The alliance will see Google embed its search platform alongside Sina’s iAsk, and will also take an unspecified split of revenue derived from the partnership. The alliance falls short of a more traditional JV, instead positioning Google as a standalone entity with a key strategy partner in Sina.
As David Wolf, president of China-based advisory firm Wolf Group Asia, points out, Google’s new strategy is a smart one, given that it doesn’t commit the search giant to anything long-term, and allows it to retain control of its brand operations and resources.
“Google is attempting to buy a bridge,” explains Wolf. “Its core value is search, but it can do so much more with it, and we haven’t really reached that kind of service (in China) yet. If Google can do that and really innovate in China, it will walk all over Baidu in time.
China’s online search market is expected to increase to almost US$600 million by the end of the decade (Analysys International), and foreign online players are jostling for market position and share any way they can.
While Baidu remains well clear of the US-based company in the China search market — Baidu, at 57 per cent, boasts around three times Google’s share (19 per cent) — the deal with Sina will provide Google with the one thing it has been missing to date: reach.
In short, Sina is effectively trading its reach — it counts almost 230 million registered users globally — for a more sophisticated search platform, globally-recognised ad tools and the support of an online Goliath. Critically, the Google deal is unique on the mainland, where other MNC online players — Google included — have battled to stand alone, and have subsequently been forced down the JV route in order to survive.
Speak to a few analysts, and it becomes clear that those in the known have watched with some amusement as foreign online companies, known for their nous, made serious “strategic errors” when entering China.
Yahoo, for example, took a 40 per cent stake in Alibaba only to hand over control of its China operations to its new partner.
Ebay, feeling the brunt of Yahoo’s deal with Alibaba (which runs popular auction site Taobao), sold a majority stake in its wholly-owned eBay Eachnet venture to Tom Online six months ago, creating a JV between the two, operated by Tom. Amazon.com, which took seven years to turn a profit in China, recently completed a buyout of Joyo.com, one of the leading online shopping portals in the mainland.
“I can’t find a single example of a successful foreign online company going it alone in China,” notes William Bao Bean, partner, Softbank China and India Holdings.
“Foreign companies focus too much on process and measurables and there is a real lack of flexibility in terms of trying to layer in models that are used outside China.”
