Techbuzz China in Association with DealStreetAsia

China vs. Google: Rematch?

google
The silhouettes of attendees are seen at the Google Inc. booth during the 2018 Consumer Electronics Show (CES) in Las Vegas, Nevada, U.S. Photographer: David Paul Morris/Bloomberg

On August 1, The Intercept broke a story that Google was planning to enter China with a censored search engine. Within hours, the same news was all over Chinese tech media.

In this episode of TechBuzz China, co-hosts Ying-Ying Lu and Rui Ma tell the story of Google in China – or rather, its 2010 departure and oft-rumored return. Though Chinese tech media love speculating, how likely is this to truly happen? What role does the U.S. government play? What factors need to be in place for Google’s return to occur, and is this even what the company’s real leadership wants?

The story of search in China is not complete without also discussing Baidu, which dominates with over 70 percent of the domestic market. In fact, on the day Google left China in 2014, Baidu’s stock went up 12% on the news. However, has Baidu truly maximized its opportunities? Is there truth to the complaint that Baidu’s search results are heavily skewed towards commercial results, versus user needs? What has been the impact of scams, such as the May 2016 case of an unscrupulous hospital that was promoted on Baidu and resulted in the death of a college student? How do these industry-wide challenges within the China search industry impact attitudes towards Google, and contribute to the excitement around its potential return?

Listen to the newest episode of TechBuzz China and delve into the nuances behind Google’s real status in China at the level of public opinion. What can we learn from reactions such as that of Baidu’s CEO Robin Li, whose viral post on WeChat stated “the entire world is practicing Copy from China. These are realities that every global company that wants to enter China must face and ponder deeply.” When it comes down to it, will Google find success in the China internet market of 2018?

As always, you can find these stories and more at pandaily.com. Let us know what you think of the show by leaving us an iTunes review, like our Facebook page, and don’t forget to tweet at us at @techbuzzchina to win some swag!

Full Transcript

We are TechBuzz China by Pandaily, powered by the Sinica Podcast Network.

We are a new weekly podcast focused on giving you a peek into what’s buzzing within the tech community in China. We uncover and contextualize unique insights, perspectives and takeaways on headline tech news that don’t always make it into English language coverage. TechBuzz China is a part of Pandaily.com, a new English language site that tells you “everything about China’s innovation.”

(Y: Ying-Ying Lu; R: Rui Ma)

[00:01] R: Some days in life are so painful you remember them for a long time. January 12, 2010 is one of those days. It was the day Google a nnounced that it would stop censoring search results in China, and that was the beginning of the end of Google in China. By the end of March, it had announced an official exit.
Y: Yeah, because forevermore, if you lived in China, you had to get on a Virtual Private Network or we call them VPN to use any Google product. Not just search, but also Gmail. Some of our listeners who have traveled to China have experienced this pain and are probably nodding at this. All of a sudden, things you take for granted simply stop working. Email disruption is the worst.

[00:45] R: In 2010 though, that wasn’t immediately the case. If I remember correctly, I could still go to google.com.hk, which was Google site in Hong Kong and hosted outside of mainland China. I could still search for things, although it was slow and sensitive terms sometimes resulted in errors. But by all accounts, Google was banned for good by May 27, 2014.
Y: The government never offered an explanation for this. Meanwhile, Google continues to have staff in their Chinese office. It was about 240 in Shanghai and 460 in Beijing for 700 or so in total.

[01:23] R: Thus it wasn’t a total surprise when news leaked a few weeks ago that Google was going to try to re-enter China. With maybe a modified version of its search engine, code named Dragonfly, that could get by Chinese censorship requirements. And there are rumors about other products, too, such as a news app, and even cloud services.
Y: There’s been a lot of backlash internally, including a 1,400 employee signed letter protesting these projects, but we are not here to tell you what Google will or will not do. We are here to give you some idea of what’s the Chinese perspective on all of this. And the results just might surprise you.

[02:25] R: Hi everyone! We are TechBuzz China by Pandaily, powered by the Sinica Podcast Network!
Y: We are a new weekly podcast focused on giving you a peek into what’s buzzing within the tech community in China.
R: We uncover and contextualize unique insights, perspectives and takeaways on headline tech news that don’t always make it into English language coverage.
Y: TechBuzz China is a part of Pandaily.com, a new English language site that tells you “everything about China’s innovation.” I’m one of your two co-hosts, Ying-Ying Lu.
R:And I’m your other co-host, Rui Ma. I’m still recovering from my acute bronchitis, so I apologize for the huskiness in advance. I’m not just trying to sound extra sexy here. Or am I?

[03:09] Y: Actually you just sound very sick, Rui. Anyway, shoutout to our fans who tweeted at us to get well last week. Thank you. Shoutout also to Eric Wang for the latest feedback, and to loyal listeners Eric Thorne and Sachin Arora. And finally, an extra thank you to Matt Sheehan, who contributed to this episode, but couldn’t be here to record today. Search for Chinafornia newsletter that’s by Matt Scheehan on the internet and subscribe today!
R:If you enjoy listening to us, please take the time to leave us a rating or review on iTunes or Facebook or wherever you get your podcast!

[03:56] R: So it all started on August 1 when the Intercept, a site funded by Pierre Omidyar, founder of eBay, broke a story that Google was planning to enter China with a censored search engine. Within hours, the same news was all over Chinese tech media.
Y: As we said in the intro, Google left China in 2010. But the Chinese tech media love writing about its return. Every move Google makes is highly scrutinized, so that basically every year, there is some rumor that Google is going to be back for good. People got super excited, gor example, when Google opened up an AI lab in China last December, and launched a Wechat minigame called Guess My Sketch in July. The announcement of a Google Developer Day back in December 2016 made waves, not just because well, Google was actively courting Chinese developers in a big way, but also because the google.cn domain was being used for the event. That URL hadn’t been active since its exit.

[05:00] R: Yeah, if you go there to google.cn today, it’s still just an image of the Google search box that redirects to google.com.hk, Google’s Hong Kong site. They apparently did this so that they could keep their ICP license with the Chinese government.
Y: But why did it leave in the first place? It was so long ago and I guess that “don’t be evil” motto had really gotten to me, because I had the narrative of Google leaving due to government censorship. But that’s not the real reason, is it, Rui?

[05:28] R: Nope, as our good friend and author Matt Sheehan explained in his excellent piece on Macro Polo, Google was no stranger to censorship. Google had started offering search in Chinese since September 2000, but it only officially entered the market in 2006, on January 26 with the launch of google.cn. But the results were subject to censorship by the Chinese government. Or, as Matt put it so diplomatically: “Google operated its search engine in accordance with Chinese government requirements on content restrictions.”
Y: I wasn’t yet living in China at this time, but I believe that if you were searching in English, the results were mostly unaffected. It was only if you were searching in Chinese that the “content restrictions” really kicked in.

[06:17] R: Yeah, anecdotally, that was my experience upon arriving in China in 2007. I didn’t get the sense that English results were censored very much. Even very sensitive terms yielded results. I didn’t stress test this, of course, so I can’t be sure. But it would make sense, since Chinese users would only be mostly searching in Chinese.
Y: Google did OK in China. It ended up at something like a 20-30% market share the year it left, depending on which report you cite, nowhere near 64% market share it has in the US. It was far behind Baidu, which was at over 70% market share and by the way has mostly held onto it. But despite having a solid second place position and complying with the local regulations for four years, Google suddenly announced this departure. Why?

[07:09] R: Because of hacking. Google wrote on its official blog that, quote, “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.” “We have evidence to suggest that a primary goal of the attackers was accessing the Gmail accounts of Chinese human rights activists.”
Y: Supposedly, Chairman Eric Schmidt was not in favor of leaving the market, but Sergey and Larry were insistent. And so the decision was made and communicated.

[07:45] R: I also remember that day. Many of my friends in tech were deeply saddened by the news. People sent lots of flowers and sympathy cards to the Google offices in Beijing and Shanghai, and made makeshift memorial-like things in front of the company’s signs. Can you imagine? It was like someone died. There was a sense of real tragedy.
Y: Not at Baidu headquarters though. Baidu’s stock went up 12% on the news. And that’s where we are today, Google is still not available in China, and Baidu dominates the market, on both desktop and mobile. Without boring you with the detailed stats here, you can think of Baidu as having something like 70% of the market, and the next two being 360 and Alibaba-owned but mobile-only Shenma, followed by Sogou, which has an exclusive license with Wechat and has Tencent owning a large chunk. The remaining players, Microsoft Bing and Google, are negligible at just 1 or 2%.

[08:43] R: But why does Baidu continue to dominate? Does it really, as its advertising claims, just get the Chinese market better than Google? But even if so, since Google’s exit, the other players are all local Chinese. That doesn’t seem like a sustainable advantage.
Y: Well I’d argue that Baidu hasn’t dominated as much as it could have given Google’s exit. The other players have picked up the vacuum left by Google and there is some indication that Baidu is losing ground, especially in mobile, which is super important, since of the 750 million internet users in China, 95% are accessing the web from mobile devices, mostly their smartphones.

[09:22] R: Right, and actually, the primary complaint about Baidu by Chinese internet users is that it’s not a good search engine. Let us use an example to explain to you what that means. So let’s try a pretty simple search term “百度公司2017年财务报表“, that’s Baidu Company Year 2017 Financial Statements. If you put this term into Google, the first result is some topic from Chinese Quora, Zhihu, on Baidu’s Q2 2017 results. OK, not what I’m looking for, but relevant. The second result though is Baidu’s Investor Relations page, where you can directly click through to the 2017 annual report. That’s what I was looking for.
Y: If we do the same thing in Baidu, however, you won’t be able to find it. We’re not joking, we flipped through the first fifteen pages of results and could not find any link to Baidu’s own financial statements through its own search engine. Instead, what you get are lots of sites that want to teach you how to read financial statements, or to build them. That’s probably two thirds of the results. The remaining are links to third party sites with press releases to financial statements, but only a few of them are for Baidu. Most are for other companies. Isn’t that confusing?

[10:44] R: Yes and no. We aren’t saying Baidu is completely useless, it gives you pretty decent results if you search for “Beijing seafood buffet”, for example, but there is a reason why some internet users in China joke that the only use for Baidu is to see if your internet is down. And to be fair, we tried the same query in 360 search at so.com and it was the same. 15 pages of what I’d call spam. Lots of links to fee-based results for financial statements for all sorts of random companies … just not Baidu. Anyway, people don’t believe this is a technical deficiency on Baidu or 360’s part, but the result of active business decisions.
Y: Indeed, the complaint is that Baidu’s search results seem heavily skewed towards commercial results, not the user’s needs, and furthermore, they are opaque about it. Going back to our example of the search for financial statements, some of those results really look like they’re paid results, but they are not marked as such. I don’t know, maybe they really are organic, but either way, it’s all actually just spammy ads.

[11:49] R: Now spam is bad, but scams are worse. And that’s Baidu’s real crisis in China, that at least for a portion of its users, it’s become synonymous with scams. In May 2016, a huge scandal put Baidu under the regulatory spotlight after a college student named 魏则西 died after going to a hospital that was promoted on Baidu. His story is really heartbreaking. Not only did he not get the correct treatment, his family went into deep debt on his behalf. And he died. At just 21 years old.
Y: His post on Zhihu as he was dying is still the top voted response to the question – “What do you think is the greatest evil of human nature?” 你认为人性最大的恶是什么? It’s really, really sad. In it, he explains that the doctor lied to him, saying that the treatment he was being given was “very effective” in the US, and that it was from Stanford. It was only when he was not improving and a friend in the US Googled the treatment for him did he realize that everything was a lie. The treatment had in fact not even passed clinical trials because of low efficacy.

[12:59] R: Now we aren’t saying of course that if he had Google, he would have lived. After all he had a very serious illness, late stage synovial sarcoma.
Y: No. And we aren’t even saying that Baidu is entirely at fault here. The doctor in question had been on TV, on CCTV 10, and the hospital was not a no-name private clinic, but a “Triple-A” hospital, that’s the highest grade. But due to the strange way that the healthcare system works in China, it appears that the hospital had “sold” or outsourced the department Wei went to to some private, unscrupulous investors, who lied shamelessly about their treatments. So the hospital definitely got in trouble.

[13:42] R: But so did Baidu. The government cracked down and Baidu fired the VP in charge of advertising, and also instituted new rules, including requiring relevant certifications of organizations wanting to promote medical services. It also decided that it was not going by a pure price-driving bidding system, but a reputation-based one. And it was going to provide clear markers indicating paid results, and also provide some assessment of risk to the user.
Y: All sounds good right? Except, this really wasn’t the first time that Baidu had been accused of such practices, and a lot of goodwill had already been lost. That trust remains broken today. Sadly, there is every evidence the above scams are still prevalent on Chinese search engines. In May, state-owned Xinhua News wrote an article titled – “the medical paid ads are back,” and they noted a few disturbing things: for one, searching for diseases just yields hospital results, and second, scammy clinics were buying the results to real hospitals, so you were just bombarded with scams, and finally, to hide the lack of compliance with regulations, some search engines have different results on PC vs. mobile. Now I don’t know exactly how they’re getting around the rules, but the first two are pretty scary as is.

[15:07] R: Let’s be clear — this is not a Baidu issue, this is a China search issue. But Baidu does get the bulk of the blame because it is the industry leader. It is also the main reason why many Chinese people got pretty excited when the story of Google’s return came out. It’s not really because they love Google, I mean maybe they do — it’s really because they detest the current options and believe that Google has better corporate values, at least in comparison. They hope that Google can bring some order and more ethical practices to an industry that many think is already beyond saving.
Y: The trouble is, there aren’t that many of these people. Because when we say “these people,” who are we really talking about? We are talking about people who are aware of the scandals. Who understand how search engines work, and advertising keywords, and stuff that. Well-educated, well-informed, worldly individuals who probably travel abroad and understand that there’s a world outside of the Great Firewall. But how many people in China are actually in this demographic?

[16:13] R: Well, millions. But because China is so big, every segment turns out to be millions. But the people we are talking about though? It’s actually a very small percentage of the population. Longtime listeners who have heard our episodes on Livestreaming and Pinduoduo, especially, will know that the big topic of this year in Chinese media, which is being covered with by some surprise by Chinese people themselves, is about the rise of the rest of China. You know, the China that’s not Beijing, not Shanghai, not Tesla-driving, not Starbuck-sipping. Do you know how many people that is? In China, 大专以上, or vocational school and above educated, is only 119million people, 8.5% of the 1.4Bn population.
Y: That’s compared to 42% in the US. The remaining 91.5% in China? Maybe they didn’t even finish high school, since compulsory education is only through grade 9. They probably won’t care if Google.cn is working again ever. They’re probably not even all that aware they’re getting spammed and scammed. And that’s the consensus from many analysts in China. If anything, they don’t see Baidu being toppled from first place, but maybe some of the smaller players such as 360, Sogou and Shenma could lose some ground. But even then, I couldn’t find anyone who even thinks Google could take second place. Not even the fanboys.

[17:43] R: Well, no, the fanboys do think it will be number 1. People’s Daily did do a poll on Weibo that has since been delete, but 90% of respondents say that they would choose Google over Baidu, but I still don’t think that’s representative of the general population though. Anyway, that’s just in search. Now you might be wondering, what about the Chinese news app Google’s working on? Well, people are even less bullish on that. Not only is Bytedance/Toutiao just miles ahead with a 6 year head start, there are so many other competitors. And one analyst makes a good point — are the state-owned media going to publish on a Google-built Chinese news app? He thinks not. I’m not so sure but I can definitely see his point. The space is extremely crowded already and the market is relatively mature. And when has Google ever been good with social or media? Except for Youtube I guess, but that was an acquisition.

[18:45] Y: Right, and the prospects for cloud services is even less rosy. Amazon has been at it trying to launch AWS in China for a few years now, and had to sell its physical assets to a local firm last November to comply with regulations. Google will probably have to do similar. Anyway, it’s no wonder that Baidu’s Robin Li was so quick to take to social media, Wechat and announce to the world we are announcing to Google – Bring it on! I ain’t afraid of you! His exact words were: “If Google decides to return to China, we have a lot of confidence in battling it out again, and in winning yet again.”
R: And Robin being Robin, of course he had to drag the rest of the Chinese internet into it, because you know, he’s a patriot. He warned Google that the China internet sector of today is not like the one Google left. He said: “the entire world is practicing Copy from China. These are realities that every global company that wants to enter China must face and ponder deeply.”

[19:49] Y: I’d like to remind him that Google never actually left China. Its services may be blocked, but it’s always had offices there, and as we explained earlier, it’s never let the ICP license on Google.cn lapse. As for Baidu, I’m not sure that investors are convinced by all the bravado. The stock price dropped almost 10% when the news came out and it still hasn’t recovered yet.
R: But maybe Baidu investors should just chill. Aside from the internal employee disapproval we mentioned at the beginning, there may be more serious political backlash at home for Google too. According to Wired, apparently six senators have already written Pichai about his plans for Google in China, expressing concern.

[20:33] Y: But the US government is relatively easy to deal with, right? I mean, can you imagine Sundar Pichai issuing a public apology like Zhang Yiming of Toutiao did when his hundred-million user app, Neihanduanzi, was shut down for being too vulgar? By the way guys, we talked about that in Episode 1 because that’s the kind of localization that will be needed, especially if Google touches content.
R: Is it worth it though? Part of me agrees with the tech elites, many of whom seem to think that the re-entry of Google will make the industry more honest. Now maybe the bar wasn’t ever that high, but it’s definitely dropped lower since Google’s departure. Although with Google now having taken out “don’t be evil” from its code of conduct, who knows what will happen. In fact, a cheeky writer even said, that’s one reason why we should bet on Google winning, because it’s not the innocent do-gooder it once was.

[21:30] Y: But if Google does return, it certainly feels like Mission Impossible. The domestic audience has largely gotten by without it, and they don’t seem to care. As a recent Stanford study showed, the post 90s generation, which has grown up without Google, Facebook, and Twitter, even when given access, half don’t bother going to any blocked sites at all, and of those who did, pretty much no one looked up foreign news sites.
R: And not to mention the 8 years of data that it hasn’t been able to collect from users in its absence. There’s a real data gap here. What do you think, dear listener? Tweet at us @techbuzzchina and let us know. We love hearing from you!

TechBuzz China by Pandaily is powered by the Sinica Podcast Network. Pandaily.com is a new English language site that tells you “everything about China’s innovation.” You can find us on twitter at @techbuzz and @thepandaily, or reach out to Rui and Ying-Ying at @ruima and @ginyginy. Our producers are Carol Yin and Kaiser Kuo. Our intern is Ska Du and Menglu Wang.