New broom may sweep Google China ahead
By Sherman So
HONG KONG - The sudden resignation of Lee Kai-fu from his position as head of
Google China, where he led failing efforts by the world's dominant Internet
search engine to catch mainland market leader Baidu, prompted widespread
speculation over why he quit and what his new plans might be.
One near constant is that his departure, announced last month, is a major
setback for the company. Whatever truth there is in that view, one point
missing in the discussion is whether Lee, 47, was really a suitable person to
run Google's operation in China today? Or can John Liu, who is assuming most of
Lee's business and operational responsibilities, be a better candidate?
United States-based Google formally started its office in China in mid-2005.
Then, one by one, its senior executives left. "Google did not hire the right
people," said a venture capitalist active in the
China Internet industry.
Initially, the hiring of every senior executive at Google China had to be
approved by Google founders Sergey Brin and Larry Page. "Those who appealed to
the Google founders were expatriate executives from top technology firms, such
as Microsoft, Hewlett Packard and so on. But they were not the right people for
running a Chinese Internet business," said the venture capitalist.
"A friend of mine joined Google China. He was paid around US$285,000 a year, a
huge sum by China standards. But after working hard for a year, he lost all his
initiative. He hung around the company for another year doing essentially
nothing. Then he left. He is now thinking of starting his own business."
The poor fit of the senior management team partly explains why Google was
unable to increase its grip on the market in China. The company had a 23%
market share when it first set up its China office, in the second quarter of
2005, according to Beijing-based researcher Analysys, and increased this to
only 29% by the second quarter of 2009. Baidu, its arch rival in China,
expanded its market share to 62% from 37% in the same period.
For a long time, Lee was the only survivor from the first batch of Google China
senior executives. Now, he has also left. While this might be a loss of talent,
it might also be a good opportunity for Google to build a less prestigious, but
more local and more practical management team in China.
In several respects, Google in China has been following Baidu's lead
practically from the start. The first instance of this was Google's decision to
employ agents to sell keywords - something Baidu pioneered after finding that
most small business owners in the mainland are not sufficiently knowledgeable
of technology to go online and bid for keywords themselves. When Google opened
its office in 2005, it immediately signed up 25 local agents to sell keywords
across the country.
The American company also followed Baidu's lead in targeting the customers of
Internet cafes, which are heavily used in China particularly by young people.
It lobbied with Internet cafe owners to make its website (Google.cn) the
default search engine on their computer browsers. Lee also arranged for Google
headquarters staff to visit Internet cafes, so they would appreciate how
important these were as the point of first contact with search engines for many
young Internet users in China.
In America, the use of such cafes is often limited to tourists checking
e-mails. In China, 42.4% of the country's 298 million Internet users go online
in the cafes, according to a 2008 survey by the state-owned China Internet
Network Information Center.
After Baidu bought Hao123.com, the directory website most popular with Internet
cafe patrons, Google bought the second most popular, 265.com.
Recently, Google also started to advertise itself in Beijing's underground
railway stations, promoting the company's mobile search service, g.cn. This
step is contrary to its past belief that if the product quality is good, there
is no need for advertisements - viral marketing, or word-of-mouth, alone should
be enough to attractive new users. In contrast, Baidu has promoted itself in
television, newspaper, billboards and various other media, since it raised
enough capital to do so in its US$109 million listing on Nasdaq in August 2005.
And just like Baidu, Google recently launched an MP3 music download/streaming
services - although in Google's case all the music provided has appropriate
copyright.
In his efforts to promote use of Google in China, Lee was up against Li
Yanghong, or Robin Li, who founded Baidu in 2000 when he was 32 years old. The
Chinese search engine serves an estimated 3 billion web search requests every
day. Since the company's shares listed in 2005 at US$27 per share, their price
has surged 1,377% to US$399. The stock has climbed 195% since the beginning of
this year, outpacing even the 65 per cent gain by Google China's parent.
Google headquarters seems to understand that if it wants to stay in China, it
has to adapt to the local culture. In fact, a former senior Google China
executive said localization and relations with the Chinese government are the
biggest problems the company faces. If that is the case, Lee, a US-trained
scientist born in Taiwan, might not be the most suitable person to lead Google
China [1].
On the other hand, John Liu, who leads Google's Greater China sales team and is
to assume most of Lee's business and operational responsibilities, might be a
better candidate, although a much less well-known one. For a start, Liu was
born in China and went on to study mathematics at the Beijing Teacher's
University. He then taught for a while at the Eastern China Teacher's
University in Shanghai, before going overseas for further study. This has given
him a better understanding of China culture and what people really want.
Before Liu joined Google, he served for six years as chief executive of SK
Telecom China, a unit of South Korea's largest cellphone operator. During his
tenure, SK Telecom bought a 6.6% stake in cellphone operator China Unicom,
becoming its second-largest shareholder. It is unlikely that SK Telecom could
have closed the deal without Liu handling relations with the Chinese
government.
Without a doubt, Lee contributed a lot to Google's China operation. He
significantly improved Google's capability to search using Chinese characters.
In 2005, Baidu was a much better Chinese-language search engine than Google.
Baidu even ran a TV commercial ridiculing Google for not knowing Chinese. Lee's
first task was to improve the search engine's capability in this area and by
2007, most analysts agreed Google was as good as Baidu at Chinese search, if
not better.
Lee also built a very good research facility for Google in China, said Jacky
Huang, research manager, digital marketplace research at IDC China. "Now that
the research institution is completed, Google can easily develop whatever
products it wants," said Huang.
But being a scientist, Lee seems to prefer projects that are technologically
challenging, rather than those with great market potential.
"Baidu prefers applications that are vastly popular but simple in terms of
technology," said an industry analyst. "Google China favors projects that
require advanced technology but are not necessary very popular." In fact, many
of Google's mobile applications have been criticized for being too
sophisticated for the common mobile users in China, one example being a map
showing Beijing traffic, places of interests around a particular area, and
where friends are nearby. Most users "just want entertainment," said Jay Chang,
chief financial officer at Kongzhong, a leading mobile data service provider in
China.
Most recently, Google on October 16 said it will officially launch a Chinese
mobile phone voice search service in the coming weeks. This new service will
save users the trouble of inputting words with mobile phones. Users only need
to speak out in Putonghua, also known in the West as Mandarin, the contents
they want to search. The English version of this service has been applied in
many mobile phones since it was launched in 2008.
In comparison, many of Baidu's popular applications are not complicated in term
of technology, such as Postbar (Tieba), a virtual forum where users choose
their own topics, or Baidu Knows (Zhidao), a community-driven knowledge base
where users answer one another's questions, or its MP3 music download services.
Google has found its foothold in China and established a fine research
facility. Now its priority should be to increase market share and catch up with
Baidu. In that case, a well-known scientist might not be as good as an
executive who understands the local culture and local way of doing business.
Moreover, "John Liu is a tough person. He should be able to match Baidu," said
one of his former colleagues.
Note
1. Lee Kai-fu was born in Taiwan and emigrated to the US in 1973 while still in
high school. He earned a PhD in computer science from Carnegie Mellon
University. While working as an assistant professor there, he developed the
world's first speaker-independent continuous speech-recognition system, which
BusinessWeek honored as the "Most Important Innovation" of 1988.
After leaving teaching, Lee spent six years at Apple Computer, where he
developed QuickTime, QuickDraw 3D, QuickTime VR and PlainTalk speech
technologies. He joined Microsoft in 1998 and was responsible for advanced
natural language and user interface technologies. He also founded Microsoft
Research Asia, now regarded as one of the best research center in the world.
He then joined Google. Lee was the founding president of Google China, serving
from July 2005 through September 4, 2009. He is one of the most prominent
figures in the Chinese Internet sector and his personal blog is widely followed
in the country. He runs a popular website (www.kaifulee.com) to help young
Chinese people achieve careers in information technology.
Since leaving Google, he has founded Innovation Works, a venture fund that will
provide coaching for early stage startups. Innovation Works has US$115 million
in funding from elite technologists, including YouTube co-founder Steve Chen;
Terry Gou, chairman of Taiwan electronics manufacturer Foxconn; and Legend
Group chairman Liu Chuanzhi. WI Harper Group is the lead venture investor.
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