Foreign internet players battle mainland challenges

The instability at the top of the foreign-owned internet companies is symptomatic of uncertain times in China’s internet market. As local companies such as Baidu and Alibaba continue to thrive and expand, the big foreign players — Yahoo, Google, MSN, eBay — are scrapping to survive. In search, Baidu, with 62 per cent market share, dominates Google (23.5 per cent) and Yahoo (five per cent), while eBay is playing catch-up with Alibaba’s Taobao in consumer-to-consumer online trading.

Internet companies in China are now entering a critical period, in which it will become increasingly obvious which will do, and which will die. Early indications, though, haven’t been positive for the foreigners. “Overall, foreign internet companies have been a failure in China in large part because they try to bring the exact same practices that made them successful in the US,” says Shaun Rein, MD, China Market Research Group.

Chiefly, the companies have failed to localise, he notes. For instance, eBay erred when it acquired local company Eachnet and deposed much of its team, which was “very savvy and very close” to the Chinese customer.

Alongside service, the foreign companies should consider relevance and design, says William Moss, a CNET blogger with a special interest in the China IT market. The simplistic design of US websites tends to differ markedly from those in China, which are often “overwhelming soups of menus and options, drifting ads and animations”, he observes.

Local players have capitalised on home advantage, appealing to a sense of national pride. Recently, Baidu launched an online advertising campaign that featured a local villager insisting to a foreign couple, ‘You don’t understand us’.

There are signs, however, that the outsiders are starting to click. Popular scientist Kai-Fu Lee is heading a recruitment drive for Google China, targeting top graduates from China’s technology universities, and the company is seeking partnerships with local internet companies. Recently, it signed a deal to serve as the search engine for Tencent, owner of the dominant QQ instant messaging service.

But of course, foreign companies are faced with that other not-insubstantial matter when it comes to operating in China: regulation. Jeremy Goldkorn, editor of media website Danwei, says they face obstacles more difficult to get around than for local companies. Google’s uncensored Google.com site, for example, can be accessed by Chinese users, but performs poorly because of filtering by authorities. On the other hand, its local site, Google.cn, performs better on the mainland — but is subject to heavy censorship.

“Nobody should think that China is an easy place to make money on the internet,” Goldkorn says.