Google's New China Strategy?

I'm starting to think Google may have a novel but potentially effective new strategy for dealing with the China market.

Case in Point

Bloomberg reported last week that Google has invested about 5M into a Chinese P2P video download service, Shenzhen Xunlei Network Technology Ltd. They are apparently going to make the official announcement sometime in the next 3 weeks, probably on or about January 5, 2007. The investment makes it a minority stakeholder, not owner, however.

So, who the heck is Xunlei? And why does it matter?

The China Web 2.0 Review has a good overview of this. Here are the key facts:

  1. Founded in 2003, it offers a download accelerator for large files (like video)
  2. Xunlei was voted for the Coolest Sites List 2005 by Fortune China
  3. “Xunlei (迅雷)” is one of the most popular search terms in Baidu, the search leader in China.
  4. Xunlei claims its software has been downloaded for over 110M times with about 1.5 million downloads per day average.
  5. Xunlei is the second most popular desktop client in China, just after instant messaging software QQ

Googles market share in China is not doing so well compared to Google in other countries, and there is speculation that they intend to leverage the viewers of the site to serve ads, though this is obviously not confirmed.

For those of you coming on the China Search Marketing Tour or interested in China, Shenzhen (where Xunlei is based) is right across the border beside Hong Kong - physically the closest mainland China city to Hong Kong, and therefore an excellent and well regarded entry point. It's a good place to have an office.

So what is the strategy?

I wrote earlier that Google China seems to be trying to avoid forming a JV partnership in China like the other search engines, and it's starting to look like they intend to accomplish this by investing enough into popular Chinese services to gain access to their visitors and customers without investing enough to be in control, and therefore be controlled.

Up until now, there have been traditionally 2 major strategies for western companies entering the Chinese market: Us or Them.

The "Us" method is basically business as usual - move in, set up an HQ, hire some interpreters, put out some ads, and go. "Go" really is the the operative word, here - this method rarely, if ever, works. Between Chinese nationalism, politics and cultural norms, western-focused businesses rarely survive for long. This approach is usually associated with naive beginners.

The "Them" method is the normal approach for the more savvy businesses. The "Them" approach is to create a Chinese business - often through a joint venture with a Chinese company, though sometimes by creating a Chinese company. This is obviously the method favored by the Chinese government, but it carries it's own risks - the Chinese company is expected to follow all the Chinese ways of doing things, including censorship and other issues. There are also issue with control, productivity, and so forth.

Google seems to be looking at a "We" method - They are buying enough into existing Chinese companies with existing visitors and technologies to benefit Google, but not enough to be a controlling partner, and therefore not enough to have to concern themselves overly with the details of how the business gets done, since they have no control.

This also has the added benefit of allowing them to state, quite truthfully, that they are not the ones censoring, etc - they are just providing the search technology and ads, or engaging in a technology license, or whatever.

Interesting strategy. Based on what I know of doing business in China, it may actually be a very successful one. Perhaps my earlier concerns about Googles plans underestimated them. On the other hand, this is pure speculation on my part. Maybe they just want the file-sharing technology. (rolls eyes)

There is a saying in China "Same bed, different dreams" - it looks like Google may be taking advantage of this concept, rather than being victim to it, like many other western companies investing in China.


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