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Google has again shaken the Internet tree in a way that will raise more than a few eyebrows. In a nutshell, Google is reassessing its working relationship with the world’s largest potential market, China, as a result of recent security breaches. How this plays out over time could have significant impact on how China and the world get along economically. Google’s official blog gives an overview in the first paragraph of the post that is both informative and scary. Like many other well-known organizations, we face cyber attacks of varying degrees on a regular basis. In mid-December, we detected a highly sophisticated and targeted attack on our corporate infrastructure originating from China that resulted in the theft of intellectual property from Google. However, it soon became clear that what at first appeared to be solely a security incident–albeit a significant one–was something quite different. How it was different is that the targets of much of security breach were Chinese activists (read: people who prefer freedom over censorship) who had Gmail accounts. A quick summary of the main points of this new approach to China from Google is summed up like this. It wasn’t just Google who was targeted and hit. There were 20 other US companies and they are apparently in the process of sorting this out themselves. Google states: “We have evidence to suggest that a primary goal of the attackers was accessing the Gmail accounts of Chinese human rights activists. Based on our investigation to date we believe their attack did not achieve that objective. Only two Gmail accounts appear to have been accessed, and that activity was limited to account information (such as the date the account was created) and subject line, rather than the content of emails themselves. “ There was routine third party access of Gmail accounts of human rights activists related to China who are based in China, US and Europe. This access is likely due to malware and phishing scams. Google then recommends for folks to be up to date on their security for their computers and is careful to “play nice” with China by saying In the last two decades, China’s economic reform programs and its citizens’ entrepreneurial flair have lifted hundreds of millions of Chinese people out of poverty. Indeed, this great nation is at the heart of much economic progress and development in the world today. They also point out that when they entered the Chinese market in 2006 they were doing it with a watchful eye. So what’s the result of this? These attacks and the surveillance they have uncovered–combined with the attempts over the past year to further limit free speech on the web–have led us to conclude that we should review the feasibility of our business operations in 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. The decision to review our business operations in China has been incredibly hard, and we know that it will have potentially far-reaching consequences. We want to make clear that this move was driven by our executives in the United States, without the knowledge or involvement of our employees in China who have worked incredibly hard to make Google.cn the success it is today. We are committed to working responsibly to resolve the very difficult issues raised. So Google makes a stand that says they are not going to censor their results and if there is no way to reconcile then they may need to move on. While the Chinese people are clearly in favor of Baidu as their engine of choice , if Google were to say that they will not do business in China what kind of pressure does that place on other companies to possibly isolate the biggest and fastest developing market in the world? This could get interesting.

Link:
Google and China: Maybe They Can’t Get Along

Yesterday’s rumors have proven true: dominant Chinese search engine Baidu has officially announced their entry into the online video market in China . In fact, they’ve confirmed almost all of the rumors floating around yesterday: Baidu is involved, it’s a partnership, they’ll be soliciting content licensing agreements from professional content producers, it will be free with ad support (like Hulu), and Yu Gong, former China Mobile exec, will head up the site. Only Providence Equity Partners’ participation wasn’t confirmed. As mentioned yesterday, the Chinese video market is lucrative—worth 162 million yuan ($23.73 million) in Q308, according to Analysys International. It’s little wonder that Baidu is eyeing the market (even though the Chinese search market is valued at 2B yuan [$293M], with Baidu controlling around two thirds of the market). China also faces piracy problems that seems more serious than those in the US, where a site with a similar model has enjoyed unexpected success at Hulu. With all these concerns, the Chinese video market looks even less appealing in light of another point from Reuters : “J.P. Morgan analyst Dick Wei said most video sites in China were still making losses but Baidu had the added advantage of being able to offer more targeted advertisements given its search technology.” Baidu didn’t say whether the new venture would feature UGC, with the additional content and IP problems it can pose, but even without that, they could face not only competition but content theft from video pirates. The Chinese video market is highly fragmented online, so there’s a definite possibility that Baidu could emerge as the leader (and winner) in this arena—but will they? What do you think? Can Baidu succeed in two areas? Will China receive a Hulu of their own?

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It’s Official: Baidu into Video

paidContent reports today that private equity company Providence Equity Partners, one of the backers of Hulu, is rumored to be joining up with Baidu for a Chinese equivalent of the popular professional video content site. While China is the largest Internet population (350M) and a huge market for ad dollars in just about every online arena, it’s little wonder both the Chinese search giant and the American investment firm are interested. While Providence declined comment, other sources told PC the deal was already closed. Reuters reports that the new video site would launch in the first quarter of this year. Providence will back it with $60M, while Baidu is fronting $10M. A recently-departed China Mobile executive is rumored to be the CEO of the new site. Analysys International reports that the Chinese online video market was worth 162 million yuan ($23.73 million) in the third quarter of last year—again, little wonder these two companies are interested in the market. On the other hand, this is considerably less than the well-established US video advertising market, of which Hulu controlled some 10% (and commanded similar ad rates to TV). Could a Chinese Hulu take over the same proportion of the Chinese ad market (to the tune of $9.5M)? Hard to say, of course. Before Hulu came along, it seemed doubtful that a site with such a model could succeed—but now it does appear to be successful, as well as a major source for online video content. Naturally, Providence and Baidu would need Chinese television stations and studios to sign on to create the professional content. And while the US isn’t the best counterexample here, China has a reputation for rampant online video piracy that may diminish the appeal (and the restrictions) of a site like Hulu. What do you think? Can Baidu expand its empire successfully with this? Or is China just not the market for another Hulu? Pilgrim’s Partners: SponsoredReviews.com – Bloggers earn cash, Advertisers build buzz!

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Baidu Getting into Video?

Bing is eyeing the biggest Internet market in the world—China. Still in beta in China, “Bee-ying” was launched back in June without the marketing push and fanfare enjoyed in the US. Reuters emailed questions to Microsoft today, and MSFT responded that they are “committed to the China market and the search market in China is the most important strategic market for Microsoft.” China is a lucrative market that still remains untapped by most Western companies—especially in the search arena. As we reconfirmed just recently, Google is still a distant second in China to home-grown Baidu. Baidu reports their marketshare at 75%+ and Google’s a dismal 17%. Reuters reports from Analysys International that Google’s share is more like 30%, and Baidu’s at 63.9%. Either way, that’s nothing compared to Google’s dominance nearly everywhere else in the world. Whether its inadequate localization or just the home field headstart Baidu has, Google is struggling—and now Bing hopes to step in and succeed where Google has faltered. It’s little wonder that Google and Microsoft are salivating over this difficult market. With 350 million Internet users and a search market valued at 2B yuan ($293M) China is home to the world’s largest Internet market by users at more than 350 million. Of course, to compete in China means to bow to the Chinese government’s censorship requirements, a practice rife with controversy. Meanwhile, as Search Engine Land points out , Google is working on getting in with mobile companies with Mandarin voice search, the Google-friendly iPhone and the Google-based Android mobile OS. While there are already Windows-based mobile devices, Bing probably still has a long way to go to compete there. (Remember, too, that the mobile Internet is a far greater proportion of Internet usage in China than it is in the US.) What do you think? What would it take for Bing to succeed in China?

Excerpt from:
Bing/”Bee-ying” Eyeing China

When the world looks at areas where the pure numbers are pretty staggering it’s the sheer size and potential of the Chinese market. Let’s face it there are a lot of Chinese folks. So it would only be natural that Google would like a piece of that pie. What is not normal though is the fact that Google is second fiddle by a considerable margin to Baidu, which is acting like the Chinese version of Google in its homeland. CNNMoney.com reports that Baidu is pretty much putting it to Google. As one should expect though it is probably not wise to count Google out on this one. At first glance one might readily declare “game over” in the China online search war. Beijing-based Baidu (BIDU) dominates: According to Jennifer Li, Baidu’s chief financial officer, Baidu’s market share for search in China was about 77% in the third quarter, up from 75.6% in the second quarter. Google (GOOG), she says, lost share in China, dropping to 17% in the third quarter, from about 19% in the second quarter. So what’s the cause of this disparity? Apparently it’s not Google’s handling of the Chinese language. In fact, they receive pretty good marks on this one. What is likely the biggest contributor that can be seen (meaning there might be, just maybe a little bit, of Chinese government stuff going on here but that is PURE speculation on my part) is something that even Google can’t overcome: time. Google came to the Chinese marketing in 2006 while Baidu has been at it since 2000. That’s a lot of time to get a head start. What might be interesting to watch is the battle that is developing as Baidu makes a play in the growing mobile market. Google has fared well there but Baidu is making some serious waves in that pool. And Baidu is trying to extend its search dominance on mobile phones, an area where Google has done well in China, thanks to a search deal with China Mobile, the nation’s largest carrier. In October Baidu announced a deal to provide mobile search to customers of China Unicom’s (CHU) 3G services, and it also is testing a mobile app that features Baidu’s some most popular online tools, including a message board service. This market will be interesting to watch for sure because the political side of opportunity is one that the world watches very closely. Remember all the Internet ‘issues’ around the Beijing Olympics of 2008? Missteps by anyone outside of the Chinese market are likely to happen and it will likely keep foreign competition at a serious disadvantage. Once again, this is just me thinking out loud based on what has happened in the past. Baidu is saying that Google is on their radar and not being overlooked. But no one, least of all Baidu executives, assumes Google is content with its position in China today. “We don’t underestimate their technology or their ability,” says Baidu CFO Li. As for Google’s plan of attack? Maybe it looks a lot like the ne that it has for Apple elsewhere. Google’s ambitions in China go well beyond traditional online advertising and search. The company is widely believed to be looking for multiple ways to introduce its Android mobile operating platform in China, and recent reports suggest it may look to open an Android application marketplace in China. Google most certainly has its work cut out for it. How it fares in China may very well tell a lot about what the company is made of since it is one of the few places where it will need to fight from behind rather than defend from the top.

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Google Still A Distant Second To Baidu in China