Many people have criticized Google’s (NASDAQ:GOOG) management for losing market share in China to local firm Baidu (NASDAQ:BIDU) after initially taking a commanding share in the browser market. In surveys my firm conducted with Chinese youth in Shanghai between the ages of 18 and 24, over 80% said that they used Baidu as their primary search engine with Google a far second at just under 20%. Google’s poor faring over the last year has caused a lot of analysts to lump them with eBay (NASDAQ:EBAY) and other internet failures in China, with many arguing that foreign internet companies can never do well here.
Could Google collapse in China much as eBay did, even after huge initial leads over local Chinese players? Will Google’s stock price be affected like eBay’s because it has been unable to capitalize on China’s booming internet culture, in which nearly 140 million Chinese connect to the net? What will happen with Rupert Murdoch’s Myspace (NASDAQ:NWS) foray into China?
Most American critics have argued that Google has stalled in China because they censored their Chinese language searches. In Davos, Google Co-Founder Sergey Brin stated "On a business level, that decision to censor... was a net negative."
However, in our surveys and interviews, censorship was not one of the top 10 reasons that respondents said contributed to a preference for Baidu over Google. In fact, most Chinese did not even realize that there was a censorship difference between Google’s English and Chinese versions. It seems that Google’s censorship decision has been more of a hot topic for foreign critics than by Chinese end users themselves.
I am going to buck the trend of most analysts and argue that Google has a huge opportunity in China to retake market share from Baidu if it can get the right management team in place, delegate authority to them, and localize services. I have also argued previously that Baidu is spending too much time distracted with the international markets than shoring up its domestic positions. If Google does not delegate enough to a local management team and develop China-specific services, and if Baidu continues to focus on the wrong revenue generating opportunities, then Google will fail as eBay did in China.
Google’s Micromanagement and Oddball Hiring Practices
Google’s problems in China result more from their bizarre hiring practices for a large MNC than in their censorship. In interviews we recently conducted with senior Google managers in China, we found that they believe that Google’s slow hiring practices (where Google co-Founder Page personally has to write off on every job offer) hindered Google China in bringing enough talent on board early on. Without the team on the ground, Google floundered while Baidu was able to keep up with fast-changing shifts in the marketplace. But the team is starting to get settled – and it is a very bright and talented group based on what I have found in discussions.
My first suggestion for Google – it is absurd a company Google’s size to have every job offer be personally approved by such senior management in the US. Google’s senior management needs to learn how to delegate authority more. As Google expands in China, it will have to continue to bring the right talent on board. It will not be able to do so unless they change their hiring practices that are way too slow. I know very talented people who either decided not to try to join Google after initial interviews or refused to even go into the interview process because of what they felt was a drawn out and absurd process.
Being able to recruit and retain top talent anywhere but especially in China is one of the most important, if not the most important, items an MNC needs to focus on in China.
One of the reason’s respondents to our surveys said they switched from Google to Baidu was because there was a time around Baidu’s IPO when Google suddenly became slow or difficult to connect to, while Baidu never had those problems. This happened to me too and was quite frustrating.
But in the aftermath of the Taiwan earthquake, where Google ran the whole time, we have seen that Google is now one of the more stable American portals. For my personal email, I have stopped using Yahoo (NASDAQ:YHOO) and Hotmail (NASDAQ:MSFT) and switched to Gmail, not because it is a more powerful system (which it is) but simply because the access speeds are much faster. Half the time I still cannot get onto Hotmail and Yahoo goes in and out.
I am not sure how these portals structure their servers and the such, but it seems that Google has figured out the hardware structure necessary to be able to compete from a speed level with Chinese portals like a Sina (NASDAQ:SINA) or Sohu (NASDAQ:SOHU).
The main thing we learned through our surveys is that the service and product offerings are paramount to Chinese internet users.
20% of survey respondents said that they used Baidu because of the MP3 search function and other stickiness factors – such as virtual currency – that keep people coming to the portal. While Google has some awesome services for the English speaking market, their Chinese services pale in comparison to Baidu’s. This is something that Google needs to remedy and which Yahoo did by teaming up with Alibaba where the management team under Jack Ma is close to the consumers.
Foreign internet companies need to understand that China’s nearly 140 million internet users who actively engage in e-commerce are in itself a total market. Internet companies need to develop services, products and processes that target Chinese netizens directly rather than just bring what worked in the US to China. The market is too big here to consider China an auxiliary market as smaller countries are. New systems need to be put in place to compete with the top Chinese internet firms. Although they have no ADRs, for instance, I believe QQ is hands down one of the best run Chinese firms.
Many critics have said that Google has failed in China. I agree with this but not for the reasons that most critics highlight – censorship. While that is a sexy topic amongst many Americans, Google has failed for much more prosaic reasons. They should learn from eBay’s failure or Yahoo’s experience where too little management control was ceded to the team on the ground.
If Google can change some of its outdated practices, it will do very well in China and expect its stock to continue to rise. If it does not and if Baidu can focus better, then Baidu just might give Google a run for its money.