China: MSN, Yahoo & eBay give up. Is Google Next?

I see that eBay has admitted it's lost the fight in China and is merging with Chinese auction site and portal Tom Online (eBay will have a 49% stake). More From David Temple.

In other news, Baidu, the Chinese Search juggernaut, will be supplying MSN Live with it's PPC ads in China. That's right Baidu is supplying MSN with the ad technology, not the other way around! David has more again (good stuff, David!)

This is an interesting trend. It's pretty well known that the best way to enter the Chinese market is the become part of it, rather than trying to sell to it as an outsiders. Actually, this is a good strategy anywhere in the world - it's just very pronounced in China due to the size of the market and the fairly protectionist attitude of the government.

Yahoo has also already merged with Alibaba in China, accepting the inevitable. Actually, Alibaba bought Yahoo!

This leaves Google as the lone outsider in search. Apparently Googles approach is (typically) different. They appear to be intending to join the market though PR, Guanxi (relationships and trust)and technology. This is hardly a new approach for them - it's the one they have used all along.

But will it work?

The case for: Usability, trust and technology go a long way for consumers. Although they may want to support local goods and companies, if the locals simply are not up to par, the consumers will tend to go elsewhere. You can see this in China with the focus on famous brands. For example, the Chinese love German engineering and will buy a BMW, Mercedes or Volkswagen in preference to local vehicles. If you let people know that the Volkswagen they are driving was actually built in China, that can help ease nationalistic concerns.

If you DON'T ease those concerns, then you can expect that as soon as a local competitor gets close to or beats your technology, people will switch. I suspect that's what happened in eBay's case - TOM is good, and offers a lot to the Chinese. Given that, it was a losing battle for eBay.

As an example personally, when Walmart moved into Canada there was a big uproar about Canadian jobs being lost, etc. Walmarts response was to aggressively announce that the vast majority of profits would stay in Canada, that the managers and staff would be Canadian, and that Canadian goods would be sold whenever possible. This went a long way to easing their entry. Toyota did the same when they built auto plants in the US.

So if Google marketed their Chinese connections and contributions (assuming they make them), they may be able to keep separate, assuming that they maintain a strong technological lead over Yahoo, Baidu and MSN. Hiring Kai-Fu Lee was a great start to this, as he's highly respected in China.

The case against: First, it's hard to maintain a technological lead. It takes a lot of work and money, and at a certain point you get to where you are only making incremental improvements, rather than huge leaps and bounds. At that point, your competitors only need to catch up, or get close enough that the average user can't tell the difference, or doesn't care. Unlike you, they know exactly what they have to do, since they have a specific target to analyze. If you are in the lead, you are always moving blind and taking chances.

Second, promotion and self-advertising has never been Googles strong suit. They got to where they are mostly via word of mouth and social networking buzz, not through PR campaigns. I'm not so sure that this will work in China, because unlike before, Google is no longer the talented underdog with roots close to home (which was it's status in Silicon Valley).

Now, it's the dominating foreign company that is sending Chinese money back to make 2 very rich Americans and a bunch of American stockholders even richer. That's a tougher public relations issue, I think. I'm not sure hiring a bunch of elite Chinese kids from exclusive universities will be enough to convince the average Chinese that they are becoming involved in the economy. More like helping the rich get richer.

During the keynote speeches at SES China last year, I was interested to note that Johnny Chou (Google) focussed on Googles intention to hire only the best and the elite in China. Jack Ma of Yahoo/Alibaba on the other hand, talked about generating thousands of jobs for ordinary Chinese.

Guess who got the standing ovation from the Chinese press and attendees, and who got the polite applause? Local boy makes good and comes home to help out the local folks is always good press.

Conclusion: Unless Google makes some significant changes to it's strategy and acknowledges that it's reputation has changed from the old days, I think I'll be writing about "Google Loses Chinese Market" in a future post here.

I hope for their sake that they correct their course and begin to actively support the countries they are in, rather than trying to make the Googleplex the center of the universe. Because history has shown that approach just doesn't last for long.

Ian