Friday, January 27, 2006

Another Reason not to put money in China.

I always say to folks that big companies putting monney down in China are making a rather poor choice. Now here is yet another reason why (which impacts the new Google.Cn)

Google's inability to succeed in China instead resides in it not being a Chinese company.

Even with the hype surrounding Google's hire of the former Microsoft (MSFT) executive, Dr. Kai-Fu Lee, and other top grabs from Chinese companies like 1pai, Google's fundamental stumbling block in China comes from its failure to adapt to being a true Chinese Internet company.

Yahoo (YHOO) tried many times to adapt. As far back as 1998 (or Web 0.98 Beta) when its then-VP, Heather Killen, made high-profile visits to China, the Western Internet company tried to sit at the Chinese banquet table. But Yahoo finally gave up last year when it bought a billion dollar stake in China's and then gave Alibaba the rights to run Yahoo! China. There was not even a whimper from the company as its Chinese portal was torn down and replaced with a simple search engine. Sohu (SOHU), Sina (SINA), and Netease (NTES) had finally beaten the foreign interloper.

Lycos tried too. It bought firms like Netscape tried, via AOL. MSN has also been bobbling along with a few victories here and a few setbacks there--nothing much to be proud of.

All of these companies have one thing in common: they entered China to win, but left only remnants of their power after a few years' struggle. Chinese history is filled with tales of foreigners coming to the Middle Kingdom with money, but leaving the country poor, confused and embarrassed. Ask Chris Patten.

A lot of folks on the net have made a a big deal about Lycos/Microsoft/Et. al selling out to the big red dragon for a Profit margin. But now we see they didn't sell out but rather they sold the right to use their name to the folks in China running the internet. For Google to beat the odds they have to Out-Chinese legitimate Chinese companies.

But here comes the horns of the dilema for google. Their are instances of Big Red Yuan's corperations using intellectual property illicitly. So can google sell the right to their shingle the way these other corperations have? I don't see how Google can do that without creating their own nemisis down the road.

But in China, rival Internet companies have developed a symbiotic relationship. Sohu, Sina, and Netease all provide pretty much the same services and they all developed along the same faddish tracks: first, a portal with free email; second, news and community; third, wireless/SMS/MMS content; and now, online gaming. There is always talk of one of these three buying the other, but not much happens. Late arrivals like the carpetbagging can even get a slice of the Internet pie.

In short Google is going to try to bring their old wheel into a market where people more or less implimented their own wheel along the same model.

And everyone else that has tried to bust in has gotten shut down. So just how much is Google willing to risk for very little gain?

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