Even before Google began threatening to shut down its search
service in China, it was not fitting in.
Google and other major American Internet companies like Yahoo
and eBay failed to gain significant traction in the Chinese market, and
Facebook, Twitter and YouTube are blocked by the government.
Instead, the hottest companies in the world’s biggest Internet
market have names like Baidu, Tencent and Alibaba – fast-growing local firms
that are making huge profits. Post-Google, China’s Internet market could
increasingly resemble a lucrative, walled-off bazaar, experts say. Those
homegrown successes, however, could have trouble becoming global brands.
“If the Chinese government continues to favour domestic
companies, those companies that reach critical mass could become phenomenally
profitable,” said Gary Rieschel, founder of Qiming Ventures, an American
venture capital firm with investments in China. “But it may be hard for those
companies to become world class without outside competition.” Still, the
success of Chinese companies here can be measured by the numbers.
Revenue at Tencent, a kind of Internet conglomerate, jumped over
70 per cent last year, to about $1.8 billion.
Baidu, a Google look-alike, has largely clobbered Google in
China, despite giving up some ground in recent years. And Taobao.com, China’s
huge e-commerce site, handled nearly $30 billion in transactions last year.
Local Companies have the upper hand The story behind the success
of these companies is a simple one, some analysts say. The young people who
dominate Web use in China are not just searching for information; they’re
searching for a lifestyle. They are passionate about downloading music, playing
online games and engaging in social networking.
“Sixty per cent of the Internet users here are under the age of
30,” said Richard Ji, an Internet analyst at Morgan Stanley. “In the U.S., it’s
the other way around. And in the U.S. it’s about information. But in China, the
No. 1 priority is entertainment.” Experts say American companies have largely
failed here because they don’t have local expertise, are too slow to adapt and
don’t know how to deal with the Chinese government.
“Internet companies in China have to work so closely with the
government,” said Xiao Qiang, of the China Internet project at the University
of California, Berkeley. “And that means the government’s political agenda can
become the company’s business agenda.” The need to censor Web sites, for
example, can overwhelm smaller companies, Mr. Xiao said. “This becomes a
growing business cost. So, often, small companies don’t develop.” At this stage,
analysts say the Web in China is less about innovation than about quickly
delivering on the latest online trend.
“People here are quick to see trends, and to clone and
innovate,” said William Bao Bean, a former Internet analyst who is now a
partner at Softbank China & India Holdings. “If one company is doing well,
other companies will quickly clone it and roll it out.” No company is better at
that than Tencent, which is based in the southern city of Shenzhen.
Local advantage
The company’s biggest weapon is a popular instant messaging
service called QQ. Its 500 million active users give the company an advantage
when it introduces new products and offerings, like online games.
Tencent was founded in 1998 by a group of friends that included
Ma Huateng, also known as Pony, who is now its 38-year-old billionaire chief
executive. With Tencent commanding a stock market value of $37.2 billion, the
only global Internet companies that are worth more are Google ($173.7 billion)
and Amazon ($57.2 billion).
One advantage local companies have is government protectionism.
Because the Communist Party wants to maintain tight control over communication
and the media, foreign Internet companies come under suspicion.
For instance, YouTube has been blocked inside the country for
over a year, ever since a user uploaded a video that was said to show human
rights violations in Tibet.
But some experts say Google’s departure will leave Internet
users here with fewer options, making the country’s Internet market less
competitive and less open.
“The biggest loser is Netizens,” says Fang Xingdong, chief
executive of Chinalabs.com, a research firm. “Google is a multilinguistic
search engine, but Baidu is a Chinese-language one. Chinese information only
occupies a small fraction of the Internet.” Google was troubled by censors. And
it’s clear that censors make some of the material on Baidu’s search engine look
like the bulletin board of propaganda, with some links directed to People’s
Daily, the Communist Party mouthpiece.
One question, though, is whether Google’s departure will prevent
Chinese companies from developing alongside the world’s technology powerhouses.
“When the Chinese companies go outside of China, they will find
that they fail to understand their competitors as well as they did when they
were competing in China,” said Mr. Rieschel, founder of Qiming Ventures.
Of course, Chinese companies may just be happy staying home. With 400
million Internet users and growing, their own market is a substantial prize.
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