Google Loses Its China Boss (from businessweek.com)

At a time when the search giant is gaining ground against rival Baidu, Google Greater China President Kai-Fu Lee announces his departure <!-- /DECK-->

By Bruce Einhorn

Kai-Fu Lee, the president of Google Greater China, is leaving the company, Google (GOOG ) announced on Sept. 4 in a statement. Lee, who was at the center of a bitter court battle in 2005 when he left his old employer, Microsoft (MSFT ), to join Google, said in the press release that it was now time "to move to the next chapter in my career."

Google has certainly had its share of difficulties in China , where it has lagged behind local favorite Baidu (BIDU ). But Google says that this surprise move, just four years after Lee joined the company, is an amicable parting. Alan Eustace, Google senior vice-president for engineering, said in the statement that the company was "very sad" to see Lee leave.

The sudden departure has prompted some speculation that Google may have pushed out its China boss as a gesture to censors in Beijing, where officials have blocked YouTube and accused Google of facilitating searches for pornography. In June, Google was on the receiving end of lectures from officials angry about the way Chinese Internet users were surfing for porn on Google's Chinese-language service, Google.cn. Google promised to enforce anti-porn policies more carefully.

While Lee's resignation, just a few months later, might lead some people to conclude that Google eased Lee out the door, a Google spokesperson says such speculation is "absolutely not true." Any problem with the government "doesn't have anything to do with this" change, the spokesperson added. "We wish he were sticking around."

Slow but Sure Progress in China

The resignation comes at a time when the company has been making some progress in the market, which has long been dominated by Baidu. Google now accounts for about one-third of search revenue in China, according to Shanghai-based iResearch. That's hardly the sort of commanding position the company has in the U.S., but Google has been slowly gaining ground. In 2007, Analysys International, a Beijing-based research firm, said Google had less than 25% of the market.

And the company might be well-positioned to close the gap further. While Baidu is by far the leader in the search market, with over 50% market share, the Chinese company and Google are tied in mobile search , according to a recent report by Analysys. In the second quarter, the volume of mobile searches increased 120%, to 272 million searches, with Baidu and Google each getting about a quarter of the total.

That 272 million figure came at a time when China's cellular operators were just beginning their 3G rollouts. The market is bound to get a lot larger very quickly, since China Mobile (CHL ), China Unicom (CHU ), and China Telecom (CHA ) are all launching their 3G networks nationwide. China Unicom just announced its deal with Apple (AAPL ) to offer the iPhone in China by the end of the year, for instance, and China Mobile has a slew of smartphones in the works between now and yearend, with the carrier teaming up with the likes of Dell (DELL ), Lenovo , and Samsung .

All these 3G phones will certainly make it easier for the Chinese to do mobile searches, which should help Google. And, as blogger Tai-Pan writes on the Shanzai blog, the fact that so many of China Mobile's phones will use the Google-backed Android operating system might give the U.S. company a leg up over its local rival. "I suppose China Mobile will ultimately have the say about what the default search engine will be on the browser of these phones," the blogger writes, "but many of those who understand their phone is based on a Google-built software stack might set it for Google search."