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    China Business
     Oct 8, 2005
Google maps China strategy
By Ralph Jennings

BEIJING - Three years ago this autumn, students and office workers around China were cursing out loud because their favorite online research tool was blocked. Google, though it had no physical presence in China, had already made a name for itself in the People's Republic with its speedy search engine index of 4.3 billion Internet sites, useful for overseas news, travel planning and data for academic papers.

The Public Security Ministry's block on Google ended in about two weeks, apparently because the ministry began using packet filters to stop direct links to controversial search result sites, and because Google agreed to disable its cache function in China. With packet filters and without the cache function, for example,

users may see a search result that says "evil Jiang Zemin" but cannot link to the page.

Things have changed radically. Last year Google bought a minority stake in the Chinese search engine Baidu.com. In June 2004, Google launched Chinese-English translation, China weather reports and China people-tracking services. A month later, the company said it would offer search engine technical expertise to Netease, a major Chinese Internet portal, as part of a long-term cooperation agreement. Locator maps launched this year at bendi.google.com specifically target the China market, and Chinese users can also get Google's downloads and free email.

Last month, the company took the first steps toward a China research and development center and hired Lee Kaifu, a former Microsoft corporate vice president, to head it. The R&D center, to be established between Beijing and Shanghai with 50 Chinese college graduates, will "strengthen Google's efforts in delivering the best search experience to our users and partners," the statement said. Lee will also be president of the seven-year-old company's growing China operations, Google said in a statement.
Spokespersons at Google's headquarters in Mountain View, California, declined three requests to discuss their China strategy for this article. But analysts say the strategy is clear: the company intends to leverage its name to form a low-profile company in China, that will compete with Microsoft, Yahoo and major Chinese Internet firms for online advertising and paid search income in a country where the Internet industry is expanding along with the overall economy.

"Advertising dollars," said Danny Levinson, managing partner of Beijing-based BDL Media online services firm. "They must localize in order to take advantage of getting into the cash business of getting those ad dollars." Google is gathering information on China to attract multinational companies that can pay for searches, said Duncan Clark, managing partner with the Beijing consulting firm BDA China Ltd. China Mobile and third-party mobile data providers may work with Google to do mobile searches, he said. Advertising revenue will come from banner ads on the right side of Google search results for strings such as "China hotels" and possibly from offline advertising, says Morgan Stanley internet analyst Mary Meeker.

The tense competition between Microsoft and Google has become obvious lately. Microsoft sued Google and Lee Kaifu in the United States for an alleged breach of a non-competition agreement between Microsoft and Lee. A court has allowed Lee to work for Google but not on any projects similar to his Microsoft jobs. Microsoft has run a China R&D center, Microsoft Research Asia, for seven years. Because of their localized indices and contacts with small or mid-sized businesses who need paid searches or advertising, Chinese competitors such as Baidu and Sohu, which is also an Internet portal, have an edge over Google in China, analysts say.

Baidu's search engine leads Google by a small margin in major Chinese cities, the CNET technology news website reported in August. Baidu would not comment on its relationship with Google, which does not have a Baidu board seat despite its investment. "We feel that it would be inappropriate for us to comment on how we see Google," said Baidu investor relations manager Cynthia He.

Apart from a China representative office, Google still has limited physical presence in the country. The company's official office locator map shows nothing for China. "Google hasn't shown its cards yet on what it's doing in China," Meeker has said. "But the challenge for Google in China is to be more local, to build more community."

Clark of BDA China says Google hopes to set up a wholly owned foreign enterprise in China. He said a long-standing recognition among common Chinese Internet users, who number about 94 million, puts Google ahead of competitors with more presence in China. "They have huge amounts of brand recognition," he said. "They don't really need to do too much PR. They were here before they were here."

Ralph Jennings is a Beijing-based foreign correspondent.

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Lee Kaifu starts Google China job (Sep 23, '05)

Google losing ground to Baidu (Sep 16, '05)

China takeover battle in a tangled web (Mar 2, '05)


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