It seems every single news outlet has published a line similar to this over the last week: “The tech world has been abuzz with talk of Google’s rumored secret plan to return to China.”
Rumors, however, are just another form of gossip. They’re unconfirmed, without much evidence to support them.
Google has been very active in China since the beginning of the year, setting up offices, making major investments, launching a WeChat Mini Program, and announcing deal after deal with Tencent, with whom they very clearly seem to be teaming up, at least when it comes to the China market. From what I’ve been hearing in China’s tech HR circles, they’ve been recruiting aggressively in the Middle Kingdom since 2017, if not earlier.
When The Intercept reported last week that Google had secretly been working on a China-friendly search app, it was surely significant news. But this is 2018, folks. Search is only one part of the wide array of functions performed company at the heart of the world’s internet. No, Google is not planning a return to China. Google has been returning to China.
That being said, nothing in China is ever a 100-percent certainty. The political and regulatory winds are always changing. However, it seems that a general direction has been agreed upon: When looking at the foreseeable future of the Chinese internet, Google will be playing a role.
But what does that mean for everyone else in a competitive environment that is already notoriously fierce? Well, here are some likely winners, probable losers, and some questions that have yet to be answered:
Winners:
Users of the Chinese internet
Baidu and Sogou, China’s two top search engines, are each formidable in their own right. In fact, when Google largely left the China market in 2010, Baidu was already a noteworthy competitor, if not the search engine of choice for the Chinese internet.
However, there is a reasonable case to be made that the lack of competitive pressure has altogether weakened the quality of the internet available to those within the PRC. Baidu has drawn the ire of Chinese netizens numerous times for ethically questionable behavior. When founder and CEO Robin Li remarked earlier this year that Chinese internet users were “not interested in privacy,” well, that didn’t do much to improve the public’s already-fragile trust with his company.
Baidu has also simply not performed very well as a business. While the acronym BAT is often used to refer to China’s three most dominant internet giants (Baidu, Alibaba, Tencent), the “A” and “T” have left the “B” in their dust. Tencent and Alibaba have grown in value to rival their Silicon Valley counterparts, but Baidu is trading at roughly 78 billion USD as of August 8th, 2018. Compare that with Tencent’s 430 billion, Alibaba’s 458 billion, or Google’s 877 billion. Baidu has been dwarfed by its rivals.
At the very least, Google’s presence in China pressures its Chinese competitors to compete more aggressively and deliver a better service, but there is another benefit that Google offers as well. Google Search opens an improved window to the world. Try searching for anything in English on Baidu. It’s terrible. Even when complying with stricter Chinese internet regulations, Google will likely provide improved options for searching the web outside of China.
Tencent
With WeChat, Tencent is already in possession of the crown jewel of the Chinese internet. With key investments in JD and Meituan Dianping, it added two key sidekicks. However, it could be their partnership with Google that catapults them into the next level.
With a series of key agreements, it is becoming abundantly clear that Google is pairing up with Tencent for their China push, and strategically, this makes a lot of sense for Pony Ma and co.
The most obvious benefits are for dealing with their domestic competitors. In search, they can now give Baidu a run for their money, but that is just the beginning. Google is also reportedly developing a news aggregation app for the Chinese market. This is particularly significant because China’s current top news platform is Jinri Toutiao, owned and operated by super-unicorn Bytedance, with which Tencent has been very publicly feuding. Bytedance’s core strength is its AI-driven content recommendation engine, which Tencent has struggled to match. However, if Google’s AI were available, that would likely no longer be a problem.
And then there is what Google could bring to WeChat. The Tencent-owned super-app already takes up roughly one-third of China’s mobile data usage, and they’ve been expanding their functionality. WeChat Pay already handles a significant amount of the country’s financial transactions, its mini programs are a formidable challenge to conventional mobile apps, and a few months ago it began featuring a shopping function, in which users could browse and order from JD.com with just a few clicks. If Google Search were embedded into WeChat as well, it would be entirely conceivable for many in China to go through their whole digital day without ever leaving the WeChat app, making it effectively its own mobile operating system, overlaid on top of Android or iOS.
Finally, working with Google benefits with Tencent as they look outward. For whatever their global ambitions may be, there is no better partner to have than the home page of the global internet and the organizer of much of its data.
Google’s stock price
The stock of Google and its fellow top Silicon Valley superstars has been skyrocketing in recent years, and their shareholders have become accustomed to such growth. However, with the low-hanging fruit of profitability becoming scarcer, and regulators around now looking at them with a more skeptical eye, Google needs to find a new growth engine. China’s still-urbanizing population of 1.4 billion may provide just that.
China’s reputation among foreign companies
As trade tensions have heightened, China has come under criticism, with many questioning whether it is still a welcoming place for foreign businesses to set up shop. The US business community in particular, once China’s strongest ally in Washington, seem to have lost enthusiasm for the Middle Kingdom. The American Chamber of Commerce in China’s annual Business Climate Survey has shown US businesses growing steadily less optimistic about the country’s growth potential, and grumbling about the regulatory environment there. This has not been eased by the PRC’s tightening internet regulations.
By welcoming Google back, China is sending a clear message to the global business community that they are indeed still open for business. Whether that is, in fact, true remains to be seen, but the PR of such a high-profile re-entry is likely to have a positive effect for them.
It’s no secret that Facebook greatly covets the China market. Mark Zuckerberg has gone to lengths that few other major global CEOs have in currying favor with Beijing’s top leaders. Thus far, his efforts seem to be of little avail, but that may be changing in the near future. If Beijing opens a door to Google, it provides a playbook for Facebook to get in as well. Last month, they opened a short-lived subsidiary in Hangzhou, before being pulled by one of the country’s central internet regulators. While not quite successful yet, it seems they are making headway.
Losers:
Bytedance
With Google’s proficiency in content aggregation and recommendation in tandem with the stickiness of the WeChat ecosystem, Team Tencent may finally have a news app that could give Jinri Toutiao a run for its money. As Bytedance has also struggled to remain on the good side of China’s internet regulators, the presence of a strong alternative to Toutiao allows the government to tighten the screws on Zhang Yiming and co. if they feel the need to do so. Google is also a competitor for top AI engineering talent in China, and surely has their sights set on some of Bytedance’s top people. They may currently hold the title of the world’s most valuable unicorn, but with Google in China, things are about to get more difficult.
Sogou
China’s second-largest search engine has had strong backing from Tencent. Before they went public last year, Tencent owned 44 percent of Sogou, and it was the default search engine of their popular QQ messaging app. However, Sogou is no Google. Pardon the obvious pun, but Pony Ma loves a horserace. Tencent has been known to use internal competition to drive product development, and they may be doing something similar with Sogou and Google. It does seem hard, though, to see how Sogou can compete. To somewhat mix metaphors, Sogou is at the starting line with a Volkswagon Golf. Google is rolling up in a Ferrari.
Alibaba
In their competition over China’s internet, Alibaba and Tencent have been matching each other tit for tat. Alibaba has TMall and Taobao, Tencent has JD. Tencent has Meituan-Dianping, Alibaba has Ele.me. While Alibaba has struggled to dominate the social media space the way that Tencent’s WeChat has, Alibaba’s cloud platform seems to be leaving Tencent’s in its dust.
However, a partnership between Google and Tencent on cloud services, which seems to be in the works, could quickly erase the lead that Alibaba Cloud has built.
The most obvious counter-move for Ali would be to partner with Facebook, and there is some evidence to suggest that they are thinking along those lines. If Tencent can work with Google to knock Alibaba back from their lead in cloud, an Alibaba-Facebook alliance would be a strong countermove to attack Tencent’s home turf of social media.
Google’s brand
When Google pulled out of China in 2010, it salvaged moral high ground from its rapidly deteriorating position in the Middle Kingdom by saying that it was standing firmly by its famous “don’t do evil” principle. As they re-enter China, they are receiving a torrent of criticism from journalists, rights advocates, US lawmakers, and even their own employees.
To be clear, the whole “don’t be evil” thing is a bit overly simplistic. Silicon Valley is not “good,” and the Chinese internet is far from “evil,” and just about anyone who has worked in the tech industry in either China or the US knows that there is plenty of good and quite a bit of evil in both. Google is not shedding a white hat for a black one. Their hat has always been some shade of gray.
But it is evident that Google has chosen to distance itself somewhat from its do-gooder image, and that has caused a bit of a backlash among employees and users who would like to feel as though they are working for and supporting the “good guys.” Earlier this year, Google removed “don’t be evil” from its code of conduct, drawing public consternation. It also pulled out of a lucrative contract to work on AI-enabled weaponry for the US military after objection from employees made the drawbacks of the project not worth the benefit.
The way some see it, Google is simply now honestly recognizing the moral complexity in which they’ve always dealt. The way others see it, they are abandoning their core principles. Either way, it is hard to see how their brand does not end up taking a hit.
Questions:
Alibaba and Facebook: Will they or won’t they?
This is really starting to look like Ross and Rachel in the first few seasons of Friends. We know they’re right for each other, we know they both want it, we just don’t know if, when, or how the stars will align to finally make it happen.
Facebook seemed to be making their intentions quite clear when they registered their short-lived subsidiary last month in Hangzhou, home of Alibaba’s headquarters. For now, however, we are left to speculate with amusement…
Will Tencent and Google be teaming up outside of China as well?
It’s clear that Tencent has global ambitions, and they seem to be building a series of alliances with major international firms. In addition to the well-documented Google deals, they’ve been getting closer to Walmart as well, who just recently announced a major investment in Tencent-backed grocery delivery service Dada-JD Daojia.
While these alliances seem to be currently focused on the China market, they may prove valuable outside of China as well. As Amazon and Alibaba continue their aggressive global growth, a Google-Walmart-Tencent/JD “big three” could potentially be very formidable.
Will it even work? If it does, how far can Google go?
Google in China makes a lot of sense for Google, Tencent, and for many reasons, for China as a whole. But of course, it is far more complicated than that. There are regulatory and political hurdles in both China and the US, and this is not a period where the two governments are getting along particularly well. There are many ways in which Google China could foreseeably become a casualty of US-China tensions.
And then there are the simple questions of if and how Google can actually succeed in competing with Chinese competitors and cooperating with its Chinese partners. It is unlikely that Google will be able to understand the Chinese consumer in the way that its domestic rivals do, and they are likely to find that the landscape is unfamiliar terrain. The corporate cultures of Tencent and Google are very different, and they may not mesh in practice as well as they do in theory.
Whatever happens, it is likely to provide an overall benefit to China’s internet users and to be an entertaining story to follow for China’s internet-industry-watchers.
I, for one, have my popcorn ready.