Author Topic: Google Makes Another Investment in the Internet in China  (Read 1989 times)

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Offline Mahgul

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Google Makes Another Investment in the Internet in China
« on: January 07, 2007, 06:27:28 PM »
SHANGHAI, Jan. 5 — Like almost all of the American Internet giants that have ventured this far, Google is losing in China. So too, are eBay, Yahoo and Amazon. But flush with cash, Google — the world’s leading search engine company — is beginning to invest heavily in research and development here. In its latest move, announced Friday, Google struck a deal to invest about $5 million in one of the country’s fastest-growing Internet start-ups,, according to people close to the deal.

That follows another hook-up this week, when Google said it would team with China Mobile, the country’s dominant, government-owned mobile telephone carrier, to offer mobile search services using the Internet.

In 2005, the company lured Kaifu Lee, the former head of Microsoft research in China, to shore up its base here. And now the company is looking to sprinkle investments in start-ups and partnerships with Chinese companies.

The investment in Xunlei is small compared with Google’s $1.65 billion acquisition of last October. But the deals announced this week are an attempt to be smarter about breaking into China’s fast-growing but complex Internet market, which now has about 130 million users, making it second in size only to the United States.

With Xunlei, Google gains another path into the rapidly growing demand in China for downloading music and video over the Internet.

“It’s not YouTube, but it’s close enough,” says Richard Ji, an Internet analyst at Morgan Stanley. “Xunlei is a very interesting company. It’s a leader in video downloading and so this should help Google in the battle with Baidu.” is the 500-pound gorilla in China. The company, an Internet search engine start-up began operating only a few years ago and has one of the most-trafficked Web sites in the world. The look of its home page is similar to that of Google, which invested in Baidu several years ago, but then sold its small stake for a huge gain last year, after Baidu went public on the Nasdaq. Other big brand names here are Sina, Sohu, NetEase and

According to iResearch, which tracks the search engine market here, Baidu had a commanding 63 percent share of the market in October, the most recent period for which data is available. Google was second, with 19 percent. Yahoo had only 7.6 percent of the market.

One of the most popular features on is downloading music through its MP3 program search service.

Xunlei, based in the southern city of Shenzhen, is gaining popularity. It was started by two computer science graduate students from Duke University, Zou Shenglong and Cheng Hao, in Silicon Valley in 2002. Mr. Zou had previously worked as a technician in Silicon Valley and Mr. Cheng was once a senior manager at Baidu. After getting $20 million in venture backing from Morningside Ventures and IDG VC Partners and moving the company to China in 2003, seems to have great promise.

Officials at say that more than 120 million people have used its software, and the company has also signed up some major advertisers, including KFC and Motorola.

Dick X. Wei, an Internet analyst at J. P. Morgan, says a partnership between Google and Xunlei can enhance video and music search content for Google, help Google bolster traffic growth in China and help the company better compete against Baidu.

In announcing the deal on Friday, Kaifu Lee, the president of Google Greater China, said Xunlei’s Web site would provide a solid platform for Google. That would help it gain a foothold in the country’s booming market for downloading things like video and music, online games, software and cellphone ring tones.

Last month, eBay’s struggling China operation was forced to team with, a Beijing-based Internet company controlled by the Hong Kong billionaire Li Ka-shing.

Other major American companies have stumbled in China. Monster .com bought China HR, then lost market share. bought, and lost market share. acquired a big Chinese Internet travel company and slipped. And a few years ago, Yahoo bought, its biggest competitor here, then handed its operations over to

“The globally dominant U.S. Internet companies have failed to take the No. 1 market share position in any category,” said Jason Brueschke, an Internet analyst at Citigroup. “And so there’s something fundamentally different about this market.”

Some analysts say China’s tight regulatory controls over the Internet favor Chinese companies. They also say Chinese companies have been better at creating Internet products for the particular taste of the Chinese. For that reason, some American Internet giants are increasingly looking for Chinese partners.