Search giant Google is reportedly developing a search engine for the Chinese market that would be compliant with Beijing’s strict censorship regime. If launched (and there’s no guarantee it will be), it would mark a return to the country for Google after it shuttered its initial China-facing search engine, Google.cn, in 2010 amid concerns about censorship and cyberattacks. Google has continually declined to comment on the reports.
While Google has long been the market leader in search in most countries, when it exited China, it was the runner-up. It held roughly 30% of the sector, with domestic rival Baidu capturing most of the remainder.
It’s a common trope to attribute the failure of foreign tech companies in China to some form of government intervention. Observers often readily assume that the ruling Chinese Communist Party will throw hurdles at overseas firms in order to ensure local counterparts triumph. In the case of Google and Baidu, however, that’s only partially true. While Google indeed exited the market due to political grievances, it wasn’t those grievances that dinged its popularity among Chinese consumers.
As authors Sherman So and J. Christopher Westland explain in Red Wired, Baidu successfully won over users in the 2000s largely due to its strategic execution, though the government’s influence still loomed over the rivalry. Broadly, the Beijing-based company’s success can be attributed to the following factors.
Baidu bet on China’s internet cafes
Whereas most Americans first accessed the internet from a home or office PC, in China, many consumers did so at an internet cafe. Web users would head to dingy, smoke-filled lounges to play online games, chat with friends, or check online forums.
Many of China’s successful early web companies reached consumers by inking deals with internet cafe operators. Paying a fee would ensure that a firm’s program appeared on a PC’s desktop, or as the homepage in the default browser. Baidu, keen to increase visibility, paid cafe chains to place its search engine prominently on machines.
Google did this as well, but not as aggressively. As Steven Levy writes in his book In the Plex, internet companies would often pay franchise operators to switch out a rival company’s software with their own. Google refused to engage in this practice and play dirty—which ceded an edge to Baidu on reaching China’s first-time internet users.
Baidu’s unlicensed-mp3 boon
Internet cafes in China were places of entertainment, where one could also listen to music—and in the days before streaming media, that meant pirated mp3s.
For a time, Baidu was a rough analog to Napster in China. It offered easy access to unlicensed mp3 files, typically by linking out to third-party sites offering song downloads. Baidu’s 2005 IPO prospectus reveals that 20% of its traffic at the time came from mp3.baidu.com, its standalone search for music. The company noted how this could impact its business in the document’s “Risk Factor” section, especially in light of the then-salient shutdown (paywall) of Grokster, a Napster clone: “We may face intellectual property infringement claims and other related claims… that could be time-consuming and costly to defend and may result in our inability to continue providing certain of our existing services.”
Google, wary of legal pushback (particularly as a foreign company in China), decided against linking out to unlicensed entertainment. In 2009, it announced an mp3 download service in partnership with Top100.cn, a Chinese company it invested in that offered properly licensed music. But by then, the search giant was not far from exiting China altogether.
The nascency of China’s advertising industry in the 2000s also gave Baidu a leg up over Google. When Google launched AdWords in 2000, it primarily intended it to be a self-service way to advertise brands online—long-tail small businesses could place bids for ads to appear at the top of results for certain keywords, and pay via credit cards.
In China, however, credit card penetration was relatively low, and the internet was a much newer concept to the small businesses that make the ideal AdWords customers. In order to convince such firms to buy ads on Baidu (its system closely mimicked Google’s AdWords), the company employed legions of workers, both in-house and through agents, to make cold calls across China. “Agents taught potential customers the keyword bidding process step-by-step, and when that was too difficult they simply did the work for them. They also collected payment on Baidu’s behalf,” writes So.
While Google also worked with third-party agents to boost ad sales, it had no in-house team of its own. In Baidu’s 2008 annual report (pdf, p. 86), the company reported that 3,855 of its 6,387 employees worked in sales and marketing. By comparison, So notes, Google in China employed only about 800 people overall.
For luring consumers, Baidu also employed tactics that Google typically shunned. The company spent sizable amounts promoting its brand through traditional offline advertising, most notably in 2008 when it paid to become the main sponsor of state broadcaster CCTV’s annual New Year’s gala (imagine Google spending money to sponsor NBC’s New Year’s Eve ball drop). It even aired an advertisement (video) depicting a Chinese wordsmith outwitting a foreigner donned in a Western suit and top-hat, in an obvious jab at its foreign rival.
Despite Baidu’s market dominance during and after Google’s stay in China, a Google reentry might still be welcomed among Chinese consumers. Internet users have long complained about the quality of Baidu’s search rankings, as well as fraudulent businesses buying ads. When Baidu CEO Robin Li published a note this week warning Google it would face stiff competition if it returns, one top comment on Chinese social media read, “Forget it. Can’t you tell from Chinese people’s attitudes that their hearts have turned cold on Baidu?”