Early last month there were some news circulating about Google plotting a return to China. The past few days there were also increased speculation after Chinese netizens discovered some changes to what are being hosted domestically by Google.
So far most of the above are just speculation. But it’s worth doing a quick thought exercise.
First, the market context:
- In Google’s 5 year absence from China, the smartphone revolution has really taken over the market and there’s arguably half a billion users of Android devoid of any Google services
- There’s been a big entrepreneurship boom (which may be going into hard times currently), with several cycles of intense competition in a number of sectors – staring with the 1,000 groupon clone wars of 2010, to the more recent taxi-app wars and the broader O2O wars. And of course let’s not forget the home-grown Android vendors such as Xiaomi and the battles in the Android space. From the ashes of these intense battlegrounds have risen a number of companies with $10B+ valuations1
- The traditional big 3 – “BAT” have extended their empires in numerous directions and continue to compete in multiple fronts. For example, Alibaba has made big bets in film entertainment and Tencent is eager to follow suit
- Apple has seen major success in China – it has generated over $45B revenue in Q1-Q3 of its FY2015, which is about double of Google’s entire worldwide revenue in 2009, right before it exited China
In short, the 5-year opportunity cost for Google in China has turned out to be huge, which is not surprising then if they are indeed seeking an return.
As an aside – I always thought Google’s decision in early 2010 was an incredibly difficult decision, and one which I have always disagreed with (to the detriment of my friendships with some American friends). Not to be overly sentimental, but one of my biggest points of disagreement was that this decision went against Google’s own company mission – to organize the world’s information and make it universally accessible and useful – with such a mission, how could Google shy away from serving Chinese users? Wasn’t exiting China a cop-out to avoid the really tough choices of operating in that environment?
But to come back on-topic – if exiting China was tough, coming back will be tougher:
- What is Google’s value proposition to Chinese consumers? Most of its services have been fully replaced by local competitors, who are arguably more nimble and responsive to local user needs
- What does Google focus on? The rumored Google Play makes some sense, since they should prioritize re-establishing a position in mobile, while desktop search is slowly but surely becoming irrelevant
- Can Google find any local allies? Out of BAT, Alibaba probably has the least conflicts of interest with Google (Tencent / Baidu both own big Android app stores); in the Android vendor space, it has already partnered with Huawei for a Nexus device, so perhaps Huawei can return the favor somewhat in China
- How much autonomy / empowerment will the local team have? Can they attract the type of talent they want, given their flip-flopping in China?
- Fundamentally, how much product experience is Google willing to sacrifice/compromise to meet the government’s requirements?
Given how nasty the 2010 exit was from a relationship stand-point, I suspect Google’s return will be tiny baby steps at first.
- Xiaomi, Didi-Kuadi, and the new Meituan-Dianping merger are a few leading examples ↩