Last year, Google hired with much fanfare Kai-Fu Lee, the former exec from Microsoft whom Bill Gates had sent to China in 1998 to launch Microsoft’s Asia research center. Lee has been busy building a Google team in China, but so far the results have pretty disappointing. Google trails market leader and, according to one research firm, has actually lost market share in the year since Lee’s arrival. (See my BW story on Google here for more on the company’s China problems.)

Lee says that the game is just getting started, and he expresses confidence that Google will be able to muscle its way to the top. He may be right; after all, not many people have won by betting against Google. But Google China may have a bigger problem than just Baidu or any of the other Chinese Internet companies looking to expand their search business. Lee and the other Google China executives have to contend with a government that is probably less than thrilled at the idea of the U.S. company extending its dominance into Chinese cyberspace. Google has played by the Chinese rules when it comes to censorship, but with reservations. To its credit, when Google China does filter out search results, the company makes a point of letting its users know that they’re getting censored searches. Not the sort of thing that reassures Beijing cadres that you’re on their side. Adding to their unease were comments that Sergey Brin made back in June, expressing ambivalence about whether Google made the right decision by agreeing to go along with censorship in the first place. “Perhaps now the principled approach makes more sense,” he mused to reporters.

I doubt such comments reassure free-speech advocates in the U.S.; it's hard to convince them that Google has stayed true to its don't-be-evil ethos. Meanwhile, Google hasn't won friends in China. Chinese officials, the state-controlled press and ordinary citizens are pretty sensitive to perceived insults. Microsoft learned that lesson back in the early 1990s, when it announced that it was making its Taiwan office the company’s Greater China headquarters, a snub that Communists in Beijing remembered for years. Now, says one high-tech analyst whom I can’t identify, “you have a couple of Google guys who made the same mistake that Bill Gates did, who screwed his own company for five years.” Adds this analyst: “Saying ‘We don’t need China,’ that doesn’t play too well.”

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