Microsoft Will Continue China Strategy in Search, Cloud

Microsoft executives have indicated repeatedly that the company intends to stay in China and compete aggressively for the search and cloud-computing markets, despite some recent controversy in which Google briefly threatened to end its operations in China. Both Microsoft and Google lag behind homegrown Chinese search engine Baidu in that market, considered one of the world's fastest-growing. Microsoft CEO Steve Ballmer and Google CEO Eric Schmidt have reaffirmed their commitment to human rights within the context of doing business in China.

A Microsoft executive indicated that the company plans to stay the course in China, despite the recent dispute between Google and the Chinese government that saw the search engine giant threatening to pull its operations out of the country.

"Regardless of whether or not Google stays, we will aggressively promote our search and cloud computing [in China]," Zhang Ya-Qin, chairperson of Microsoft's Asia-Pacific R&D Group, told Reuters on March 5. "We hope to achieve a relatively important place in the China search market ... but we must be very patient, we need a lot of time."

Google threatened to pull out of China on Jan. 12 after a widespread cyber-attack that the company claimed targeted the Gmail accounts of Chinese human rights activists. The Chinese government has repudiated accusations that it was involved in the cyber-attacks, which additionally struck over 30 companies and supposedly originated from the Chinese mainland.

One of the pieces of malware involved in the attack, according to a Jan. 14 analysis by McAfee Labs, utilized a zero-day vulnerability present in Microsoft Internet Explorer. Microsoft would later pinpoint that vulnerability as an invalid pointer reference affecting Internet Explorer versions 6, 7 and 8.

"Accusation that the Chinese government participated in the cyber-attack, either in an explicit or inexplicit way, is groundless and aims to denigrate China," a spokesperson of the Chinese Ministry of Industry and Information Technology told the newspaper Xinhua in January. "We [are] firmly opposed to that."

During Google's fourth-quarter earnings call on Jan. 21, CEO Eric Schmidt seemed to retreat from Google's earlier, more belligerent position, saying, "We have made a strong statement [that] we wish to remain in China. We like the Chinese people. We like our Chinese employees. We like the business opportunities there and we would like to do that on somewhat different terms than we have. But we remain quite committed to being there."

On Jan. 29, Schmidt emphasized a similar line of argument at the World Economic Forum in Davos, Switzerland: "We love what China is doing as a country and its growth. We just don't like the censorship. We hope to apply some negotiation or pressure to make things better for the Chinese people."

But whether Microsoft sees the potential for some sort of opening in the aftermath of Google's conflict, or whether Microsoft's executives merely want to re-emphasize for the media that the company intends to keep cordial relations with the Chinese government, is information likely to be closely held by the strategists in Redmond, Wash.

"Engagement in China and around the world is very important to us, in part because we believe it accelerates access to 21st century technology and services and helps provide the widest possible range of ideas and information," Microsoft CEO Steve Ballmer wrote in a Jan. 27 post on the official Microsoft blog. "We have done business in China for more than 20 years and we intend to stay engaged, which means our business must respect the laws of China."

However, Ballmer added in that post, "Microsoft is opposed to restrictions on peaceful political expression, and we have conversations with governments to make our views known. In every country in which we operate, including China, Microsoft requires proper legal authority before we remove any Internet content; and if we remove content, we give users notice."

Within China, Google and Microsoft in search lag behind homegrown search engine Baidu, which commanded 56 percent of that market at the end of 2009, as compared with Google's 43 percent. According to analytics company StatCounter, Yahoo and Bing's combined share of the Chinese search market stood at around 1.18 percent through 2009.