Chinese Firms Challenge Google

Google, the global search engine leader, now has almost become a byword for the sector. But rapidly-growing Chinese searching engines firms could pose great challenges to Google after its arrival in China, with the US firm being forced to seek local partners in order to adopt a better approach to the local market, said experts.

"It is hard to predict whether Google's business will go as smoothly in China as it has in overseas markets," said Yang Bo, consulting manager of Shanghai-based iResearch, a domestic leading market research firm.

US-based Google has no physical presence in China, except buying a minority stake in Baidu.com Inc.

But as the giant seeks an initial public offering on NASDAQ, it is believed that Google will enter the China market soon after this.

Google's recent share-purchasing of Baidu indicates that the giant is fully aware of the potential threat from Baidu and tries to minimize this, said Yang.

Eight Chinese and overseas investors, including Google and venture capital firms sank about US$100 million into Baidu for a combined minority share.

Baidu, which is similar to Google in many respects, is the world's largest Chinese-language searching engine and enjoys as wide recognition among Chinese netizens as Google does.

The mutually beneficial deal meanwhile will help Baidu win more popularity among netizens, paving the way for its expected listing and further expansion, said Yang.

Meanwhile, http://www.zhongsou.com/ is also considered as a potential major rival.

Zhongsou General Manager Chen Pei said Google is "nothing to be afraid of, as no foreign search engine firm has achieved success in China," whereas Zhongsou is expanding aggressively thanks to its cutting edge search engine technology.

"Zhongsou is a relatively new brand of search engine, but we have seized a considerable chunk of business from Baidu," Chen said.

In particular, Zhongsou launched I-Pig earlier last month, a desktop searching service that enables offline searching.

"Desktop searching is a technological trend that search engines will pursue, and we are by far the only Chinese firm that has grasped this technology," Chen said.

Google and Microsoft are also betting heavily on this new technology.

The advanced technology could make Zhongsou a rival of Baidu within two to three years if Zhongsou continues to attract more users, said Yang.

Indeed, foreign players including Yahoo! and Microsoft have learned from their growth in China that the key to success lies in local sales channels, which they cannot access without co-operation with local firms, said Yang.

"Their global strategies, which disregard the specific habits and needs of Chinese consumers, do not work well, and any application filed to the headquarters asking for adaptations takes quite a long time," he explained.

And Yahoo!'s acquisition of Chinese search engine firm http://www.3721.com/ last November was a response to its changed market strategy, said Yang.

3721 has already established a complete set of channels with a rich experience in China's search engine business.

Therefore, what tops Google's agenda is to have an ideal local company as its business agency, said Yang.

But Baidu does not appear to be the target, despite the widely speculated acquisition.

Baidu officials were quoted as saying that Baidu will continue to seek an independent listing, scheduled in September.

Echoing Yang's view, Zhou Yi, an analyst at leading domestic research house Analysys Consulting, said Google is very likely to acquire some local players with a better understanding of the market, but they are not necessarily search engine firms.

Google's presence in China also largely depends on how it views the market.

It will probably be another failure story if Google only considers China as part of its overseas market where it can expand under a unified overseas strategy, he added.

Several Chinese search engines have recently launched services focused on specific business, and the increasingly segmented market is also what Google should ponder, said Yang.

8848.com, China's largest e-commerce website, now offers shopping search engines, and Zhongsou has launched similar service so that online buyers can easily find out what they want on the Internet.

Chinese software vendor Kingsoft Corp has recently tiptoed into search engine market by providing a vocabulary search service.

Apart from its Chinese counterparts, the giant's arch-rival Yahoo!, with its advanced YST (Yahoo searching technology) and 3721.com's resources, is also prepared to grab a larger share of the China market with its recent launch of the professional search engine yisou.com.

While offering free searching services to netizens, searching engine firms make profit from selling online advertisement and rankings of companies listed in the search results.

Statistics released by iResearch show that the size of China's search engine market attained 500 million yuan (US$60.24 million)last year, up 117 percent from 2002.

And with an annual growth expected between 60 percent and 70 percent in the next three years, the market will be valued at 840 million yuan (US$101.2 million) this year and 2.3 billion yuan (US$277 million) in 2006.

(China Business Weekly July 12, 2004)