Tech Market WatchBy Perry Wu
The ongoing Microsoft (MSFT) and Google (GOOG) fracas over the hire of a top China executive is the tip of a greater struggle between these two companies.

China is a geographic battleground for the worldwide fight between Google and Microsoft. If Google wants to win the war worldwide it needs to eventually win the China battle.

Chinese companies like (SOHU) dropped the ball years ago on Chinese search and therefore Google has a great opportunity in China. Sohu started with a simple gossamer-threaded search directory around 1997, then moved to a search engine model. But Sohu put all that work on the backburner (along with their browser and website and a bunch of other things that sounded great in press releases) and dove into a full-fledged web portal by the turn of the millennium. Other Chinese companies also lost sight of the Web's early need for great search engines and went instead into content and multimedia aggregation.

Since then, Sohu has attempted to regain its glory with the purchase of some search and map services, but it is too little, too late. I can feel the boardroom at Sohu sliding down its slippery slope into second-tierdom glory.

Google wants to grab the advertising dollars, and now in China the only direct way to enable a cash business like this is for Google is to build a business on Chinese turf. This being said, in China Google outsources much of their advertising-related services to intermediaries like Shanghai's Hotsales Company. So whether it actually needs to step foot in the Middle Kingdom is questionable. It needs to only have Hotsales send its converted currency checks to offshore accounts. This takes a little accounting voodoo, but it is possible.

The online search business is also a political business. China's Internet is closely monitored, and without close Chinese government supervision, Google can easily become the hostess leading Chinese web surfers into dens of sin. This is why services like Google's web caching feature have been fuwu non grata in China for at least two years. And this is why it is important for Google to have great public relations professionals on the ground in China working with the Ministry of Information Industry, the Internet Society of China, and the National Public Security Bureau. Google can't wine and dine Chinese officials if it stays on its California campus.

In many ways Google can also outsource much of its development work to China, where programmers are cheaper than in the US and the quality can be better. However, like any business–domestic or foreign–in China, Google must make sure its employees' brains are not drained to other businesses or start-ups.

Tech companies in China often unwittingly train their employees in best-practices for a specific sector, and then employees literally moonlight in the evening for other companies. Or those employees leave after a brief stay and move to other businesses. Non-compete clauses, though increasingly enforced in China, are still shrugged off in many instances. Google's legal fight in the United States over Google's hiring of a former Microsoft executive is nothing compared to the migrations seen in the Chinese technology world. One acquaintance tells the story of hiring one of's top programmers to work for him and his clients on the weekends. Everyone has a price.

Which Google services will most appeal to Chinese users? Most likely all of them will. Services like the Google Desktop already have stiff competition for the desktop space of Chinese users who use QQ's software. And the recent roll-out of Google Bendi ( provides fantastic map coverage, though Google has competition from other longer-running online mapping businesses in China. And from anecdotal evidence, it seems like every web surfer thinks Google's search goes deeper than rival Baidu's (BIDU).

Ultimately, it comes down to fickle users. Over the last 10 years of the Web's existence, there have been a few dynamic changes in how people use the Web's services. As difficult as it is to comprehend people not using Google in 2 years, it is a very real possibility. Business models are constantly being usurped.

Who would have believed a few years ago that the Netscape-branded browser would one day not exist in all its flavor? Who in North America ever believed that services like [email protected] and Napster would disappear? Who in China ever thought that could-have-been, would-have-been companies like and would be consumed by their own avarice? Who would have ever thought that the lifestyle portal would rise from the dead and morph into a travel-only company?

But do you know who will be the ultimate winner in China and around the world? Microsoft.

If you are reading this article now, most likely you are in the tech business and could qualify as an early adopter of certain technologies. As an early adopter, you probably use the Firefox browser, maybe bought an iPod the first week it was launched, and have a Treo 650 smartphone. But think about the other 99.9% of the world that is just happy to turn their computers on each day and have their MSN instant messaging software start automatically. Think about your colleague who, after using computers for 15 years, is amazed one day to discover what "Ctrl+Z" does on a Windows-powered computer. Those users will use whatever is already installed on their computers.

The browser and the operating system are the two main battlegrounds to win and keep users. Google now has neither. Mozilla has a great browser, but Microsoft promises to soon provide updates to its Internet Explorer browser that will make Mozilla obsolete–again–on Windows machines.

Microsoft's Vista operating system will be unveiled in a year. Vista promises to include in its operating system all the search functions that Google currently makes available as free downloads to users. Microsoft is rarely a trendsetter, but when it wants to kill a competing service it can launch itself headlong into research and development.

And in China, after Vista is launched, there will be bootleg copies of the Vista OS that will allow millions of Chinese to upgrade and use all of Microsoft's great new features. Those that did use Google's services before the upgrade, may not need them again. And around the world, many new Vista users will also keep the de facto Microsoft system in place and not download any of Google's services.

For Google to wish to compete with Microsoft, it will need to create a new computing paradigm. What type of paradigm? Sorry, I have no idea as I do not get paid by Google to sit around and think about these things. But a new paradigm, indeed, is needed if Google ever hopes to be more than an interesting blip in Internet history.

For China, then, Google might win a few battles, but it cannot win the worldwide war unless it can amaze all of us with an entirely new way of looking at computers in the next three years.

About the author:
Perry Wu is a writer and correspondent for and can be reached here at the site. Perry Wu does not hold any positions, long or short, on any of the Chinese or American company securities mentioned in this article.


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