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Google ramping up investments in China

Like almost all of the US 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 on Friday, Google struck a deal to invest about US$5 million in one of the country's fastest-growing Internet start-ups, a company called Xunlei.com (迅雷), according to people close to the deal.

That follows another hook-up earlier this week, when Google said it would team with China Mobile (中國移動通信), the country's dominant, government-owned mobile telephone carrier, to offer mobile search services using the Internet.

In 2005, the company lured Lee Kai-fu (李開復), 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 US$1.65 billion acquisition of YouTube.com 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 US.

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."

Baidu.com (百度) is the dominant search engine in China. The Chinese Internet start-up, which began operating only a few years ago, 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 in the company for a huge gain last year, after Baidu went public on the NASDAQ. Other big brand names here are Sina (新浪), Sohu (搜狐), NetEase (網易) and Alibaba.com (阿里巴巴).

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 Baidu.com is downloading music through its MP3 program search service.

Xunlei, based in the southern city of Shenzhen, is gaining popularity. Officials at Xunlei.com 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.

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 US Internet giants are increasingly looking for Chinese partners.
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