Why Google Wasn't Winning in China Anyway

Local Market Knowledge Helped Baidu, but So Did Piracy, Nationalism and Marketing

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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 exit a market where Google has made surprisingly little progress. Most research companies agree Google controls at most one-third of China's search market, and most say its market share was about one-quarter. That's hard to swallow, given Google's dominant position in the U.S. and many other major markets.

So why hasn't Google figured out a way to dent the lead in China of front-runner Baidu?

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

Baidu handles more than two-thirds of search queries in China, says Chinese consultancy iResearch.
Baidu handles more than 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.

Until recently, for instance, Google.cn had the same clean, sleek look of Google.com, even though Chinese web 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 such as 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 that 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
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 a last-mover in the U.S. and still managed to dominate search in that market 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 2005, 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 earn revenue from the music downloads, but music attracted tens of millions of Chinese to its site and helped make it the No. 1 search engine player. 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 such as 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, as 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 a Chinese company and product, Google is everything but," said Adam Schokora, a digital strategist at Edelman in Shanghai.

Experts also say Baidu, as a local company, was given more latitude than foreign players.

Kaiser Kuo
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," Mr. Kuo added. "It was much loved by people who were loyal to it."

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