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eBay & Google learn the China lesson: You gotta be there

baidu.gifThere's a long, tough slog ahead for Silicon Valley companies like eBay and Google in China. They'll cede ground, if they haven't already, by not being there.

Exhibit A is Google's experience:

When we first read this story in China's People's Daily Online about Google's woes in China, we suspected it was a piece of local propaganda. It said Google had been number one in China, but didn't pay enough attention to the country, and so was overtaken by Baidu. Good grief, we thought, should we laugh, or cry? Google had been suffering heartburn for years over China -- hand-wringing over how much it should agree to filter sensitive content to appease China's authorities, and how much to hang tough. Google's service has been blocked by China numerous times. And now China's press is saying Google was a slouch?!

But after making a few calls, we soon realized the People's Daily had a point. If you read the story carefully, it is about how Google didn't try to tailor its service in any specific way to treat the Chinese market. Sure, Google translated its site into the local language, and sought free distribution throughout the country. But that's what it did for other countries -- Google flipped the translation switch, and that's it. We checked with a few people at Google, and they confirmed they'd tried nothing else until now. So, with that, let's return to the article's main point:

Google gets nod to set up branch in China

Google, the No.1 search engine company in the world has announced to launch "university search" service in China. Google aims to help users to search for information about the Chinese universities by launching the special service at the time when China's college entrance exam just ended. This is the first time Google offers service specifically to Chinese users.

Signs have shown that the once arrogant Google has paid more and more attentions to Chinese market. Sources from the company say Google has gained approval from Chinese government to put up branches in China. The office location in Shanghai has been fixed.

Google was once the No.1 Chinese search engine in China thanks to its early entry into Chinese market. But because it hasn't given sufficient attention to the Chinese market, it has been surpassed by Chinese enterprises like Baidu.

Now, with Baidu on the ground there, and completely focused on serving China, is it...

...any wonder that Baidu has done so well? What's more, Baidu is about to go public, and will undergo a significant branding campaign. As China become more important, we might have to eventually add Baidu to the list of search leaders Yahoo, Google and MSN. Google's one smart move: Buying a chunck of Baidu last year.

Second, take eBay:

meg.jpgeBay's CEO Meg Whitman (picture at left by Dai Sugano) appears to have taken the "got to be there" lesson more seriously -- though might have taken some prodding. As we mentioned, we've been on the eBay annual conference this week (see Mike's story here, which includes other links), and the China angle is the most interesting part of that story:

As important as the U.S. and German markets are to eBay, its brass ring is China. Executives are excitedly eyeing a middle class of 250 million people and the world's second-largest Internet population. The Chinese online auction market is expected to grow annually by more than 40 percent over the next two years, reaching 35 million users in 2007, according to Shanghai iResearch.

EBay was the first major company to aggressively enter the Chinese online auction market, investing in and then acquiring local site EachNet. China is so important to eBay that Whitman has traveled there three times this year, and plans to return later this summer.

``If you can actually have five days with the team, you can get more accomplished and really have a sense of what's going on in the marketplace,'' Whitman said, adding that China could be eBay's biggest market in five to 10 years.

But China is turning out to be more drama-filled than some anticipated.

Yahoo, which forced eBay to retreat from Japan, is making a play in China. And a brash entrepreneur named Jack Ma has launched Taobao, an eBay clone that Ma says is giving eBay a run for its money.

Taobao's parent company, Alibaba, runs an established and profitable online business-to-business e-commerce site and counts investment firms Softbank and Fidelity Capital as partners.

Unlike eBay, which charges sellers to list an auction and takes a cut of each final sale, Taobao is entirely free -- and may remain that way for at least another year as it tries to build up a base of users.

Battling back

EBay has responded by slashing its Chinese listing fees and unleashing an expensive marketing campaign on television, billboards and the Internet. EBay executives committed to spend up to $100 million in China this year.

Paul Waide, founding editor of Pacific Epoch, a small research firm based in China, said eBay ``got a huge head start.'' But Taobao ``has spent a lot of money, and they've spent it wisely.'' And its parent company is local, as opposed to eBay EachNet.

``It's hard to say either is winning,'' Waide said.

Ma says he has lured eBay into a battle and is happy to let eBay ``shoot all its bullets'' at him. ``We are helping them to spend more money,'' he said.


China's a tough challenge for eBay. They would like to keep their platform standard across the globe, but at the same time, they have to fight with a scrappy local competitor which does not have that kind of baggage to consider. For eBay's management, China is a market they simply cannot afford to lose, as Wall Street is pricing China into their valuation.

Paul Denlinger on June 23, 2005 2:04 PM
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What exactly is it that Baidu did so well to make it more popular? You said Google flipped the translation switch. OK, that's worked in plenty of countries. Why is China so special? What did you learn that Baidu was doing "right" and Google was failing at? And in particular, I'm assuming that Baidu is playing by the Chinese government rules and not being subject to having its results blocked, when you try to click on them. That campaign waged by the Chinese government over the past three years continuously perhaps has a small impact on Google's popularity? I mean, make the service unusable and, well, people don't use it. It sound like the way to "tailor" your service to China is to censor it. Is that the main difference? Please post again on what Baidu has done that's supposedly so correct.

Danny Sullivan on June 24, 2005 7:19 AM
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Well, one of the exciting opportunities that eBAY could open up for the Chinese small businesses is to do cottage-industry style international trade. And, for that matter, they could do the same for India.

Sramana Mitra on June 25, 2005 9:47 PM
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ebay is getting its ass handed to it in china. i was there. saw it with my own 2 eyes. taobao is absolutely eating ebay's lunch. talk to any local and you will find out that no one uses ebay. they all use taobao. ebay's got some Korean American running the show. he doesn't speak a lick of Chinese. hasn't got a clue - just got that ebay swagger and nothing to back it up. if there's any consolation to meg, yahoo is also getting killed. 1pai is nowhere to be seen. in the end, ebay buys taobao and/or alibaba for north of $1b. they have to. they have no one on the team that has a clue abt china. think the eachnet team does? they built that company with the express intent to sell it to ebay, nothing more than that. as a ebay shareholder, let's just hope she doesn't do it too soon like she did with eachnet. turns out that mistake cost a few hundred million down the loo.

mark chen on June 27, 2005 6:26 AM
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To understand Baidu's success, you may want to try using the Baidu engine. :O) Google's translation is not enough. People "search" to "find" results that they expect to find. As soon as Google accomplishes this in China, they may have a chance to properly challenge Baidu.

Furthermore, if you are asking, "What exactly is it that Baidu did so well to make it more popular?", then you may not be ready to do business in China, IMHO.

Primezero Labs on July 23, 2005 8:30 PM
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#1. No one in China uses baidu.com. Well..
#2. sohu.com is more popular and commonly used by REAL Chinese people
#3. American media really blew this one out of proportion. As they usually do with these tech stories.
#4. OK, taobao = chinese version of eBay. fine.
#5. So, are the Chinese here in the states going to go crazy and dump their money in baidu and as a result of this "cash infusion" make baidu THE LEADER IN SEARCH in CHINA? Umm, did we not learn anything from dot com bubble here in the states. I guess history repeats itself in another language. HA. Keep track of the ticker and see what happens in the upcoming year.
#6. While we're on this subject of this China -> USA import, how about the the Chinese entertainment folks building careers intentionally for export into the USA. You can figure this one out. It's a director/actress combo.
#7. Don't be fooled by "Chinese math" as some idiot once told me - If you have 1 billion people and can capture just 1% of that market and sell them stuff for $1, then you're rich! See #5.
#8. Am I Chinese? Who am I?

ummwait on August 10, 2005 9:01 AM
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