Things looking Baidu for Google in China
- January 13, 2010
- by Simon Whittick
It’s the third biggest economy in the world with staggering GDP growth over recent years, yet Google has decided China is no longer worth getting out of bed for. So what happened there? Why has the West’s dominant search engine given up on one of the East’s most dominant economies?
Well here are our first thoughts on this move:
Protectionism
Google are a powerful company with their turnover larger than many countries GDP, whilst China is a country well known for its protectionism. China’s restrictions in internet policy have become well known throughout the media over here, and have become a major block on Google’s focus on superior user experience in the search industry.
The restrictions are partly in place so the Chinese government can control what Chinese residents view on the internet. However, they may also be economic in that in the case of Russia, which has had no restrictions, Google has been able to accumulate a number two position (behind Yandex) whereas Chinese search engines dominate in China (Baidu being the biggest) – it acts as a form of trade restriction favouring local champions. That’s how China got where they are, and why Google haven’t asserted the authority they are use to in other countries in China, thus forcing their hand in this decision.
Margins
Partly due to this reason China is a lower-margin market for Google than many of the other opportunities it’s developing. Costs are higher to trade and hence margins are lower. As an indicator of this issue we have already seen Yahoo! pull out of China. Note: Yahoo does have a 40% stake in Alibaba, which is not a search engine, but has strong access to the business market in China.
International strategy
With the above in mind it can lead you to think that Google may be reviewing their international strategy and market situations. If you take the basis of the Boston Consulting Group (BCG) matrix I would think Google previously saw China as somewhat of a “question mark”, small market share with high potential for market growth, however, perhaps that has changed as they realise that China’s protectionism and internet policy mean that there is little potential of market growth for them and they have a relatively low market share, converting it to a “dog”.
As we still sit in an economic situation that isn’t totally certain and a PPC market that is maturing in many countries perhaps they are reviewing their international strategy. They are safe in the knowledge that they can rely on the relative “cash cows” of the UK and US whilst focussing greater attention on the “stars” and “question marks” such as Austria, Denmark and Finland where search engine marketing spend grew between 40-60% from 2007-2008.
Looking ahead
People may still be able access google.com from China even if google.cn is blocked, despite the ‘Great Firewall of China’. There have been many tools used to circumvent censorship (www.greatfirewallofchina.org), although the government is becoming more proficient at closing chinks in that wall. So the market may still not be totally shut off to Google.
However, unlike some I don’t believe that this is just a negotiating position – Google must be fully prepared to pull out completely before they would make such comments in public. It is difficult for the Chinese government to backtrack on policies publically due to the business culture, so don’t expect to see Google make a u-turn on this decision.
As a company we have worked with Baidu and – up until now – Google in China and our current feeling is that that access to the internet and internet commerce is positive for consumers no matter where they sit on the digital divide or national borders. However, we will be watching China’s position with care.
It will also be interesting to see whether Google identify any other “dog” markets to pull out of.
3 Comments
DIGITAL MARKETING MATTERS
Darryn
Ha! Simon, only you could come up with a wince worthy pun like that.