It's been a rough week for Google in China, news-wise, with the release of two reports showing a sharp drop in market share for the globe's leading search engine. This is just the latest misery for a foreign Internet firm in China, which has long been something of a mirage for American Internet companies that keep on entering the market only to find themselves pantsed by aggressive, local competition. And it looks like MySpace may be the next big name to flirt with danger in China. Will it do better than Google, eBay, Yahoo and other big American names that have run aground here?

A market share table. That's a big slice of baby blue Baidu pie.

The China Network Information Center (CNNIC) reported (PDF--in Chinese) that Chinese search engine Baidu raised its market share from about 52 percent to 62 percent, largely by taking share from Google. Baidu also had by far the best brand recognition, with over 82 percent. Google's Chinese name--which earned some scathing criticism when it was announced last April--came in at less than 32 percent and its English name was less than 20 percent. An English summary can be found here, from IDG News Service.

Chinese research house Intelliconsulting painted an even bleaker picture after studying search engine market share in China's three major commercial cities, Beijing, Shanghai and Guangzhou. Red Herring reported on the results of the still unreleased study, noting that in Beijing Baidu's market share rose to 65 percent, while Google's fell from 33 percent to 21 percent. The other cities apparently have similar results. Ouch. An English version of this study will be coming out soon, but save your pennies if you want to read the gory details. It'll cost you five grand US to get your hands on it. Google China has responded (in Chinese) to the study (via China Web2.0 Review), but did not say much other than that it would be a long road ahead for the Chinese search market and that it would be continuing to invest in improving its services and the search experience for its Chinese users.

Consolation from Google can come from CNNIC reporting that Google still ranks as the leader among non-student users with a higher monthly income (3,000 yuan and up), most likely reflecting professionals. And, of course, from the fact that outside of China, Google is still the thumping search juggernaut. Additionally, it's not just a foreign company issue. Sina and Sohu run China's major Internet portals, but their search shares are tiny--less than 4 percent each--and getting smaller as Baidu consumes all in its path.

The New York Times this week ran a long an interesting story on the rise of Baidu and its founder Robin Li. It's a good read if you're interested in knowing more about the search engine wars in China. The story can be found on CNET here. But Baidu's rise is not free of controversy. It is by far the leading search engine in China, and arguably the most powerful Internet brand in the Mainland. But it has also been slammed for accepting payment for search listings and embroiled in lawsuits for dropping former advertisers from its index. Indeed, Bill Bellew at the Pan Asian Biz Blog is confident Baidu will eventually be undone by its own mistakes, and overtaken by Google and Yahoo.

Perhaps. But Baidu hasn't self-destructed yet. So why is Google, which has had such glittering success elsewhere, not thriving in China in the same way? Some theories are broiling in the blogosphere. One Man Bandwidth suggests that Google pays insufficient attention to Chinese users and hasn't built good enough relationships in China. Jake Ludington writes:

Among people I spoke with from the tech community, the prevailing opinion is that Google isn't taking China seriously. By dictating business decisions about China from Mountain View, CA, in the US, the opinions feel that Google isn't making an effort to understand the Chinese search market. By failing to keep servers in China, companies like Google couldn't ever successfully compete against companies who do business in China. Until management in the China division of the company is given decision-making authority over the direction of the company. More importantly for the search equation, everyone I spoke to felt like they got better results when searching with Baidu.

Many of the explanations above may be valid, but I think it's that last bit that's the killer. Users need to feel like search results are relevant to them. Even if that is simply a matter of perception, perhaps augmented by the fact that Google is still seen as a foreign company, it's important. You'll use the search engine that you feel is most relevant to your needs. Baidu has kept itself more relevant to the great mass of Chinese Internet users, whether through the nature of its search returns, the services it offers (some of which, such as MP3 search, are controversial), or even the fact that it is perceived as a Chinese search engines better attuned to the needs of Chinese users. That being said, Google is run by notorious control freaks, and it is interesting to speculate how much autonomy the China management has.

Google is serious, well-capitalized, and run by very smart and ambitious people. It won't be giving up on the China market anytime soon. But it has a struggle ahead, and it will be interesting to see how it goes.

Meanwhile, more briefly, another American Internet powerhouse is sniffing around the China market. The Financial Times reported this week (subscription--summary here) that media tycoon Rupert Murdoch is interesting in bringing the recently acquired MySpace to the China market. As the article notes, this is a path fraught with risks that would have to be planned for, such as managing content to the satisfaction of both Chinese authorities and overseas NGOs. The history of foreign Internet companies in China is almost unremittingly bleak. Will MySpace do better than those who have come before? The local competition isn't standing still, with companies like Chinese social networking champion Mop.com already well-established. Murdoch might want to keep his expectations modest.

Murdoch's China credentials are pretty good, but even he has had some difficulties in the past year as China's media regulations have undergone some serious convulsions. But he's sending out his best emissary:

"We have to make MySpace a very Chinese site," Mr Murdoch said at a media conference organized by Goldman Sachs. "I have sent my wife across there because she understands the language."

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He said his wife, Ms Deng, who is not an officer of the company, was currently in China with senior News Corp executives trying to find a way for MySpace to enter the Chinese market without running up against political obstacles and the "heavy weather" that Internet groups Google and Yahoo have encountered.

Indeed. Ms Deng is, by all accounts, a smart lady. She'll need to be to help her husband avoid that "heavy weather" that has made China a rough sail for Google, Yahoo, eBay, Microsoft and other foreign Internet heavyweights.

Update: More analysis of Murdoch's exploration of China for MySpace can be found in BusinessWeek here.

Update 2: I don't have the figures handy, but I wonder what proportion of Baidu's search traffic comes from MP3 searches, which Google doesn't offer (for fairly obvious reasons). It's probably a mistake to fixate on search share alone when comparing the search engines because the services aren't the same. The brand recognition and search return relevance will probably be more important in the long run, especially if Baidu ever has its MP3 search function sued out from under it.