Web social networks face off across borders

TOKYO/SAN FRANCISCO (Reuters) - As social networking services providers like Facebook and MySpace beef up their services to attract users, the battle lines are increasingly being drawn on foreign soil.

Facebook and News Corp's (NWSA.O) MySpace lead the global market and are making forays abroad, but they are coming up against a host of smaller players staking out local turf.

In Japan, Mixi Inc (2121.T), DeNA Co (2432.T) and other home-grown companies dominate the market.

Their strength lies in game offerings -- both casual games for users like commuters on trains and hard-core games for serious players at home -- as more and more people look for entertainment on social networking sites.

Social networks let users interact with friends via blogs, games and photo-sharing. Experts say the key is keeping content fresh and innovating the product, to retain fickle Netizens who tend to hop between newer, more interesting sites.

Many of the Japanese operators, for instance, have shifted their main business to mobile phones.

"It's all about the product development capability," Yoshikazu Tanaka, chief executive officer of Japan's No. 3 social networking operator, Gree Inc (3632.T), said last month at the Reuters Global Technology Summit.

"In this quickly changing market, it's crucial to be the one that proposes new products, rather than just asking users what they want," he said. "If we can do that, we can keep up with the times. But if not, we would always be one step behind."

Gree, which relies less on advertising than rivals and generates some 70 percent of income via paid content, sees its profit jumping seven-fold this financial year.

GLOBAL, OR LOCAL

Social networking sites like Facebook pride themselves on their ability to connect -- and reconnect -- people across the globe, but some analysts think it makes more sense to go local because of unique cultures and technology usage.

Nikko Citi analyst Hiroshi Yamashina said local players would likely remain dominant in the sector because they would be better at providing content and services that suit users' preferences -- unique in every country.

"Ultimately, it is impossible to globalize an SNS service," he said. "It all depends on whether the site can have an impact on users' lifestyles themselves and offer contents and functions that would increase people who cannot live without the service."

But there's little doubt social networking as a concept is a bona fide global phenomenon. As of March, more than 700 million people worldwide used social networking services, according to a research by comScore World Metrix.

That comprised more than 60 percent of the total Internet unique visitors in the month.

Facebook, the world's No. 1 social network with more than 200 million active members, has moved aggressively to expand outside the United States.

In 2008, the majority of Facebook's growth in users occurred overseas. It introduced a system that lets people in various countries translate Facebook into local language, CEO Mark Zuckerberg said during the summit.

Facebook is now available in dozens of languages, and the company is building an international ad sales team to capitalize on that growth. It recently opened sales offices in France and Australia, and has "maybe a couple others in the pipeline," Zuckerberg said.

Russian Internet investment firm Digital Sky Technologies' recent $200 million investment in Facebook could signal an even more international focus going forward.

THE CHINA SYNDROME

But while the global giants extend their feelers, local upstarts are also keen to expand. A primary target is China -- the world's top Web population of 300 million and counting.

Mixi, Japan's top social network by membership, has just 16 million users. With dim prospects and intense competition in the mature Japanese arena, it's looking offshore.

So it launched a Chinese site last year, and has said it was keen to expand into North America and Europe.

DeNA, too, operates social networking sites in Chinese and English, and Gree's Tanaka said his company would look into entering overseas markets for future growth.

Facebook, MySpace and many others have also been lured into the potentially lucrative Chinese market. There again, local sites such as 51.com, Tudou.com and Xiaonei.com operate right alongside MySpace China and Facebook.

DeNA Chief Executive Tomoko Namba admitted differences in Internet culture, connection speeds, and mobile phone devices have hindered growth of its Chinese site, Jia Jia Cheng.

"Jia Jia Cheng has not been very successful, and we have to reconsider our strategy," she said, adding the company was looking for a local partner and may invest in it to boost the 2-year-old Chinese business.

(Reporting by Sachi Izumi and Alexei Oreskovic; Editing by Edwin Chan, Richard Chang)