Facebook (top) vs. Xiaonei (bottom).

This month marks the third anniversary of social network Xiaonei, which is often called the Facebook of China. Until recently I wasn’t aware of how closely this label really comes to the truth.

You see, the Chinese government generally takes a very hands-off approach to the enforcement of intellectual property (IP) rights,  particularly those of foreign interests. Their regulators feel that a laissez-faire approach is justified so long as China is behind the economic curve. Ignoring the the pesky details of IP ownership has its advantages, and allows many Chinese businesses to thrive as they service insatiable demand for brand-name merchandise at bargain prices. At least 15 to 20 percent of goods made in the country last year were counterfeit, stimulating exports and allowing Chinese consumers to experience many of the perceived benefits of living in a wealthier country.

One downside to this strategy is that it can sometimes make foreign companies (especially the innovators) reluctant to invest in China, given the impunity with which their efforts might be duplicated. What’s interesting about Xiaonei (roughly, “On Campus“) is that it’s a copycat that has received massive investment from the United States.

More accurately, Xiaonei was bought out in 2006 by a company called Oak Pacific, which is in turn backed by Silicon Valley venture capitalists DCM, and investment firm General Atlantic. As of April 2008 it had reportedly raised US$430 million, which actually makes it better funded than Facebook!

After going through the sign-up process, I’ve found a great many similarities between the two services, with plenty of layouts and artwork lifted almost directly. This strikes me as lazy, given Xiaonei’s immense budget. While I can understand the strategy of following a market leader and appreciate that functionality is hard to monopolize through IP law, it’s difficult to justify the actual theft of icon art from a competing service. In most instances these icons were reproduced with trivial variations, but I found at least two icons (“No Mail”, and “Edit Information”) that appear to be pixel-perfect copies.

With more than 30 million registered users (a third of them active), Xiaonei is a staggering success given that internet penetration in China just passed 15% this year. After much ado Facebook finally launched a simplified-Chinese version of their service in June this year, but its users have had to deal with access problems and nobody can say yet if it will really take off. The network effect would imply that right now it’s better to be a Xiaonei user in China than a Facebook user, but it’s hard to maintain a lead while following the footprints of a competing service. Perhaps what Xiaonei is really after is to be acquired by Facebook. If this were to happen it could be a win for everybody.

I would think that connecting China socially to the rest of the world benefits all involved (especially users), as it seems like a lot of money and valuable skills are being wasted on keeping Chinese users in a separate but virtually identical network. If Xiaonei does in fact have revolutionary ideas and technology then great, let them sell it to Facebook who can spread it to the rest of the world. If it turns out they do not, that the Xiaonei service is in fact a replica, then its users may barely notice the transition.