China is not singing Bing's praises

by Brendan Smith

Microsoft's big investment in its new Bing 'decision engine' is paying some early dividends in the form of glowing reviews and renewed credibility in the search market (even if early share gains are modest). But it is already running up against the 800-pound gorilla that has long bedeviled market leader Google: China's government. The government recently decided to block Bing because of a feature called smart motion preview that allows users to see a preview of videos produced by searches by navigating over them. China (as well as child advocacy groups in the U.S.) says that the feature exposes children to pornographic or violent materials. The move is the latest in a series of moves by the government to install mandatory software filters on PCs sold in China, all steps the government says are aimed at protecting children.

Other foreign websites, such as Google-owned YouTube, Facebook, and Flickr, have also been blocked as a result of China's stepped-up efforts to regulate Internet content access. Though protecting children is the stated aim of the policy, these moves come at a time when the Chinese government is concerned about commemorations of the twentieth anniversary of the Tiananmen Square crackdown and nervous about the explosion of ethnic violence in its restive Xinjiang region. Many observers, therefore, think the more stringent regulations are more about asserting political control than shielding young eyes.

Western Internet sites are caught between a rock and a hard place with China's latest regulations. Failure to comply shuts them out of the huge and growing Chinese market, but appearing to bend to what many view as censorship opens them to criticism that they are complicit with China's authoritarian government, and that may hurt them in Western markets.

The implications of these moves are considerable for foreign companies trying to wrest market share from Beijing-based leader Baidu. Google has recently lost further share to Baidu, and Bing will have to overcome this latest hurdle if it wants to make a splash in China. Western technology companies need to consider how their products and services may be affected by government policies on content, and whether gains they may make by complying with Chinese rules are worth the cost they may incur elsewhere.

Google's China Push Tests Out New Business Models

Last week, the Wall Street Journal (WSJ) delved into Google’s latest strategy to compete with Baidu, a formidable (and market-leading) search engine competitor in the Chinese market. Google has not been shy about its plans to beat Baidu on their home turf and a new joint venture with a Chinese online music company shows they are going for Baidu’s jugular. Baidu’s success rests precariously on popular free, unlicensed music downloads, straining relationships with the Chinese (and global) music industry. Google’s strategy to compete in China features free, high-quality, licensed music downloads in return for a share of ad revenues and download data for music labels.

While the WSJ focused on the horse race between Google and Baidu in China, they undervalued the article’s true technology business nugget – the music industry’s willingness to sign on to an entirely new business model. Universal Music Group has already agreed to participate in Google’s new scheme, and EMI Group, Sony BMG Music Entertainment, and Warner Music are interested. Vital Wave Consulting research has found that a non-traditional partner paired with a new business model can be a potent mix in emerging markets like China. And emerging-market consumers - even those with little disposable income – rank entertainment high on their list of basic needs. With music industry sales down and illegal music downloads outnumbering licensed downloads 20-to-1 worldwide, the timing is right for music labels to consider new ways of profiting from the ubiquitous online distribution of songs. With this solution, Google may manage to find a way to meet user demands for free music with the blessing of the record labels. Moreover, with China Mobile already signed on as a key partner for Android (Google’s open source mobile platform), this could have far-reaching implications for song distribution via mobile phones in one of the world’s largest markets.

If Google successfully applies this model in China, there is little to stop them from expanding it to the developed world. The flow of developing-country innovations to mature markets is increasingly common (e.g., pre-paid phone cards and mobile payments). Google’s music distribution scheme could eventually affect the technology and entertainment industries in the U.S. and Europe. The search giant’s competitors would be wise to secure non-traditional entertainment partners who would value alternative monetization schemes such as ad revenues. These creative partnerships will attract eyeballs and revenues in markets worldwide.

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• Handset manufacturers learn emerging market lessons
• Government rhetoric slows ICT growth in Africa
• Mobile phone, not PC, bridges digital divide