Google To Pull Out of China?

The blaring headline on the front page of the WSJ this morning is “Google Warns of China Exit Over Hacking.” Given that our next Fight Club bout is on Googled by Ken Autletta, I thought it was worth a Broken Spines comment.

Apparently, the Gmail accounts of 34 companies operating in China were hacked. Although only two accounts were compromised, most of these accounts appear to related to human rights activists with the implication being that the Chinese government was involved. So, Google stomps its feet and says it will no longer censor search results which it has been doing since they began operations in China in 2006. Furthermore, if the Chinese government doesn’t like it “we recognize that this may well mean having to shut down Google.cn.” Wow.

These attacks and the surveillance they have uncovered — combined with the attempts over the past year to further limit free speech on the Web — have led us to conclude that we should review the feasibility of our business operations in China. – Google spokesman

Is this the new way state-to-state conflicts will manifest themselves? Are the American and Chinese economies are so interdependent now, that corporate interests outweigh those of the state? Or is the Chinese intelligence service using Google and thereby making this a state issue? In any case, this is good fodder for our Fight Club bout – can’t wait!

Here are some other interesting factoids:

  • China is a tiny portion of Google’s revenue, but China is too strategically important to walk away from
  • Google market share is 29% compared with Chinese search firm Baidu’s of 61% of China’s 338 million web users
  • The head of Google’s China operations (a former Microsoft employee) recently left to start his own company

On a separate but related note, Google recently compromised it’s long held policy of not cluttering their main page with ads. Turns out they’re willing to use that prime space to promote their new phone.

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2 Responses to “Google To Pull Out of China?”


  1. 1 bobbyjones January 14, 2010 at 9:16 am

    Interesting article in Ad Age this morning:

    Why Google Wasn’t Winning In China Anyway
    Local Market Knowledge Helped Baidu, But So Did Piracy, Nationalism and Marketing

    by Normandy Madden
    Published: January 14, 2010

    HONG KONG (AdAge.com) — Google’s decision to pull out of China unless the authorities will allow uncensored search results — an unlikely outcome — probably does stem from moral outrage over the government’s heavy-handed tactics.

    But it could be a face-saving way to pull out of a market where Google has made surprisingly little progress. Most research companies agree Google controls at most one-quarter of China’s search market. That’s hard to swallow, given Google’s dominant position in the U.S. and many other major markets.

    Why hasn’t Google figured out a way to dent the lead of front-runner Baidu?

    First-mover advantage
    Chinese were using Google.com and Yahoo before Baidu was launched by Robin Li in 2000. But Google didn’t launch its Chinese site Google.cn until 2006, effectively given Baidu first-mover advantage.

    Baidu handles over two-thirds of search queries in China, says Chinese consultancy iResearch.
    Google has never been a big believer in traditional marketing anywhere, including China, while Baidu is an active advertiser in TV, out-of-home and digital media.
    “Their chief problem was the idea they could come into the market without doing marketing and expect to replicate the miraculous success they had enjoyed in the U.S. They did no marketing,” said Kaiser Kuo, a Beijing-based consultant for Youku.com and the former of head of digital strategy at Ogilvy & Mather in China.

    “They just had a name that was hard for Chinese to pronounce and harder to spell,” Mr. Kuo said.

    Understood behavior
    As a Chinese-owned company, analysts say Baidu understands the local market better, both the behavior of consumers and the kinds of tools they want in a search engine.

    “Google has vision but its execution in China wasn’t strong. They don’t get the nitty-gritty nuances and are not close enough to the market,” said Quinn Taw, a Beijing-based venture partner at Mustang Ventures who has held senior positions at Mindshare and Zenith Media in China.

    RELATED STORIES

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    Until recently, for instance, Google.cn had the same clean, sleek look of Google.com, even though Chinese surfers, particularly in the early days, preferred clicking on popular search topics rather than typing in search characters. Baidu’s site reflected that preference from the start.
    Google was also slow to promote popular services like bulletin boards and online videos.

    “With its massively popular Tieba forums, a question-and-answer service and a wiki, Baidu leveraged Chinese netizens natural propensity to share and create content and seamlessly integrated it in to the overall search experience way before Google’s attempts,” said Sam Flemming, founder and chairman of CIC, an internet research and consulting firm in Shanghai.

    “Even Google’s attempts in the West at integrating social media and search fail in comparison to what Baidu is doing in China,” Mr. Flemming said.

    Speaking Chinese
    Baidu also knows how to talk to Chinese users, literally. In Mandarin, a word is represented by one or more characters which can have multiple meanings. The search engine needs to be sophisticated to understand the right meaning of the characters in a search request.

    Sam Flemming
    “Baidu has developed better software and technology for the task,” said Dick Wei, VP of equity research at J.P. Morgan in Hong Kong.
    Those are the most obvious and easy explanations, but they don’t fully explain why Google hasn’t conquered China. After all, it was last-mover in the U.S. and still managed to dominate search there and Google is successful in other non-American markets.

    Japan, an insular Asian country that also has a character-based language, is dominated by two American search providers, Yahoo and Google.

    Connections matter
    Like many things in China, the real answer comes down to connections, piracy, nationalism and corruption.

    When Baidu issued its IPO in late 2007, about one-third of Baidu’s users were music fans using the site’s online music file-sharing service, which operated much like Napster.

    Baidu didn’t heard revenue from the sales, but music attracted tens of millions of Chinese to its site and helped make it the No. 1 site. As an American company bound by U.S. laws protecting intellectual property, this growth tactic was not open to Google.

    Music companies, of course, hate Baidu’s music-sharing site. The major labels like EMI, Warner Music Group and Vivendi’s Universal Music have tried suing local sites that allowed illegal downloading, including Baidu, with minimal success in court and little support from Chinese consumers.

    Baidu has started to curb illegal music-downloading, but “mp3 search was a big traffic driver and is still a big reason people go to Baidu,” said Mr. Wei. “When they are used to going to Baidu, why switch?”

    Better with advertisers
    Baidu is also much better at talking with advertisers.

    Media buyers “couldn’t give Google money if they wanted to,” Mr. Taw said. “Their sales guys were very arrogant, superior and hard to get hold of. They went out of their way to be jerks.”

    Unlike Baidu, Google made another mistake in refusing to offer rebates for volume media buys, a common, if not always legal, practice in China’s media industry. (Rebates are a sticky issue in China, since the discounts are not always passed along from media executive to their employer, or from the media agency to their client.)

    Appeal to nationalism
    Nationalist sentiment is an issue too.

    “Everyone who works in and understand the web in China knows how crucial this can be. Baidu played on this in its advertising and brand messaging, [telling consumers] Baidu is Chinese company and product, Google is everything but,” said Adam Schokora, a digital strategist at Edelman in Shanghai.

    Kaiser Kuo
    If Google.cn does disappear, the site will be missed by the sophisticated, white-collar web users who typically preferred Google.cn to Baidu, as well as by advertisers catering to this affluent market.
    Google’s presence in China was “nothing to sneeze at, it does not deserve the drubbing some people have surmised,” Mr. Kuo said.

    One-quarter of China’s 338 million internet population “is still 80 plus million people. It has 50 million Gmail accounts [in China] and had built a brand that was associated with integrity. It was much loved by people who were loyal to it.”

  2. 2 bobbyjones January 20, 2010 at 2:49 pm

    Google’s Philosophy
    Ten things we know to be true

    “The perfect search engine,” says co-founder Larry Page, “would understand exactly what you mean and give back exactly what you want.” When Google began, you would have been pleasantly surprised to enter a search query and immediately find the right answer. Google became successful precisely because we were better and faster at finding the right answer than other search engines at the time.

    But technology has come a long way since then, and the face of the web has changed. Recognizing that search is a problem that will never be solved, we continue to push the limits of existing technology to provide a fast, accurate and easy-to-use service that anyone seeking information can access, whether they’re at a desk in Boston or on a phone in Bangkok. We’ve also taken the lessons we’ve learned from search to tackle even more challenges.

    As we keep looking towards the future, these core principles guide our actions.

    1. Focus on the user and all else will follow.

    Since the beginning, we’ve focused on providing the best user experience possible. Whether we’re designing a new Internet browser or a new tweak to the look of the homepage, we take great care to ensure that they will ultimately serve you, rather than our own internal goal or bottom line. Our homepage interface is clear and simple, and pages load instantly. Placement in search results is never sold to anyone, and advertising is not only clearly marked as such, it offers relevant content and is not distracting. And when we build new tools and applications, we believe they should work so well you don’t have to consider how they might have been designed differently.

    2. It’s best to do one thing really, really well.

    We do search. With one of the world’s largest research groups focused exclusively on solving search problems, we know what we do well, and how we could do it better. Through continued iteration on difficult problems, we’ve been able to solve complex issues and provide continuous improvements to a service that already makes finding information a fast and seamless experience for millions of people. Our dedication to improving search helps us apply what we’ve learned to new products, like Gmail and Google Maps. Our hope is to bring the power of search to previously unexplored areas, and to help people access and use even more of the ever-expanding information in their lives.

    3. Fast is better than slow.

    We know your time is valuable, so when you’re seeking an answer on the web you want it right away – and we aim to please. We may be the only people in the world who can say our goal is to have people leave our homepage as quickly as possible. By shaving excess bits and bytes from our pages and increasing the efficiency of our serving environment, we’ve broken our own speed records many times over, so that the average response time on a search result is a fraction of a second. We keep speed in mind with each new product we release, whether it’s a mobile application or Google Chrome, a browser designed to be fast enough for the modern web. And we continue to work on making it all go even faster.

    4. Democracy on the web works.

    Google search works because it relies on the millions of individuals posting links on websites to help determine which other sites offer content of value. We assess the importance of every web page using more than 200 signals and a variety of techniques, including our patented PageRank™ algorithm, which analyzes which sites have been “voted” to be the best sources of information by other pages across the web. As the web gets bigger, this approach actually improves, as each new site is another point of information and another vote to be counted. In the same vein, we are active in open source software development, where innovation takes place through the collective effort of many programmers.

    5. You don’t need to be at your desk to need an answer.

    The world is increasingly mobile: people want access to information wherever they are, whenever they need it. We’re pioneering new technologies and offering new solutions for mobile services that help people all over the globe to do any number of tasks on their phone, from checking email and calendar events to watching videos, not to mention the several different ways to access Google search on a phone. In addition, we’re hoping to fuel greater innovation for mobile users everywhere with Android, a free, open source mobile platform. Android brings the openness that shaped the Internet to the mobile world. Not only does Android benefit consumers, who have more choice and innovative new mobile experiences, but it opens up revenue opportunities for carriers, manufacturers and developers.

    6. You can make money without doing evil.

    Google is a business. The revenue we generate is derived from offering search technology to companies and from the sale of advertising displayed on our site and on other sites across the web. Hundreds of thousands of advertisers worldwide use AdWords to promote their products; hundreds of thousands of publishers take advantage of our AdSense program to deliver ads relevant to their site content. To ensure that we’re ultimately serving all our users (whether they are advertisers or not), we have a set of guiding principles for our advertising programs and practices:

    We don’t allow ads to be displayed on our results pages unless they are relevant where they are shown. And we firmly believe that ads can provide useful information if, and only if, they are relevant to what you wish to find – so it’s possible that certain searches won’t lead to any ads at all.
    We believe that advertising can be effective without being flashy. We don’t accept pop-up advertising, which interferes with your ability to see the content you’ve requested. We’ve found that text ads that are relevant to the person reading them draw much higher clickthrough rates than ads appearing randomly. Any advertiser, whether small or large, can take advantage of this highly targeted medium.
    Advertising on Google is always clearly identified as a “Sponsored Link,” so it does not compromise the integrity of our search results. We never manipulate rankings to put our partners higher in our search results and no one can buy better PageRank. Our users trust our objectivity and no short-term gain could ever justify breaching that trust.
    7. There’s always more information out there.

    Once we’d indexed more of the HTML pages on the Internet than any other search service, our engineers turned their attention to information that was not as readily accessible. Sometimes it was just a matter of integrating new databases into search, such as adding a phone number and address lookup and a business directory. Other efforts required a bit more creativity, like adding the ability to search news archives, patents, academic journals, billions of images and millions of books. And our researchers continue looking into ways to bring all the world’s information to people seeking answers.

    8. The need for information crosses all borders.

    Our company was founded in California, but our mission is to facilitate access to information for the entire world, and in every language. To that end, we have offices in dozens of countries, maintain more than 150 Internet domains, and serve more than half of our results to people living outside the United States. We offer Google’s search interface in more than 110 languages, offer people the ability to restrict results to content written in their own language, and aim to provide the rest of our applications and products in as many languages as possible. Using our translation tools, people can discover content written on the other side of the world in languages they don’t speak. With these tools and the help of volunteer translators, we have been able to greatly improve both the variety and quality of services we can offer in even the most far-flung corners of the globe.

    9. You can be serious without a suit.

    Our founders built Google around the idea that work should be challenging, and the challenge should be fun. We believe that great, creative things are more likely to happen with the right company culture – and that doesn’t just mean lava lamps and rubber balls. There is an emphasis on team achievements and pride in individual accomplishments that contribute to our overall success. We put great stock in our employees – energetic, passionate people from diverse backgrounds with creative approaches to work, play and life. Our atmosphere may be casual, but as new ideas emerge in a café line, at a team meeting or at the gym, they are traded, tested and put into practice with dizzying speed – and they may be the launch pad for a new project destined for worldwide use.

    10. Great just isn’t good enough.

    We see being great at something as a starting point, not an endpoint. We set ourselves goals we know we can’t reach yet, because we know that by stretching to meet them we can get further than we expected. Through innovation and iteration, we aim to take things that work well and improve upon them in unexpected ways. For example, when one of our engineers saw that search worked well for properly spelled words, he wondered about how it handled typos. That led him to create an intuitive and more helpful spell checker.

    Even if you don’t know exactly what you’re looking for, finding an answer on the web is our problem, not yours. We try to anticipate needs not yet articulated by our global audience, and meet them with products and services that set new standards. When we launched Gmail, it had more storage space than any email service available. In retrospect offering that seems obvious – but that’s because now we have new standards for email storage. Those are the kinds of changes we seek to make, and we’re always looking for new places where we can make a difference. Ultimately, our constant dissatisfaction with the way things are becomes the driving force behind everything we do.


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