Costs of Censorship Haunt Chinese Twitter IPO

A man walks into an office of Sina Weibo, widely known as Chinas version of Twitter. Photo: WANG ZHAO/AFP/Getty Images

When shares of Chinese microblogging network Weibo a.k.a. the Twitter of China begin trading on the NASDAQ stock market today, investors will be calibrating their enthusiasm to account for the risk of future censorship by Chinese officials.

Freedom isnt the only thing thats lost to censorship and surveillance oppression also costs money

Thats because Weibo itself told them to do so, with the company warning repeatedly of censorship risk in filings with federal regulators. Regulation and censorship of information disseminated over the internet in China may adversely affect our business and subject us to liability, Weibo said. In particular, said Weibo, it could have a hard time attracting and engaging users if people are afraid to post content to the service.

Weibos raising of red flags is the latest example of how online civil liberties issues are inflicting very real costs on internet companies and, by extension, the countries that host them. And China is hardly the only culprit. The censorship-sullied IPO comes on the heels of revelations of widespread surveillance by the U.S. government, and evidence that such surveillance slowed and complicated business for companies trying to sell cloud-based solutions to large corporations. In Russia, meanwhile, the CEO of the countrys largest social network, VK, resigned under a cloud, implying Kremlin interference. In each case, freedom isnt the only thing thats lost. Oppression also costs money.

At Weibo, government crackdowns seem to have already hobbled the social network. After authorities passed a law threatening to jail anyone who posted an inaccurate message that was reposted more than 500 times, monthly users declined by 28 million. Today, the company has just 129 million monthly users, barely half that of Twitter.

To be sure, some of Weibos has been due to competition from mobile-native competitor WeChat. Weibo also suffers because its users arent valued as highly as those on U.S. based networks, in part because the company hasnt developed mature ad offerings; Weibo will be worth less than a sixth as much as Twitter if it sells 20 million shares today at $17 to $19 a piece, as planned.

Weibo isnt alone in saying that government interference can hurt the bottom line. The New York Times last month reported that U.S. tech companies are spending hundreds of millions of dollars to build overseas data centers to reassure clients nervous about surveillance by the U.S. National Security Agency.

Silicon Valley startups say its gotten harder to convince large customers their data will be safe since revelations of mass surveillance were leaked by ex-NSA contractor Edward Snowden last year.

Our conversations with customers and prospective customers around cloud deployment has only gotten tougher since Snowden, says Matt Tucker, co-founder of Jive Software, which makes collaboration software and social networks for corporations.

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Costs of Censorship Haunt Chinese Twitter IPO