Last week, Google announced it might exit from China market because of a recent hacker incident and Chinese government’s interference over Internet.  This came as a surprise to most industry watchers, especially when Google China’s business is in fact getting better and better.

Recently, it was able to gain market share from the local leader, Baidu. Google had a 35.6% share of market in the fourth quarter last year, compared to 31.3% in the third quarter, while Baidu’s share fell to 58.4% from 63.9%, according to Analysys International, a Beijing based market research firm. And this is a dramatic difference from what Google had 3-4 years ago, when it just entered China market – Google’s market share was as low as 16% in the second quarter of 2006, a year after it set up its China office.  At that time, Baidu had 50%, according to Analysys International.

And Google has momentum to do even better.  Google developed mobile search much earlier than Baidu.  According to former Google China president, Lee Kaifu, Google started developing mobile search in 2007, and it was, and still remains, one of its key focuses.  It has China Mobile, China’s largest mobile operator, as its mobile search partner since 2007.  Baidu only started to develop mobile search last year, and last May, partnered with the smallest of the three operators, China Telecom.  As 3G rolls out in China, more and more people will search the internet with their phones. Google’s advantages (over Baidu) should be even more apparent.

If Google can gain a further 5% from Baidu, that is 40% against Baidu’s 50-55%, Google will no longer be just a small rival. It will be a serious competitor to Baidu, and a powerful player in China internet space. So, why it chose to leave China market now?

With 384 million users, China has become the world’s largest internet market and it is still growing very fast – internet users increased 28.9% from a year earlier. (Note: the figure is from CNNIC, a Chinese government back research institute.) Moreover, it has a lot of room to grow, as only 29 percent of China’s population is online.  Why walk away from such potential, when your China operation is in fact doing well?

It is really bizarre, from any business points of view. But, an industrial insider suggested, there might be a chess game being played right now.

(Read complete article.)

In a rather surprising move, Google said it might exist from China.

“We have decided we are no longer willing to continue censoring our results on Google.cn, and so over the next few weeks we will be discussing with the Chinese government the basis on which we could operate an unfiltered search engine within the law, if at all. We recognize that this may well mean having to shut down Google.cn, and potentially our offices in China,” said David Drummond, SVP, Corporate Development and Chief Legal Officer in a statement. (Reference link: http://googleblog.blogspot.com/2010/01/new-approach-to-china.html)

If that is the case, it will a major setback to its effort in China, the world’s largest internet market. Since it started Google.cn and its China office in mid 2005, Google has gradually improved its services in the country. (See earlier posts:
New Broom may sweep Google China ahead, Google, Baidu do battle in China’s 3G frontier) Recently, it was able to gain market share from the leader, Baidu. According to Analysys International, Google had a 35.6% share of market in the fourth quarter, compared to 31.3% in the third quarter, while Baidu’s share fell to 58.4% from 63.9%.

All these effort will be wasted if Google start bargaining with Chinese government, which is unlikely to win the search giant any concessions from Beijing censors.

For 24-year-old “Momo” Wang Liyuan, creator of the hugely popular Tuzki rabbit character and emoticon popular on QQ and MSN and elsewhere, 2009 was a memorable one. The official website, www.clubtuzki.com, was launched and won a gold award for best design from Promax/BDA, a worldwide association of broadcast and multimedia designers.

Her first book, I, Tuzki, U, won the best book design at the Seventh National Art Exhibition and Book Design Awards organized by the China Publishers Association, and also became a best seller in many Chinese cities. Over 500 fans lined up for Wang’s autograph at an I, Tuzki U book signing and the first Tuzki iPhone application, TuzkiSnap, was on the market in November.

All of this was unimaginable when Wang first developed the bunny in the end of 2006 while a third year student at the Animation School in Communication University of China in Beijing. (Read article at Global Times.)

A three-year battle to be China’s leading video-sharing site is coming down to the wire, with front-runners Tudou and Youku looking for recognition as the mainland equivalent of YouTube, the hugely successful US-based site.

The reward for the fleetest could take the form of an initial public offering (IPO) in Nasdaq, the United States share market often favored by Chinese technology companies for raising cash. The founders and venture capital backers of the first past the Nasdaq post can anticipate cashing in their investments and consider the prospect of a soaring share value. The losing company faces a less illustrious future, with a possible sale to a rival or another Internet company. (Read article in Asia Times.)

Many Chinese Internet entrepreneurs have expanded from their niche markets to become major players in the industry. But how did this rag-tag band of entrepreneurs grow so successful? Surprisingly, because the Chinese government—long characterized as an overbearing, doctrinaire monolith—actually took a step back when the Internet took off in 1995.

However, as internet expand to cover over 25% of China’s population, the government seems to tighten its grip – more and more government departments and regulations are involved in the online space. Is this a worry sign for market participants?

We’ve  recently published an article in Computer World (Hong Kong) to talk about the government’s role in China’s internet development.(read complete article at computer world| view as pdf)

I had the opportunity at the beginning of this month to present our work in Red Wired at in two separate sessions of the Kuala Lumpur Growth Innovation and Leadership conference (GIL 2009: Asia Pacific, Program), at set of five international conferences – London (UK), Phoenix, AZ (USA), Kuala Lumpur (Malaysia), Bangalore (India), Dubai (UAE), Shanghai (China) and Sao Paolo (Brazil) – held annually by Silicon Valley based Frost & Sullivan. The conference keynote speaker was former Malaysian Prime minister Mahathir Mohamad. Frost & Sullivan is a market leader in Global Growth Consulting across various industry sectors and levels and was founded in 1961 with a mission to research and analyze new opportunities for corporate growth in research, training, consulting and corporate strategy.

Lee Kai-fu’s decision to quit his job as head of Google China has been portrayed as a major setback for the company as it struggles to catch up with mainland rival Baidu. Yet his successor’s background and preference for a less-technology heavy approach could play very much in the United States company’s favor. Read article in Asia Times.

Investors looking to celebrate after buying into the US$1 billion Nasdaq listing of Shanda Games, the largest US-listed initial public offering (IPO) in more than a year, were left mystified late last month, their fingers burnt as the share price turned flat.

Shanda Interactive, China’s largest online game company, did all right for itself in spinning off Shanda Games, taking the unit to market at the top of an indicated range of $10.50-$12.50, and increasing the amount of shares offered by over 30%.

But by the end of the first day’s trading, buyers of the stock were counting their losses as the shares closed down 14% to $10.80, with little in the way of recovery since then, the price hovering at around $11.01- $11.70 and closing on Monday at $11.26.

That baffled many investors who were looking for a repeat of the success earlier this year of Changyou.com, a similar games-division spin-off by Sohu, China’s second-largest portal. Changyou shares surged 25% on their first day of trading on the Nasdaq in April. Read the article in Asia Times.

CNN’s Cherise Fong did a report about the book.  She summed up pretty well what the book is about. I like the following part the most:

“While 25.5 percent of the Chinese population is now online, CNNIC’s 2008 statistics sketch a relatively coherent portrait of the mainstream majority of them: 67 percent are below the age of 30; 73 percent have only a high school education or lower; 33 percent are students; and 28 percent fall into the lowest income bracket of under $75 per month.

Moreover, 78 percent go online at home and 42 percent log on at an Internet cafe. Once connected, 84 percent listen to music, 75 percent instant-message, 63 percent play online games, and only 57 percent e-mail.

In short, for the vast majority of Chinese, Internet means play, not work.

One could conclude that an Internet entrepreneur’s target audience in China is teenage and twenty-something students, low-end consumers in search of entertainment with plenty of time to kill.”

That applies to Tencent, all the online game players, such as Shanda, Netease, Changyou, The9, Perfect World, and so on, and even Baidu. Read complete article in CNN.

I did an interview with CNN last week about the book.  Here is me talking a bit about China Internet.