Friday, September 23, 2005

Deep Impact - Google collide with Baidu in Chinese Market (1)

On Sept. 5, Google made an anouncement at Mountain View in California that they have released a new search service for Chinese users - the search. The new service let Chinese users to search listings of local businesses, maps and related local information. Such as the nearby restaurants and coffee shops.

This is the second time Google has released services specially tailored for Chinese users. Earlier in June, Google released college search service right after the national college entrance exams to help users find related information from Chinese colleges.

In fact, the real milestone of Google's entrance into China was achieved early in September. They quietly broke the regulatory restriction, sailed smoothly onto the the CERNET, the Chinese educational and research internet network. At the same time, they have partnered four Chinese channel resalers: China Enterprise, Shanghai Hotsales, Xiamen ZZY, and Dong Wan Moveage. The total number of salespersons is already surpassed 10,000. Though they were still tangled in the messy law suit with Kai-Fu Lee's former employer, Microsoft, Google's China march has not slowed down a little bit.

Every move by Google is now a media focus in China. At the same time, Google's rivalry Baidu is also become a media star after it's IPO. The previously low-keyed CEO of Baidu, Yanhong Li rode on the frenzy by appearing on TV, interviews with newspaper, online media which both directly and indirectly increased Baidu's brand awareness. The American investors admired "Chinese Google" is ready for the battle against Google's challenge.

According to latest CNNIC report on internet usage around Beijing area, Chinese search market is basically dominated by two players. The top two are way ahead of the others. Number one Baidu owns 51.5%, number two Google owns 32.9%, number three Sougou owns 4.6%. Baidu and Google take a combined 84.4% market share for first search choice. How to distance itself from it's competitor has become a major challenge facing Baidu, not to mention the competition comes from the world search power, Google.

Collision in the Channels

Yizhuang Economic Development Zone is only a few miles outside Beijing. One of Google's channel partner, China Enterprise has its headquarter here. This is a company with more than 60 subsidiaries nationwide and have a sales team of over 6000 people specializing in IT services for small and medium businesses. They have access to over 20,000 business customers. "Google chose us for our customer resources, technical competence, as well as our operational capabilities". Vice-president of China Enterprise, Fang Yu said.

On Sept. 3, China Enterprise held a sales pitch in Shanghai. China Enterprise and Google tried very hard to give the several hundred small and medium business audiences a "brain wash". They tried to gain their acceptance for the Adwords auctioned ranking system. This kind of meeting is common sales technique for channel resalers. China Enterprise has already co-sponsored a similar sales meeting with Google at Beijing earlier. They intend to have similar meetings nationwide.

"Unquestionably, Google hopes our 20, 000 Chinese business customers to become their resources." Fang Yu said. "For our part, we hope to further collaborate with Google on the technology aspect." In charge of China Enterprise's strategic plan, he hopes the collaboration will increase the technological level in their own product offerings.

Auctioned ranking system is the major income source for both Baidu and Google. But for small and medium business owners in China, it is hard to understand this kind of advertisement. "you can't explain to them in 10 minutes." Fang Yu said. So, China Enterprise incorporated Adwords into their small and medium business service platform and then sell them as a package. "We are kind of like insurance salespeople. Customer give us a bid price, we give them a solution."

Similarly, Google's other three partners are also using different methods to achieve sales goal. However, these resalers are all nationwide representatives. In regional market, it may cause friction among these partners when they compete for the same customer in the same province. Although the partners saying the market is bigger enough for all to share, there still worries. "Google's authorization lasts only one year usually. So by next spring, the landscape of Google's authorizations in China could change dramatically. Now, everyone is under pressure", said one resaler.

Contrast with Google's nationwide channels, Baidu is using regional channels and direct sales. They currently have more than 50 primary partners. Earlier this year, they even bought one channel partner in Shanghai and then change it into Baidu's Shanghai subsidiary. One common nature of these regional channels is that Baidu trains them in their own hands and share growth with them. In this way, Baidu gained stronger control over them. And these partners are more dependent on Baidu too.

"The channels chosen by Baidu are usually small startups with a few dozens of people. Many grew up to several hundreds through collaborations with Baidu. Currently, the biggest Baidu channel partner has only slightly over 300 people. And besides Baidu's product, they don't have many other service offerings." said Baidu's marketing chief Xun Shu.

On the aspect of sales channels, local internet companies are clearly more experienced. Since "overlapping regional competition" occurs , after some difficult experiences, Baidu quickly changed the nationwide channel model. Instead, they started using local channel partners and establishing regional subsidiaries as a more specialized channel system. "Google probably has to pay more tuitions to learn here" Xun Shu said.

The senior analyst from Analysys, Liling Sun has different opinion. He thinks in the early stage of Google's entry into China, nationwide channel partners are still the best choices. Using nationwide partners costs less. More importantly, they are already mature and can penetrate the market quickly. From long term view, local channels have their own limitations such as the small scale and can be overpowered in competition.

Google's sales team come down like a torrid rain. According to one of Baidu's manager, many Baidu's autioned ranking services was in monopoly in many regions. Now there are already trends of distribution. Especially, many small and medium businesses have yet used Baidu's products. They are likely to access directly to Google's auctioned ranking services.

Managers from China Enterprise have confirmed that, on the same day they signed deal with Google, they have received countless phone calls inquiring about the service. Among them are also many smaller channels willing to be secondary partners.

Baidu isn't stay still though. Start at begining of this year, Baidu has significantly increased investment in supporting channels, marketing enhancement, customer service as well as in operations. In the first half, the recently established branches of business marketing and sales operations will be deeply involved in guiding regional marketing and sales models, and in training channel partners. "Our current focus will be on standardizing of sales flow and value enhancement of services", Shu said. They also grabbed Feng Zhou from Dell Computer to be their general manager of sales operations.

The purpose of this huge effort on the channels is to make the auctioned ranking services a standard model and procedure, and replicate itself among the regional channel resalers. Further spreading the services will help Baidu put their fate in their own hands.

(to be continued) -->Part 2


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