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Google Loses 400 Million Internet Users

New America Media, Commentary, George Koo Posted: Mar 24, 2010

Beijing--As Plan B goes, Google's decision on China is far from ideal. The Internet giant has decided to use the one country, two systems rule to retreat to Hong Kong and still claim a toehold in China. In the process, they are exchanging potential direct access to 400 million Internet users inside China to perhaps one hundredth as many in the former British colony.

I am in China as I write this commentary and so far so good: my default url request to google.com gets automatically directed to google.com.hk instead of google.cn. If I were Google, that feeling of relief cant be too reassuring given the need to repair the damage with Beijing.

Google committed two major mistakes in the devolution of their presence in China. First, they went very public in their dispute and made accusations about hackers from China from which they then had to back away. Google then announced that they are going to stop censoring the content flowing through their servers in China and would no longer obey the countrys laws related to the control of information being accessed by Chinas netizens.

Then the U.S. government somehow got into the act and threatened to file a complaint with the World Trade Organization (WTO), accusing China of protectionism. Since Chinas laws on cyberspace apply to all Internet enterprises and not just against Google or just foreign companies, it is a head scratcher as to how the United States can make such a complaint stick.

Recognizing that it was a bone-headed move, Secretary of State Hillary Clinton then announced that whatever Google decides to do in China, the State Department would not get involved. By then Google didnt have much room left to maneuver. It had to jump off the cliff and go home or perch on the ledge that Hong Kong represents while trying to figure out a way back to the mainland.

Go Globally, Act Locally

When the controversy first broke, Bill Gates couldnt understand what all the fuss was about. If a company wants to operate in China, the company is expected to obey Chinese laws. Thats the way it has been for Microsoft. If you dont wish to obey the local laws, then you have to take your business somewhere else.

Every multinational that has been successful in a foreign country has had to localize their practice, product and management processes. This is true for anywhere, not just China. Go globally, act locally, is the trite but true mantra. Even Google understands as they do indeed censor and filter culturally sensitive subjects elsewhere in the world for their users in specific locales.

China obviously believes in the importance of the Internet to its economic development and has policies pushing the phenomenal growth of traffic in cyberspace. But China also firmly believes in controlling the flow and access of information. Ultimately, whether they can outrun the technology to deliver content is for them to decide and not Google.

Google Struggled in China

Until Kai-fu Lee was lured away from Microsoft in 2005 to run Google China, Google was struggling. Slowly he built a China operation that was gaining on Baidu, the market leader. Recent published figures indicate that Google had one third share of Chinas market. That was at least double what Google had when Lee joined Google. He unexpectedly resigned in September last year.

At the recent Abu Dhabi Media Summit, Lee was asked about Chinas Internet industry. While he would not comment directly on Google in China, he said, For an American company to succeed in China, it needs to do the following: first, you have to have an empowered local team; second, you need to humbly listen to the local user; third, you need to move fast to give users what they want; and fourth, you need to have a longer-term outlook and not be too greedy in wanting to make money on day one. Lee also said government policies do not determine winners vs. losers.

Facebook, Amazon Also Stumble

Google isnt the only one to stumble in China. Facebook, eBay, Amazon and Yahoo! all did not achieve dominant market share in China comparable to their success in the United States. I suspect that all suffered from the same drawback. Namely, not understanding the local market and not trusting their China team to seize the moment and make decisions without having to go through the corporate bureaucracy back home.

Lee was too diplomatic to ever admit that the frustration of lacking local empowerment was what caused him to seek greener pastures. But he certainly does understand the China market and potential. He has established Innovation Works to harness the energy of Chinese entrepreneurs and nurture them into developing the next generation of googles.

Lees incubated start-ups will be participating in a home market of 400 million web surfers and Internet users and 680 million mobile phone users. China has the largest markets in both of these in the world and growing at double digit rates. In another seven to eight years, Lee expects by then 800 million mobile users to access the Internet with their smart phones and thats the market he wants to play in.

The dilemma for Google CEO Eric Schmidt now is to find a way back to Beijing that would restore face all around and allow Google to serve and participate in a key market. I am sure that he is not interested in testing the premise whether Google can more easily do without China than China can do without Google.

George Koo, a retired business adviser, has worked with American companies in China.

Related Articles:

Why India Has an Advantage Over China

Chinese Media, Bloggers Ask: Is Google Really Saying Goodbye?

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