Monday, December 21, 2009

Silicon Dragon: Google's China Blues

Silicon Dragon: Sillicon Dragon: Google's China Blues

Sillicon Dragon: Google's China Blues

Commentary: Google's China Blues
Rebecca Fannin, 12.21.09, 06:00 PM EST
Will the search giant shutter its local operations in China?
Rumors have been flying about Google's future in China ever since the company's China head, Kai-Fu Lee, resigned in early September to start an incubator lab in Beijing. His departure seemed awfully abrupt.
Lee scurried to set up an office for his incubator, raise a fund and assemble a team from thousands of job seekers. Lee's PR reps in China and the Valley hyped his new project as his fulfillment of a dream to coach young Chinese entrepreneurs and support their best start-up ideas.
My venture investing sources in Beijing and Shanghai suspected then that there was more to Lee's departure than was being told. Maybe Larry Page and Sergey Brin want to exit China and Lee knew this, my sources speculated. Certainly, the rush to the exit door by Google staff in Beijing since September suggests that.
Indeed, Google has been trying to become the top search engine in China for nearly a decade, without success. Google hasn't said it is shuttering its local operations in China, but the company plans to power its Chinese search business from its Mountain View, Calif., headquarters.
Why did the mighty Google fail in China? For years, the company fumbled with inferior search results and unreliable service, not to mention censorship issues and that annoying upstart Baidu, which raced ahead with innovative technology that had a search algorithm for generating results that were more relevant in Mandarin.
To compete with Baidu head on, Google set up business on Chinese soil, recruited former Microsoft exec Lee, and began to gain traction. Lee hired more than 100 Beijing-based engineers and linguists. The effort moved the needle on Google's market share to 31% in 2009 from 21% in 2007.
But Baidu couldn't be crippled. The Chinese search company widened its market dominance of Chinese search to 64% from 58%. Not only was Baidu considered superior to Google for Chinese search, the team led by founder and CEO Robin Li proved nimble and innovative at introducing new popular features.
For example, Baidu began offering mobile search in China in 2006. It took Google nearly a year to catch up. Baidu also was first to use social media for conducing searches. It beat Google to the market with video clips too.
It shouldn't be all that surprising to see a big American brand being one-upped by a local competitor. Indeed, the story of a home-grown Chinese start-up triumphing over an iconic Internet rival is by now a familiar theme.
Just like Chinese search engine Baidu trumped Google, online bookseller Dangdang outsmarted Amazon in China with better merchandising skills while Alibaba-owned Chinese auction site Taobao took the lead from eBay by giving sellers a free listing of their goods and charging only for premium accounts.
In all three cases, astute local managers who were attuned to the culture and able to gauge consumers' buying and surfing habits on the Web were able to grab first place.
What helped was being on site to respond to China's fast-moving marketplace rather than in a faraway office on the other side of the Pacific.
But Google had the formidable Lee in China building a strong team. Still, the company's efforts proved too little too late to grab market share from Baidu.
Who could really blame Google for shifting gears? The censorship of the Internet in China has been a big enough headache for Google, let alone competing with Baidu. It was tough for top management to agree to Chinese government censorship in order to do business in China. Moreover, Google's standard, English-language site has continually faced blockages and search directs to other sites.
Google faces major challenges in China that are not going to disappear anytime soon. Stay tuned for the next chapter on Google's saga in China. I wouldn't be shocked to see Google retreat from China.
Rebecca A. Fannin is an internationally recognized author and journalist who has been writing about entrepreneurship and innovation for nearly 20 years. Her book, Silicon Dragon, was published by McGraw-Hill in 2008 and translated into several languages. During the height of the dot-com boom from 1999-2001, she was international news editor at Red Herring, later joining the Asian Venture Capital Journal as international editor and writing for several leading business publications, including Inc., The Deal, Worth, CEO and Fast Company. She also authored "A New Dawn" for KPMG in 2009. Fannin has lectured at several universities in Asia and the U.S., and has made numerous public speaking appearances worldwide.
See Also:
The Man Who's Beating Google
Google China Will Lose Head, Gain Bodies
Why China Will Win The Web

Friday, December 11, 2009

Silicon Dragon: Turning Down Google

Silicon Dragon: Turning Down Google

Turning Down Google

What entrepreneur in his right mind would turn down an acquisition offer from Google? Nguyen Xuan Tai, the chief executive of Vietnamese-language search site Socbay, did. He is 26 years old and has no regrets. The self-described PC addict and programming whiz who grew up poor in northern Vietnam has made the gutsy decision to compete with Google.
The way Tai sees it, Eric Schmidt offered him about half what his start-up, formed in 2006 with classmates from the Hanoi University of Technology, is worth. He figures Google may eventually come back with a better deal as a short cut to developing a Vietnamese-language site.
Socbay isn't profitable yet, and operates out of a spartan office in an unfinished building in Hanoi alongside home-made servers. (See photo of Tai with Silicon Dragon's author.) Tai and his venture investors are betting that Socbay can break even within three years by focusing on search over the mobile Web--an area that Google doesn't dominate in Vietnam--and by refining Vietnamese-language search as local content on the Internet expands.
Tai has a chance. Doing local language search isn't simple, as Google discovered in China. And Chinese entrepreneur Robin Li of Baidu beat Google in the mainland. He too turned down an offer from the giant rival, back in 2005, before taking his start-up public.
The tech entrepreneurial spirit in Vietnam reminds me of the super-charged scene I've witnessed in China over the past decade. Many of the same forces--a young, switched-on population, a dedicated group of venture capital investors eager to fund enterprising start-ups, and a fast-expanding marketplace newly opened to commerce--provide a good base.
A digital communications revolution is underway today in formerly war-torn Vietnam. Of the country's 86 million people, a relatively high 26% have access to the Internet, 3 million surf the Web with broadband, and 32 million have a cellphone--with third-generation mobile service coming soon.International venture capital firms naturally have arrived to finance the same kinds of Internet, mobile and gaming start-ups they profited from during the earlier dot-com boom in China (including Baidu, Alibaba, Tencent, Focus Media, Shanda).
Since IDG Group Chairman Patrick McGovern opened IDG Ventures Vietnam in 2005, his firm, which made millions from investing in scores of China start-ups at an early stage, has backed 40 Vietnamese start-ups--including Socbay--from a $100 million fund. (See photo of yours truly with IDG's Henry Nguyen in the Ho Chi Minh City office.) Two other investors from well-known groups busily seeding Vietnamese start-ups with capital are Softbank China & India Holdings and DFJ VinaCapital Technology.I recently had lunch in Hanoi with CEO Nguyen Hoa Binh, 28, a programming ace who started online marketplace Peacesoft in 2001 as a second-year undergrad student at Vietnam National University in Hanoi and later earned a master's from Osaka City University. His fast-growing business, funded by IDG and Softbank, has more than 500,000 registered users, with a goal of 1 million by next year--boosted by an escrow-based online payment service in a market where credit cards and bank transfers aren't common. He was traveling the next day to Shanghai for a meeting with eBay about a possible investment deal to follow up on the partnership they'd formed the year before.
In a Ho Chi Minh City office near the Saigon River, I interviewed another Vietnamese entrepreneur with a story that has echoes of China start-ups in it. Nguyen Thanh Van An, 37, is the chief executive and founder of Internet bookstore, a clone of China's online bookseller a version of Amazon.
He's grown Vinabook to 200,000 customers in five years, and following the lead of Dangdang, aims to become his market's leading online retailer, selling not just books but also software, movies, music and calendars. He's dealing with logistics and deliveries headaches, and handling them in similar ways to Dangdang. Books are delivered by moped, and most customers pay by cash.
Next stop: VinaGame, a $50 million in revenues, profitable business that runs the country's leading gaming and social networking sites. It's being geared to become Vietnam's Tencent or Shanda, two runaway success stories from China's early start-ups.
An avid gamer, Le Hong Minh, 32, started VinaGame in 2004 with other players after getting an undergrad degree in finance from Australia's Monash University and giving up his investment banking career. His start-up, housed in a warehouse decorated with colorful posters of VinaGame's blockbuster hits, (see photos) is upbeat and reminds me of the funky spaces I've seen among leading Web businesses in China. The culture is based on Silicon Dragon entrepreneurship--it has venture capital funding, all employees have stock ownership and the team is like a family, even going on annual camping expeditions together.
The next step? Of course, Le says he's going to take the company public within a few years, ideally internationally so he can benchmark with the best in the business globally.
To go to Forbes column, click:

Wednesday, December 9, 2009

Why he said no to Google: See YouTube

Watch the video interview I did with the founder of Socbay, Vietnam's Google. Hear why the gutsy entrepreneur who turned down an acquisition offer from the search giant. Click: