What Did Google Do Wrong In China? The Ben Crox Interview (Part 5/5)

14 Jan 2011 in Interviews

This is the final segment of “the dark interview”.

In part 4 of my interview with Ben Crox, we discussed Google’s controversy in China. A very sophisticated hacking incident was orchestrated against Google from within China in December 2009, prompting Google to stop complying with the Chinese government in censoring search results. They shut down their Chinese search engine (Google.cn) and redirected all searches to their Hong Kong servers (Google.com.hk). This was last spring, and we shot the interview in Singapore where I was studying abroad.

In June, Google announced that they would be creating a landing page on Google.cn that provides a link to Google.com.hk, since the company was worried that without an actual website for Google.cn the government would not renew its Internet Content Provider (ICP) license. Their ICP license was renewed, so now Google.cn can be used to translate text and listen to music. Or, users can click through to Google.com.hk and search the Internet without being censored.

Since then the Wikileaks cables have added a new twist to the story, providing viable evidence that suspicions of the government being behind the hacking were accurate. The cables claimed that the Chinese government’s 9 most powerful members organized the hacking on Google. I wrote much more about the story in part 4. In this segment, Ben discussed where Google went wrong, and what Google ought to do next.

SO, WHAT WENT WRONG FOR GOOGLE?

Certainly, this is a very complicated case study. As Rebecca Fannin details in her book “Silicon Dragon: How China Is Winning the Tech Race“, there are countless stories of highly successful American Internet companies having highly climactic failures in the Chinese market. Whether you look at eBay, Yahoo!, or most recently Google, there has never really been a case where an American Internet company was the sole leader of its market in China. Last year, the New York Times publicized this fact, reporting that:

No major American Internet company has dominated its field in China… Many experts thought Google would be the first.”

Why is it so difficult for foreign companies to succeed in China? Well for one, the Chinese government favors its own companies over foreign entities like Google. But even more so, another reason Google was unable to overtake its chief competitor in the search space (Baidu) is simply because it takes time to understand the way the technology market really clicks in China. You have to be at the ground level: working with the government, shaking hands with your customers, and doing favors for your business partners for a very long time.

At the Web 2.0 Summit in San Francisco a couple months ago, Robin Li (Founder and CEO of Baidu) described the kind of advice he would have given Google’s CEO Eric Schmidt at the time when Google first entered China’s market in 2006. As Google’s ultimate decision maker, Robin said Eric should live in China for at least 6 months per year. If Google was going to make the right decisions fast enough to successfully navigate China’s complex market, their leader ought to be in the battlefield seeing what they see and learning the local customs and language.

Instead, Eric Schmidt stayed in Silicon Valley for the majority of the time Google kept its .cn search engine open in China from 2006-2010.

GOOGLE FACED WORLD CLASS COMPETITION

But Google seemed to do a lot of things right on paper. They invested in local Chinese Internet companies, hired local Chinese executives, and worked tirelessly to make constant improvements with the search engine’s capability of producing accurate results in the complex Chinese language. Kai-Fu Lee was the President of Google’s Chinese Operations until September 2009, when he resigned in order to start Innovation Works (China’s equivalent of the startup incubator/investment vehicle Y-Combinator). Google then split up Kai-Fu Lee’s responsibilities, assigning his engineering duties to Boon-Lock Yeo (who at the time was director of Google’s Shanghai engineering office) and operations to John Liu (who was the head of Google’s sales team in Greater China).

They placed Chinese executives with decades of experience at the top of the company and still struggled to gain ground on Baidu.

In his interview at the Web 2.0 Summit, Robin Li went on to explain that China is just very different. It is the largest Internet market in the world based on number of users (already 420 million with less than 30% penetration), and market conditions change very fast. Google was too slow. For example, Google was not quick enough to adapt to Baidu’s willingness to offer links to download pirated music and movies as they felt it was illegal at first. Baidu acted on its local knowledge and intuition, and when Google finally offered similar links in 2009 they were too far behind to catch up.

Also, Robin Li said that competition is heated in China. There is a lot of venture capital money from Silicon Valley VC firms being pumped into China’s startup ecosystem. Accel Partners has partnered with IDG Capital Partners to fund companies like Baidu, the ‘YouTube-of-China’ (Tudou), the ‘Amazon-of-China’ (Dangdang), and more. All three of which have had highly (close to record-breaking) successful IPO’s in the US. And, many Chinese engineers come to America, become well trained, and then return to China to work with or start Internet companies.

The Internet technology market may be young in China, but it is brimming with hungry, hard working entrepreneurs. And many have the backing of seasoned venture capitalists, both from China and from Silicon Valley.

WHAT SHOULD GOOGLE DO NEXT IN CHINA?

In my interview above with Ben Crox, he told me that Google should send its engineers along with their technology from Beijing to Hong Kong. At the time, Google was keeping its engineers in mainland China while shifting its search engine to Hong Kong. He also predicted that Google will not ever fully leave China, advising them to continue investing in the country’s mainland. Today, Google reportedly has 21.6% of the search market and only 8.9% of the advertising market in China. Recently, Google’s CFO Patrick Pichette danced around the idea that Google might bring its search engine back to China when he told The London Times:

China has 1.2 billion people. For Google to say, ‘We’re going to live on our mission, but not serve 1.2 billion people’ — it just doesn’t work. China wants Google.

So, the saga continues. What do You think Google should do next?

P.S. Many thanks to Ben Crox for taking the time to do this interview. You can follow him on Twitter here. Also, a warm thank you to Emily Donohue for handling the camera and to my man Ting Gao for his ‘question from the audience’. I hope you enjoyed it! Please let me know how I can get better.