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A Brief History of Silicon Valley’s Failures in China

Don’t feel too bad, Uber

Ringer illustration
Ringer illustration

Silicon Valley’s companies are generally hell-bent on world dominat — er, making the world a better place. But it’s hard for American tech companies to fix the entire globe when the most populous country has its own fleet of domestic, highly competitive counterparts and a raft of government policies that limit foreign intrusion.

So it’s no surprise that Uber is calling it quits in China. The ride-hailing service announced Monday that it is selling off its Chinese business to rival Didi Chuxing, a domestic taxi-meets-ride-sharing service that has been waging a price war with Uber for more than a year. Launched in 2013, Uber China had become a financial drag on the world’s biggest startup, racking up a reported $2 billion in losses in two years. Meanwhile, the company, which says it is profitable in the U.S., is running out of runway to raise obscene amounts of venture funding before it eventually must commit to an IPO. Excising the Chinese division will help straighten out Uber’s books before would-be shareholders get to take a close look.

Ultimately Uber will still make a tidy sum from the China sale, which grants it and other investors in its Chinese business a 20 percent stake in the even-more-powerful Didi. But this isn’t the ending in the East that CEO Travis Kalanick was expecting. “As an entrepreneur, I’ve learned that being successful is about listening to your head as well as following your heart,” he said in a blog post. “Uber and Didi Chuxing are investing billions of dollars in China and both companies have yet to turn a profit there. Getting to profitability is the only way to build a sustainable business that can best serve Chinese riders, drivers, and cities over the long term.”

Uber’s challenge in squaring off with Didi is that the Beijing-based company was willing to relentlessly drive down prices, aggressively expand into new cities, and use questionable business tactics to undermine its competitors. That sounds a lot like … well, Uber. The company essentially faced off against the Dark Link version of itself, and lost, as virtually every American tech company does in China. The problems are myriad. For internet companies, there are moral questions about China’s limiting of free speech online. For software companies, there are legal battles as the Chinese government builds antitrust cases. And for hardware companies, there’s the cold truth of simply being outsold by Chinese competitors that can offer similar devices at lower prices. In the states, “made in China” is a bogeyman phrase that denotes the dangers globalization poses to the job market. In China, it’s a selling point.

When it comes to American firms trying to gain an upper hand against entrenched Chinese companies, it’s foolish to ever bet against the house. Here’s a short history of other powerful Silicon Valley firms that might might be dismissively referred to by a Chinese executive as “cute.”

eBay

As an early internet giant, eBay seemed poised to dominate when it entered China in 2003 through the acquisition of the country’s largest e-commerce site, EachNet. But it was felled by Alibaba, a plucky Chinese e-tail startup that would go on to have the biggest global IPO ever about a decade later. Alibaba owned the online marketplace Taobao, which, unlike eBay, didn’t charge a commission for sales on its website. Taobao quickly earned higher customer satisfaction ratings than eBay and ultimately gained control of the consumer-to-consumer market. eBay folded in China in 2006.

Google

Google’s mantra was “Don’t be evil.” A more accurate one might be “Don’t let maybe-sorta-evil-depending-on-who-you-ask be the enemy of good.” Such was the company’s mindset when it entered China in 2006 even while acknowledging that removing search results to appease the country’s strict censorship policies was “inconsistent with Google’s mission.” Later, China’s censorship rules tightened, and a 2009 cyberattack that originated in the country compelled Google to begin rerouting Chinese users to its uncensored website in Hong Kong. The Chinese government didn’t take kindly to this workaround and banned Google’s popular web services in the country. Despite continuing confusion about Google’s relationship with China, execs have said they are keen to regain a foothold in the country.

Twitter

Surprise: A largely unregulated public platform that has been the digital birthplace of multiple protest movements probably never stood much of a chance in China. The social network was blocked in 2009 in the lead-up to the 20th anniversary of the Tiananmen Square protests and has largely been inaccessible ever since.

Facebook

Like Twitter, Facebook.com became inaccessible in China in 2009 amid a period of increased protests. But the company is still trying to find a way back into the country. Mark Zuckerberg has learned Mandarin, met with Chinese President Xi Jinping, and jogged through the smog-ridden streets of Beijing as part of his effort to help Facebook return to the Middle Kingdom. Ultimately, though, Facebook’s prospects in China depend on its willingness to adhere to the country’s practices for internet companies, which can include storing all user data domestically and hiring human censors to delete sensitive content. Such policies likely clash with Facebook’s emerging role as a platform for social justice.

Apple

China is supposed to be the linchpin in ensuring Apple’s future success, but the company has faced multiple setbacks in recent years. A state broadcaster deemed the iPhone a “national security threat” due to its location tracking features in 2014. In June, a small Chinese startup won a patent case against Apple that would halt iPhone 6 and 6 Plus sales in Beijing. And the company’s digital stores for books and movies have been banned in the country. That’s all to say nothing of the fact that Chinese customers appear to like home-manufactured phones more than devices from Cupertino. Apple has dropped to fifth place in the Chinese smartphone market, and its declining revenue in the region has contributed to its first down quarters in 13 years.

Microsoft

It was already a bad look when Chinese officials banned Windows 8 from being used on government computers in 2014. Two month later, China launched an antitrust probe against the tech giant. And this year, Microsoft abruptly shuttered its Yahoo-like web portal, MSN, in the country. On top of all that, the company has estimated that 90 percent of the PCs in China are running pirated versions of Windows. It’s an issue that the government, which launched yet another investigation in January, seems unlikely to help in addressing.

LinkedIn

There is at least one successful Silicon Valley story in China. LinkedIn (which was recently acquired by Microsoft) agreed to fully play by China’s rules in 2014, and government officials were cool with it because no one has ever gotten an email that said, “I’d like you to join my social justice network to overthrow an authoritarian government on LinkedIn.” The company hosts its servers on Chinese soil, grants Chinese venture capital firms a stake in the business, and actively censors content that might rile Beijing. On the one hand, LinkedIn CEO Jeff Weiner has called the company’s censorship duties “gut-wrenching.” But on the other hand (the hand that is clutching a fistful of cash), LinkedIn now has 20 million users in the country.