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August 17, 2007

Google To Increase Investment In China

Duncan Riley

38 comments »

googlecn1.pngGoogle is looking to acquire “one or two Chinese internet companies” and will invest in five in the next 12 months as part of a continued push to increase market share in the worlds fastest growing internet market.

Google has previously focused on building partnerships in China, with Google technology powering Chinese search portals Sina.com, Soso.com and 163.com. Google also made a strategic investment in popular Chinese browser Maxthon in April.

The Chinese acquisition strategy for Google would not seem as difficult as might immediately be presumed; a number of the leading Chinese search companies are listed on the NASDAQ. Market leader Baidu sits at the less appealing (from an acquisition viewpoint) market cap of $5.73 billion, however lesser players are well within a more likely price for a Google acquisition; No 2 ranked search player* NetEase.com (163.com) has a market cap of $1.78 billion and third placed Sohu.com has a market cap of $1.08 billion.

Baidu.com currently dominates the Chinese search market with a market share of around 55%

* traffic rankings per Alexa May 2007. 

(in part via PC World)

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  1. A Million Dollar Girl

    August 17th, 2007 at 3:25 am

    Duncan, China is, definitevely, the big market. Not only into traditional bussiness, Internet and new technologies are introducing us in the great one to make money. An strategic move by Google guys…well done!

    Kisses ;)

  2. Web

    August 17th, 2007 at 3:43 am

    Besides having relevant results - BRANDING, is one of the major assets in Google’s success.

    Could they replicate the ‘coolness’ factor with that audience, that they appear to have in the USA and Western Europe?

    That would be a major challenge.

  3. A Million Dollar Girl

    August 17th, 2007 at 3:51 am

    Web, in my opinion Google used in the past perfectly their branding, but, since a certain amount of time they are not as “cool” as they use to be. That’s what people start to think today. Google is almost a monster of information. A big company that buys everything they think is strategic, people know this but still using their well known and, I must say it, very good services.

  4. Guk

    August 17th, 2007 at 3:53 am

    Google needs to offer its search services with major chinese social networks and portals like they are doing with myspace.

  5. Mario Ruiz

    August 17th, 2007 at 4:29 am

    Duncan,

    What, do you think, product Google is after will stick to the wall?

    Google has so many open fronts. Yesterday was the browser, the day before StarOffice. I am sure you can name plenty more.

    Besides, the search engine, that leads to the cash cow of adwords, does anyone want to bet what will be the next best thing for Google?

    What we can only assume is that the strategy is not have strategy: Just be on bleeding edge of the technology to see how the flow take them. Is not this what they did in the first place?

    Mario Ruiz
    http://www.oursheet.com

  6. Gints

    August 17th, 2007 at 4:33 am

    Google is taking over the World, but i just don`t mind

  7. Chris Przybycien

    August 17th, 2007 at 5:37 am

    The most popular search engines in China became as popular as they are because they specialize in media searches a.k.a. piracy (check out Baidu.cn, one of the search links actually says “MP3″). Google is going to have a very hard time in this market.

  8. David Litsky

    August 17th, 2007 at 5:52 am

    Lets see if Google bites off more acquisitions than it can handle. I am curious how their acquisitions have gone thus far, and how the lawsuit against YouTube is going to turn out.

    Google may have grown too fast.

  9. Jeremiah Owyang

    August 17th, 2007 at 6:29 am

    This is a good sign for Google, China and India will have the largest bases of internet users across the world in a few years (I think some numbers show it’s already larger than north America)

    If you’re interested in the Global Web, see these posts
    http://www.web-strategist.com/.....lobal-web/

  10. Deals and Coupons

    August 17th, 2007 at 7:21 am

    Good move by Google!

  11. yawn

    August 17th, 2007 at 7:37 am

    China is overhyped and often overpriced IMO. Sure, there are a lot of people there, but they are still relatively poor and don’t buy much online compared to other countries.

  12. Deals and Coupons

    August 17th, 2007 at 7:39 am

    @yawn - but it’s better to get a head start in the game rather than later, which is what Google has been doing.

  13. John Zippy

    August 17th, 2007 at 7:43 am

    Best of luck for Google. It took Microsoft many years to get where they are in China and where are they? Definitely not No. 1 software company and never will be. Same fate will happen to Google as the Chinese government are getting sick of the American way - continual criticism and preaching. You Americans need to learn harmonious ways.

  14. Duncan Riley

    August 17th, 2007 at 8:10 am

    Mario
    Google’s problem to date is that it cant find anything that sticks (in a big way) in China. The model that worked well elsewhere hasn’t in China.

    @Yawn: China will have more broadband users than the US in the next 12 months. Sure, they are still relatively poor, but the emerging middle class in China will soon be the biggest middle class if any one country in the world. If anything China is under-hyped.

  15. David Litsky

    August 17th, 2007 at 8:20 am

    @Duncan: The issue with China is that they are already in the middle of their cultural revolution. China has certainly changed, but is it too late for a US Company to come in and do business the America way? How is Wal-Mart faring in China, the epitomy of US Business.

    Honestly, the next county whose population needs to be capitalzed on is India, and they will be best served by valuable SMS services.

    http://bootstrapeconomist.org/.....ng-medium/

  16. Deals and Coupons

    August 17th, 2007 at 8:41 am

    Even India is outsourcing nowadays. What’s up with that?

  17. rob

    August 17th, 2007 at 8:56 am

    I’ve heard the arguement among diggers that google is evil because they are interacting with China. They cite China’s suppression of search results and oppression of their people. But I believe that every country (including the “free” US) does this. If they wanted to interact with “nice” countries, they’d be out of business.

    Besides it is easier to influence change from the inside out then viceversa.

    go google!

  18. Deals and Coupons

    August 17th, 2007 at 9:14 am

    Once Google has a great influence in China, we know for sure Google has taken over the world.

  19. Mario Ruiz

    August 17th, 2007 at 9:41 am

    Thanks Duncan.

    You are saying that China is very different market. For that reason they have to acquire something that works there. I get it.

    However when you open a Google products and appears Adwords, Adsense, Calendar, etc. Do you think within a year what products are going to be there?

    Mario Ruiz
    http://www.oursheet.com

  20. KindAndThoughtful

    August 17th, 2007 at 9:48 am

    Thank you for the post.

    On another subject:

    A new, not-for-profit, free online encyclopedia is seeking volunteers to write and edit articles. They can be found at:

    http://en.citizendium.org/wiki/Main_Page

    If you have expertise in a certain area or are an experienced writer, please volunteer for this great cause. Again, it is a non-profit organization.

    I am not affiliated with them…but I just thought I could help spread the word. Thanks for listening. Have a nice day everybody!

    –

  21. KingJacob

    August 17th, 2007 at 10:17 am

    A smart move on googles half, since China obviously has more people and soon will have more internet users than any other country thanks to modernization. Though its going to be hard to beat Baidu since they branded well in china like google did in the US.

  22. the buxr widget

    August 17th, 2007 at 10:43 am

    Even at it’s current high price, I would think Google acquisition of Baidu would be smart.

  23. A Taylor

    August 17th, 2007 at 10:54 am

    Duncan

    I fully agree with you. It is only once you have spent time in China particularly time in Shanghai, Beijing or even middle tier cities such as Shenzhen or Dalian that you realize that China has a VERY large and fast growing middle class that has even now eclipsed the middle class in the US in terms of total number, wealth and earning potential etc.

    Google is actually maybe a bit late to the game but with a strategy of acquisitions they will become dominant very soon.

  24. Letsbereal

    August 17th, 2007 at 11:24 am

    To the people who care clammoring on about the size of china’s “middle class” - do you realize a “middle class” income there is peanuts? It’s like saying China has more middle class than Germany, which is probably true..but china’s total wealth and spending power is still small.

    I’m not negative on china, I do believe it will be the biggest economy as they say. But it’s not going to happen as quickly as some of these companies are hoping for.

  25. China guy

    August 17th, 2007 at 12:30 pm

    I lived in China for 7 of the last 8 years and work in this space. This is about Google’s 4th or 5th try at getting a real foothold in China. Simply put, they do not as yet have the best Chinese language search/anything else. That is why they are not the market leader and why Baidu is. It’s not really that simple, but at the core, that’s the barrier. I do not agree that Google should buy Baidu at this time, and I do not think that they will (or for that matter that the Chinese authorities would allow it). Best bet is to continue to be active, put tons of money into development, and bide their time until they have a killer app.

  26. Dominic

    August 17th, 2007 at 1:26 pm

    I think Google has much larger problems than what goes on in China. American Airlines sued them today for selling ads using their name and trademarks. I don’t know how othesr think, but my view is that Google cannot get away this much longer. They do NOT own the dictionary. A companys name and trademarks are not intended for Google to make a profit by selling the rights to names they don’t own. I suspect U.S. courts, as well as European courts, will rain all over Google’s revenue parade and their advertising. This is much worse than kids downloading music.You cannot sell something you don’t own. There will soon be a new day dawning as far as search is concerned. Whispers abound in Washington D.C. already. Remember Microsoft and how their house of cards was impacted. Google is next.

  27. cjwn

    August 17th, 2007 at 2:22 pm

    不管怎么说，中国人还是不喜欢被阉割后的google(google.cn)。我们宁愿去google.com
    再者说，百度的访问速度和稳定性也是中国最快和最好的。

    单凭几个网站用上了谷歌作为搜索引擎说明不了太多的问题……

    不过 在中国 用Maxthon的还是占大多数的
    包括我～

  28. B S meter

    August 17th, 2007 at 5:00 pm

    Noticed the webbalert ad on the homepage… so for sh*ts and giggles I checked it out again. Sad to report that even with her “hotness” factor I couldn’t get through it. Same ridiculous facial gestures, rushed presentation etc… btw, she should pull her hair back to make her face thinner and the dark eye shadow makes it look like she is not getting enough beauty sleep.

    sorry Mike, but you might as well reserve a spot in the deadpool for webbalert.

  29. Joe

    August 17th, 2007 at 7:47 pm

    Great Story Thanks.

  30. SEO in China

    August 17th, 2007 at 11:08 pm

    The acquisition strategy is a good thing but will not solve the problems of Google in China in the short term. And Google WILL NOT be allowed to buy Baidu :-)
    Check our blog at http://www.seo4china.com/blog , we write from time to time about Google and Baidu ;-)

  31. O.H. Krlll

    August 17th, 2007 at 11:33 pm

    I heard the same thing cjwn said above from other people and I agree with them: Google’s chinese language search engine totally sucks.

    Some people mentionned that netease would be the most likely aquisition target of google because they have a pretty good chinese language search engine technology that they just developped with yodao.com and that that is what google really needs. I agree with them that is what google really needs!

  32. Daniel Primed

    August 18th, 2007 at 5:04 am

    I think that this is an excellent move for Google. China is definetly where they should focus their attention. I use Baidu myself and its really helpful(I study Chinese).

  33. Tradewhat?

    August 18th, 2007 at 8:32 am

    Dominic: can you point me at case law establishing that the bundle of rights associated with a trademark would include the right to exclude Google from selling the ads it sells?

    I don’t see any meaningful sense in which Google is selling anything they don’t have the rights to; rather, they are selling exactly what they claim to be selling: ad placement in response to a user searching on particular words. There is no reasonable claim for confusion, either — Google is not in the arline business, and the services it provides are not even in the same industrial sector.

    Or, as a thought experiment: suppose I set up a service in which you give me a string of words, and I say something back. My revenue comes from auctioning off the responses to particular strings — for each particular input string the answer I give is the answer requested by that input string’s current highest bidder. For this service, what grounds would American Airlines have against me if the current highest bidder on “American Airlines” had request “…sucks, try United Air” as the desired response? I ask because I don’t see it, and it’s hard to see where Google’s search business differs materially from the service described here.

    And, as per usual with Google, let us always remember that they are not yet a convicted monopolist, and thus have great latitude: any site they include they include at their discretion; I suspect that American Airlines will feel fairly foolish chasing a specious trademark case were their web presences to be dropped to the third-or-fourth page of results.

  34. kundojjala

    August 18th, 2007 at 2:13 pm

    an inside look at Google China
    http://video.google.com/videop.....;plindex=4

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