The Number One Reason Why Google Failed In China… And It’s A Big One
by Tony D’Altorio, Investment U Research
Thursday, January 28, 2010
It’s been 16 years since China allowed its first Internet connection. And it’s been 16 years since everybody outside began speculating about exactly what that meant for the Communist country.
Western governments hailed the move as a step away from censorship and authoritarian control, while individual companies practically drooled over the massive, untouched consumer base and all of the opportunities it held.
Of the more noteworthy corporations to take advantage of the perceived new era, Google (Nasdaq: GOOG) stepped out especially confident, certain that it could take over China the same way it was eating up the U.S. But in doing so, the tech giant blatantly and foolishly ignored one of the most important rules of any business: Know your market.
In essence, Google tried to impose its western vision of the web onto the Asian nation, which ended up creating a mess for itself and easy profits for local competition.
Google Fails in China
With 384 million Internet users, China accounts for over one-fifth of the 1.73 billion people around the world that take to the web. So few can blame Google for having nothing less than global domination on its mind when it entered the Chinese market all those years ago.
What investors and businesspeople everywhere can fault the tech giant for, is the fact that it arrogantly took years to find out even the most basic facts about its local competition, such as Baidu ADR (Nasdaq: BIDU) and Tencent Holdings ADR (PINK: TCEHY). And it largely ignored free music downloads – an element that just happens to make Baidu extremely popular – until last year.
For that matter, it didn’t bother changing much of anything, expecting China to adapt to it instead of it to China. If you go onto Google’s China page, you’ll find an almost identical search box to the one you’d find on Google’s U.S. page, which poses a big problem considering that it doesn’t fit Chinese characters very well.
Was the giant tech corporation really arrogant enough to assume that its newest market might not search in their own language? Maybe and maybe not, but outsiders can easily see the damage regardless… since Baidu claims more than 60% of the domestic, online search market in China today.
Google also didn’t bother learning that typical Chinese Internet users spend most of their online time on entertainment as compared to Europeans and Americans, who use it more for work-related purposes.
According to China Internet Network Information Center – a business that actually did its research – 61.5% of users are 28 years-old or younger, 12.1% have a university degree and 42.5% have a monthly income of $146 or less.
In addition, they don’t like to type, probably at least in part because of the very nature of their language, which contains thousands of different characters. They navigate instead by using their mice, hence the reason why most Chinese portals consist of hundreds of colorful links competing for attention.
McKinsey reports that in China, consumers rely on blogs and other user-generated consumer reporting when deciding what to buy, mainly because they trust word of mouth much more than any blatant advertising campaign. So it should come as no surprise that they’re also very active participants, leaving more than twice the amount of comments their peers elsewhere post.
Online Freedoms for Chinese Society
While the West cries “Foul!” over the Chinese government infringing on its people’s online liberties, what they have to simultaneously realize is that the Internet is still the most free space in Chinese society.
Raised on a diet of propaganda in real life, many citizens there view the web as a place of authenticity and empowerment, with its genuine, user-generated content. And as such, it has a greater importance for them than it does elsewhere.
We see it as just one more form of communication. They see it as a crucial source of information they can’t get elsewhere.
Even if Google actually did take the time to study up on the market it wanted so badly, the American corporation wouldn’t be able to understand its audience in the same way Chinese firms like Baidu do. In the battle for global domination of the Internet, Google will just have to settle for everything else… because it can’t win this war.
Good investing,
Tony D’Altorio
Editor’s Note: Tony’s analysis stirred up a real hornet’s nest and generated a lot of comments below… Appreciating the positive replies and understanding the negative ones – Tony wrote a follow-up article that went over some of the main issues brought up. You can find that in Google Fails in China… Revisited.
Related Investment U Articles:
- China’s Baidu Beats Google At Its Own Game
- Microblog Growth Indicates Chinese Internet Users Adapting to Censorship
- Youku: A Closer Look at the YouTube of China
- Google’s Failure in China… Revisited
- Retailers Look to the Internet and the East
10 Responses to “The Number One Reason Why Google Failed In China… And It’s A Big One”
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Well said, and I fully agree with the author’s observations. Google is so arrogant and a typical American mentality that wants everyone else to adapt to THEM, their ideology, their culture, their thinking and their “ways” of life. Sorry, Chinese have 5000 years of history and I doubt anybody can, nor will, ever tell Chinese what to do, how to do, before during the imperial invasion days from UK, France and Japan, and now, and in the foreseeable future.
Google has caused SUCH a bad feelings in China that I doubt Chinese will EVER trust Google or give money to Google from now on. Just ask if Chinese will forgive Sharon Stone’s Karma comment and if Chinese will ever forgive what Japanese did to Chinese in recent history and brought China to a near total destruction.
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Clumsy propaganda.
in addition
“The Chinese”? Do you mean the Communist Chinese?
if not then
Have you registered as a foreign agent yet?
Infinite love and gratitude, you can learn this from the Tibetans.
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First:
Google did not fail in China. They have grown their market share to almost 1/3. The demographic they serve is AA+ in Chinese advertising terms. If they had been a Chinese firm (or any other nation’s) with that type of penetration in the US market we would be, oh – let’s just say – , wary. So let’s stop perpetuating that ‘failed’ myth being marketed by parties with an interest in that tale. It’s bunk – and an ignoramus could see that it’s bunk.
Secondly:
Google is NOT threatening to leave China. Google – in the face of corporate espionage, values conflicts & unfair market rigging/exclusionary tactics – is stating that it is no longer willing to be complicit in the Chinese regime’s rouse on it’s own people and the ‘market’ it claims to have opened. It is not open – and that is evident to all who care to look with unclouded eye. It is Google’s stand: ‘Let the cards fall where they may’ and Google also has, in it’s tool belt, contingencies that will better serve it’s interests should the market stay effectively closed.
So it’s China’s choice how we will play –
We deal in information – and China in labor x plastic resin. If our export market is closed – our import market can also be closed – and if our banker has strings to pull it’s also known that the string pulled will unravel the bank too.
So let’s let the cards fall where they may.
I’ll see you… and I’ll raise you…
All in.
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Well written. Never thought of it. Tony, you might be onto something. Your facts about Chinese characters really makes sense. That explains why they prefer clicking rather than typing and their web sites tends to have many links with flashing colors. I really hope some insiders from Google read your analysis.
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I am writing in response to your recent article on Google’s latest spat with the Chinese Government.
As a former Google China staff, I strongly suggest someone at your bureau to conduct an interview with the former president of Google China, Kaifu Lee.
The question that needs to be pose should be: HOW MUCH DOES HE KNOWS ABOUT SUCH PLANNED DEPARTURE WHEN HE ‘RESIGNED’ BACK IN SEPT. 2009.
FYI, BE YOUR PERSONAL BEST is one of the three books Mr. Lee penned during his Google tenure.
Such confrontation between Mt. View and PRC gov’t is a direct failure of over 4 years on botched local GR (Gov’t Relations), PR and Marketing; all functions controlled & directed by Mr. Lee.
Yet the man, in his true “Be Your Personal Best” self, questioned the integrity of Mt. View by posing a blog accusing Sergey Brin, being the captain, of abandoning ship during crisis. What a hypocrite!
4 years +, over US$200 million spent in human and capex capital, yet with barely 20% of market share, no one can fault the decision of
Sergey Brin and company to call it quits.
I personally salute Sergey in this matter. After all, this is the same guy whom remained truth to himself throughout He’s one of the few dissenting voice when Google ventured into the PRC back in 2005!
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I agree with Samuel Jackson. China has 5000 years of history. Democracy is overrated. Who cares if information is not free? Who cares if the government exploit the common people? It has always been like that. So what if Chinese people cannot criticize the communist party of push for democracy? So what if the government in China can put you in jail without Western style legal processes? Just don’t question those in power and you will be fine. Besides, Chinese people can’t handle democracy, even though they have practiced this civilization thing for 5000 years. Right?
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Google’s defiance of China’s censorship mandate illustrates the power of corporate social responsibility initiatives to influence and reshape the repressive policies of authoritarian regimes. Secretary Clinton’s recent remarks about the” information curtain” dividing the world, reminded me of the apartheid era where much greater injustice and unspeakable acts against humanity were challenged and ultimately overcome through the use of corporate codes of conduct.
Given the success of codes of conduct in ending apartheid, we should look at applying the same principles to lift the information curtain China and in other repressive countries.
This was the subject of an article on the International Business Law Advisor—The Great Firewall of China: How Lessons from the Apartheid Era Can Lift the Information Curtain http://www.intlbusinesslaw.com
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This is the biggest crock of propaganda ever spewed out of the White House. Google was a major contributor to the Obama campaign. China has the largest Internet population in the world. The *supposed* attack on Google was not sophisticated, if there was one at all which most with half a brain in the US understand. The CIA, SS, APNIC & CERT were all well aware of the so called port scans and “alleged” hacks supposedly originating from “China” and have been so for years, and have done nothing – the block of IP addresses they supposedly came from have contact information that is invalid, and could have easily been set up by anyone, anywhere. APNIC is well aware the IP address is registered with invalid information (FYI, APNIC is in Australia). It is, after all, good for the US economy to sell security software and keep whatever software developers that are left here in the US in work. And why should China worry about it – they do, after all, own 51% of Symantec. The first report of these hacks and scans came from a supposed “Congressional Aide” on some hokey political site over a year ago. This is nothing new. China has the world’s largest Internet population in the world, and Google stands to lose astronomical amounts of potential revenue with porn being their biggest money generating source. Google forgets China is their *customer* and regardless of what WE want and like, it is China’s choice what *they* want and like, and certainly not Hillary Clinton’s. And frankly, China should not and does not care, and will hopefully take it for the stupidity it really is, since there has been NO substantiation to Google’s claim – no details, no information except to say it happened. C’mon now.
Our US Internet infrastructure security is a joke here, in fact if one calls the White House and asks to speak with the “Cyber Czar” office, they will tell you they don’t even know what a cyber czar is. Any offending IP block that’s been scanning ports worldwide can be easily blocked, but have not been. No need to read this whole list – just look at hu is Number One and scroll down to the very bottom to see who is last:
https://www.cia.gov/library/publications/the-world-factbook/rankorder/2187rank.html
And we’re telling the rest of the world how to live?
Google, Microsoft and Yahoo all paid the Obama campaign a great deal of money, and now they want their returns. And Microsoft even has their hand out for stimulus monies and *took it* so they could build a building to building bridge for their employees for starters – with *taxpayers* money. This Obama administration has been bought and paid for to do Google’s marketing. Pathetic, indeed. And now the Google sissies are hiding behind Nanny Clinton’s skirts like spoiled toddlers who want Mommy to fight their playground battles. The biggest joke of all is she is!
Do understand there are many American citizens that realize Clinton’s bizarre speech for what it is – a payback to Google, Microsoft and Yahoo for the large campaign contributions, pimping them out like a back alley hooker.
Hillary Clinton hosted a Secretary of State dinner for Google not too long ago, spending tons of mental energy and taxpayers’ non-existent money on who’s allowed to see what, where and when online, when we’ve got a neighboring Nation experiencing the worst natural disaster in history shows the true colors of our current US leaders and what they are focusing on. No respect for the people and lives lost in Haiti, to stand up in the middle of it all with the “Clinton Doctrine” in the middle of that nightmare.
Now, I like this response from Channel News Asia:
“thats why she said internet cannot be censored lor.
otherwise how to catch cat eating fish secretly?
she was speaking from experience mah.”
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F CHINA! THEY ENSLAVE THEY’RE PEOPLE TO NOT BE ALLOWED ANY UNDERSTANDING OR FREE SPEECH WITH INFOMATION FROM GOOGLE, ITS LIKE THEY’RE BEING KEPT IN THE F’ING TWILIGHT ZONE TO SELF PROTECT CHINA FROM BEING A TRUE FREE MARKET!!!!!!!!!!!GOOGLE DON’T EVER SUB-SEED!!, DON’T MAKE ANY FACKING DEALS WITH THESE COMMIE BASTARD GOVERNMENTS REGARDING FREEDOM AND INFLUX OF REAL TRUE INFORMATION THAT WE AS AMERICAN CITIZENS TAKE FOR GRANTED ON A DAILY BASIS!!!!!!!! ONE DAY IF WE HOLD TO OUR GUNS CHINA WILL CRUMBLE AS A GOVERNMENT THE WAY THEY OUR GOING!!! HOPE I DON’T HAVE ANY VERIZON OR CHINESE HIT-MAN TRYING TO KILL ME FOR MY OPINIONS!!!LOL !!!!!!!!!!!!!
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To marcg611,
There is no need to capitalize your nonsense. Do you have problems reading or is it your insecurity? Also please use a decent spelling checker. Your statements are almost unintelligible and at best gibberish. I guess it reflects the faulty wiring in your underused cerebral cortex.
As for the supposed merits of the form of freedom Google will bring, I think the author of the article made a very valid point “Know your market.”. I might add also “Know your limit.”. In this sense, Google has badly miscalculated. China, including the Chinese people, has a long history of being dominated to the point of being almost colonized by imperialistic Western ambitions. Of course then, the West wanted to ‘civilize’ China while taking away their effective sovereignty. Hence, the Chinese are particularly concerned about preserving sovereignty. Every country has that privilege of ensuring that. Even the US! Just try wearing an Osama Bin Laden T-shirt into the US airport or airline, or disseminating the latest Fatwa issued by the Al Qaida on American cyberspace.
Just read your own words:
“F CHINA! THEY ENSLAVE THEY’RE PEOPLE TO NOT BE ALLOWED ANY UNDERSTANDING OR FREE SPEECH WITH INFOMATION FROM GOOGLE, ITS LIKE THEY’RE BEING KEPT IN THE F’ING TWILIGHT ZONE TO SELF PROTECT CHINA FROM BEING A TRUE FREE MARKEONE DAY IF WE HOLD TO OUR GUNS CHINA WILL CRUMBLE AS A GOVERNMENT THE WAY THEY OUR GOING”
They sure sound humble and intelligent with the best of intentions!
This sovereignty is to prevent self righteous ‘bozos’ who wish to impose their wholesale western brand of vision on how to ‘improve’ China. Still remember the wonderful outcome of perestroika in Russia aggressively promoted by the West, when the Mafia took over most of the economy. This is to prevent those unthinking idealists who have no clue about the challenges of governing China taking into consideration the complex diversity, culture, socioeconomic and historical background.
China has her share of many doomsayers, almost all with some warped sense of fanatical democratic zeal, as if unbridled freedom without responsibility is the panacea to all of China’s problems. Well China has thrived quite nicely particularly in this economic crisis. Like what Buffet has said “Only when the tide goes out do you discover who’s been swimming naked!”.
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