Facebook a platform capable of supporting everyone on the planet… Growth was not about hiring 10 people per country and putting them in the 20 most important countries and expecting it to grow. Growth was about [engineering] systems of scale and enabling our users to grow the product for us.

It was an inspired, engineering-led approach that allowed Facebook to rapidly scale out into dozens of new territories without ever targeting or investing in them specifically. Take Turkey, a fast-growing internet market with its own language. Without any member of the team ever targeting the country as a business prospect, Facebook became the country’s number 1 social site — and now boasts 92 percent market penetration.

This has all given the company huge reach at relatively little cost, and brought in a ton of revenue too: this year is likely to be the first in which Facebook will make more money outside the United States than in them (U.S. revenue fell from 62 percent in 2010 to 56 percent in 2011).

It’s easy to underestimate the importance of that number. But for some context, compare that with Google, where international revenue only outstripped U.S. revenue for the first time in 2008 — four years after it went public.

Continued international progress is massively important, not least because it’s where new users are coming from.

Pingdom, which found Facebook’s six-month U.S. user growth at just 0.86 percent compared with Brazil’s 54 percent, says: “It seems evident that Facebook needs an expansion plan that involves all corners of the world, but that focuses on certain regions, like Africa and Asia.”

Facebook acknowledges the problem, and the opportunity. Alongside mobile and advertising, it has sold investors on hoped-for international growth. “There are more than two billion global internet users, according to an IDC report dated August 2011,” its S-1 read. “And we aim to connect all of them.”

Now it just has to deliver on that promise.

So where next?

The omens for continued expansion may be good. Thanks to its translation success, Facebook has already unseated eight dominant local-language competitors in the last two years, according to comScore – most recently, Orkut in Brazil and Poland’s Nasa Klasa.pl.

Recent data from Pingdom shows strong gains in other countries, leaving just a handful of nations where Facebook is not the top dog: China, South Korea, Japan, Vietnam and Russia.

“Now there are only five markets where Facebook is not the #1 social networking site,” a comScore spokesperson told us. “What’s interesting here is that Vietnam, Japan and South Korea are amongst the top four fastest growing markets, with year-over-year growth rates of 80 to 270 percent.”

But these remaining countries are also the toughest nuts to crack. And the biggest prize of all, China, may need a sledge hammer — after all Facebook is blocked by the country’s Great Firewall.

If it can piggyback China’s explosive broadband and mobile internet adoption, Facebook’s own growth may surge even further. But this will be anything but a walk in the park.

Investors have been warned. Facebook’s s-1 filing cautioned:

“We do not know if we will be able to find an approach to managing content and information that will be acceptable to us and to the Chinese government.

“In the event that access to Facebook is restricted, in whole or in part, in one or more countries or our competitors are able to successfully penetrate geographic markets that we cannot access, our ability to retain or increase our user base and user engagement may be adversely affected, we may not be able to maintain or grow our revenue as anticipated, and our financial results could be adversely affected.”

China’s state authorities grant spartan online operating licenses to overseas players, especially powerhouses, leaving the market to indigenous networks, which themselves are allowed to operate only under a strict regime of monitoring and censorship by the government.

That is a controversial and technically difficult task for any social network. But, if it’s good enough for China’s own, it may be a move that Facebook, too, has to consider if it wants to break in.

But it’s not just China that could prove tricky. Google can attest to the difficulties of launching in unfriendly countries. Its $ 140 million acquisition of the Rambler portal’s Begun contextual ad agency was blocked in 2008 because of what Russian competition authorities said was insufficient paperwork.

And, while trying to make inroads to its five target nations, Facebook must also be on its guard to make sure it protects its leading position in other markets, many of which are small enough that launches or improvements from indigenous competitors could have profound impact.

The revenue question

Even if the company can push growth numbers by securing a dominant position in every single one of the world’s countries, there is another big question: how to keep revenue going up internationally too.

This is a very important problem it faces: during its IPO roadshow, executives explained that while an American user with high disposable income was worth $ 9.51 in Facebook ad revenue last year, Europe was worth considerably less at $ 4.86. Asia, meanwhile, came in at $ 1.79 and the rest of the world made Facebook just $ 1.42 per user.

So while international growth may be large, the granular detail on income is less impressive. These are not figures that will please Facebook’s investors if they do not rise — and, as Thomas Crampton of Social@Ogilvy & Mather’s Asia-Pacific unit has pointed out, users in lower-income countries like India are going to be hard to monetize more effectively.

Getting average revenues up could mean international users seeing more ads; working more partnerships outside the U.S.; using its scale to push revenue strategies that go way beyond advertising (such as a Facebook credit card). It could even require the company ditching a reliance on engineering solutions in favor of pushing harder at the drearier but tried-and-trusted approach of building large local sales teams.

Whatever the case, you can be sure Facebook will be trying everything it can to increase its international audience — and make it as valuable as possible.