Friday, March 23, 2007

Top 10 Mistakes of US Internet Giants in China

Many textbooks in China are filled with case studies of Ebay, Yahoo, and Google. These translated internet books displayed in the bookstore are full of successful US internet companies about how user friendly their products are and how advanced their technologies are.

However, in reality the story is completely different. US internet companies in china are usually quite inadequate in their development for the local market here. They are generally under performing. On the contrary, the US Internet Giants' local chinese counterparts have been performing well as they had never followed any of the US internet methodologies. As a matter of fact, they often do business in the complete opposite way.

Many had questioned the reason for their failures but most of the analysis had been shallow and vague and unable to get to the root of the failures. Based on my personal opinion and observation, they fail mainly because of the wrong concept of doing things. They have good strategies, smartest human resources money can buy, adequate investments, best products and services, and best in world class technology. However, without changing their business concept, there is hardly any chance that the US Internet companies can succeed here in China.

1. Targeting only the top white collars and not the whole of China

It is a huge mistake that the US internet giants failed to realize. All their top executives are from Hong Kong or Taiwan or the US; all their employees are working in posh and lavish offices in Shanghai and Beijing. Their visions are limited.

White-collars and top 500 corporations are primary target customers of their overall marketing promotions. They failed to consider general public and small businesses.Their education, aptitudes and vision lead to the exclusion of the majority population of china. They often ignore those kids in the internet cafes and those internet users from thousands of small towns (Note these two groups already account for more than half of China's internet population).

They usually use the popular gmail and msn, but not 163 and QQ. They know too little of their targeted groups and unwilling to change to the requirements in China. In China, in order to become mainstream, you have to understand the demand and requirements of the internet users in China.

2. The US Internet companies are afraid of negative press news
The US Internet companies are afraid of bad press releases while the Chinese Internet companies are only worried about not having negative news. They believe that the best promotion is to let thousands of people "hate or despise" you.

Getting 10 times higher salary working for the US Internet companies, most of their staff are fearful of losing their jobs. They'd rather have no performance instead of making more mistakes. They take no risk and keep low key. They are timid, polite, and well educated, but not ready to work their hearts out. At the end, they are often bloody beaten by their aggressive chinese counterparts.

3. The US Internet companies spent too long planning
US Internet companies alway have a long term plan. They spend a lot of money on all kinds of marketing research and planning. They also plan for the many years into the future. Once the plan is finalized, it’s not easy to change.

Internet is an unique industry, it doesn't work in the same way in China. You have to be agile and flexible to move quickly as the market environment and dynamics change fast in China. Both ebay and yahoo have accepted their failures in China. The US Internet companies are better off to stand up and fight from the beginning instead of moving slowly.

Many competitors in China only seek quick wins. Their philosophy is Quick-Straight-Win it. Mr. Ma, Yun (founder of, who took over yahoo China) used to setup gorilla-style team working in a closed camp, focusing on quick strategies, doing fast paced small cycles, and correcting mistakes while on the run. US Internet companies, on the other hand, usually build perfect plan and budget. If a trash can is not in the budget, it will take more than a month to be approved. It's generally doomed if everything has to be approved in the US.

4. Chinese companies are Goal oriented
I heard that Ma manages his team like gangs. First he sets a target eg, to achieve certain traffic number this year, or to register high numbers of users next year, etc. Next, the entire team works toward the goal by all means. If the target is met, everybody gets a good piece of the reward. His team will do whatever it takes to meet the objectives : spyware, bundling, soft porn, and other inappropriate promotion approaches. A typical Chinese-style website doesn’t care about how the results were achieved. So long as it doesn't break the law, they will do it.

However, US Internet companies keep many metrics under lots of considerations. They have to maintain their brand image, keep their reputations as an international company, and be professional with all its undertakings.

5. Understanding the Users' real needs
The US Internet companies are good at building services with good user experience. But they usually over cooked it. If considering too much about users, user friendly design can limit the growth. Chinese Internet users are quite independent that they usually decide what they want to use and how they want to use it. You dont really care with what you want to offer them.
Do you know the real reason why ICQ failed and left the China market? ICQ paid too much attention on user privacy issue. When they launched the service in China, user could only keep their information on the local computer. If you switch to a new computer, in order to best protect user's privacy, all your previous data are not available on the new computer. This is perfect for using ICQ on your home computer. However, it's completely senseless for Chinese user. ICQ has never recognized it even after leaving China. However, as the technical contact of ICQ's partner company in China, Mr. Ma, Huateng learned the technology of instant messaging and understood the Chinese users’ habit of getting online in Internet cafes (US employees would never understand what Internet cafes are). So, he made only some minor changes disregarding the so-called privacy protection, and then kicked ICQ out of the China.

6. Wrong strategy in building user base
Many US sites are praised in China for the marketing campaign but unable to make money. They all have the amazingly same marketing strategy: hire a 4A advertising company to design a set of elegant advertisement; put ads on subways and bus stations; make some web based ads for the niche market of white-collar; pay big bucks to top 3 portals to distribute the ads; spend a lot to buy google keywords (note they don't use Baidu, since they only see google and msn in their eyes). Everybody loves their ads, but no one visits their websites. Even if there are a few visitors, the cost is way too high. Sometime it costs more than 1000RMB (130$) per new user. .
Chinese competitors alway pursuit traffic as the first priority. They think that big traffic is the best promotion for brand and all those falsifying brand establishments are useless. The only purpose of marketing is to bring in users, but not products. And they always want to pay less but accomplish more.

US Internet companies normally have to pay 10,000RMB for 100 high-end targeted users. Chinese counterparts, on the other hand, spent 1,000RMB to recruit 10,000 random customers. So there is a huge difference on the efficiency. Common sense is so important, but its often forgotten by the smartest people.

7. US internet companies are always focusing on the top end market
American style marketing strategy concentrates heavily on establishing brands (such as using outdoor ad sign). It’s hard to pull the market forward that way. Chinese websites seldom do any advertisement solely for their brands. They like pull-style proactive promotions in order to create speculations, direct revenue, and popularity. And in many cases, users are forced to view ads.

Chinese marketing specialist has studied the difference between and eBay China's advertisement. Both of them use similar banner ads to promote products from their inventory. With the same expense, Taobao is 10 times more productive than eBay China. Why?

Because eBay lists out merchandises like iPod, Zippo, etc. But those are mainly for high end market. Most people don't read English and can't afford them.

Taobao's ads include lots of eye-catching items like sexy underware, spanish fly, and etc.

Those Chinese returnees working at American companies may not understand these: they would rather invest 100 mils on a clean and fashion advertisement to bring up 10 millions users, but not spend 10 mils on a low-taste advertisement which are visited by 100 millions users.
If US sites can only get 1/10 advertising efficiency as their Chinese competitors, they are destined to fail.

8. US Internet companies rely too much on emails and msn
90% of the communication between US employees are done by emails. And they feel good about using English. Even a simple matter which can be done within 1 min on the phone will require 10 emails back and forth. In many cases, email and msn are not efficient at all. After Mr. Zhou, Hongyi took over the management of Yahoo China, there was a serious conflict between two cultures. Most of the original Yahoo employees use email to communicate with customers and partners, instead of meeting and having dinner with them. After getting rid of those people, Yahoo's business has improved tremendously.

It's said that in a US based Chinese company, if there is one American in a meeting with 20 or 30 Chinese, everybody will communicate in English. It's completely not practical. They have to understand that they are doing business in China, and its more practical to speak chinese.

9. US Internet companies fail to understand the basic local website design
First glance at a website, you can guess the origin of the site even without knowing its background. US websites are clean, simple, but beautiful. They hide the good stuff inside, and believe the concept of "don't be afraid of letting your customer find your good stuff". It seems to be the taste of an international company. Although loved by 20% of the high-end users, 80% of average users will just exit after a quick view of its cold and clean design.

Their Chinese competitors, on the other side, put vivid banners floating around, pile up all the good stuff into the front page, and disregard the importance of elegant design.

Even today, the ex-Yahoo employees show no respect to simple to death page with a horrible design of putting tons of links all together. But only a few years ago, Yahoo tried to make a portal funded with 1 billion bucks and headed by dozens of MBA and returnee, elites from HK and TW. But they were pathetically defeated by a junior high school graduate in Guangdong. He single handed created and maintained with zero marketing expense, leading in all PVs, UVs, and advertising metrics way ahead of Yahoo.

10. US Internet companies hiring the wrong candidates
US Internet companies focus too much on communication and teamwork during recruiting. So they hire all those stereotypes persons: diligent, careful, cooperative, never messing up and making perfect power point presentation. They always prefer candidates from Hong Kong, Taiwan, or oversea returnees. They formed a closed circle not letting others in. Therefore, they naturally agree on website style, products and promotions.

Chinese counterparts on the other hand hire any decisive, risk-taking, and hard working type of people. Although they have different skills and experiences, they are all full of entrepreneurial spirit. They build the winning website!

It is true that many US Internet companies have huge reputation and fame in China. Their products are also great too. Even before they enter the Chinese market, they have alot of press coverage. Who doesn't know eBay or Google? A native Chinese website however has to spend 1 billion to get to the same level. But Chinese Internet market is not about branding yet. It's still in an early phase but pragmatic phase. It's useless to only talk about abstract concepts. Those who work for US Internet companies have to firmly rectify these 10 mistakes, and change their perception to fit into the Chinese market: first give what the Chinese customers want and build and develop guanxi with the government. Once they are able to do this, I m sure they are ready to see great growth.

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