Ronnie05's Blog

Sino-Google Conflict (Part II): Plain Business!

Posted in Industry updates, Internet and Search by Manas Ganguly on January 18, 2010

The conflict apart, China is one of the largest markets that Google caters to globally.There are hardcore business interests that Google is putting on the line. This post is about the search business and the view that other internet companies could take of the Sino Google conflict.

Chinese citizens have urged Google not to leave China. This Picture taken outside the Google Headquarters in China shows people offering flowers with notes such as “Dont Go, Google”

Google is generating $200 million in annual revenue from China. Annual search revenue in China is estimated to be more than $1 billion. Google controls about 31.3 percent of the Chinese search market, versus 63.9 percent for local search powerhouse, Baidu Inc, according to Analysys International. Annual search revenue in China is estimated to be more than $1 billion. Google’s second-place standing in China means it won’t feel an immediate sting if it does close shop there. Analysts estimate revenue from China to be a fraction of the roughly $22 billion in annual revenue Google generated in 2008. Shares of Google dipped 1.3 percent although an executive described China as “immaterial” to its finances. Shares in Baidu, Google’s main rival in China, surged 7 percent

However, with growth slowing in mature markets such as the United States, Google needs all the sources of growth it can find and China is a strategic market for most technology companies. This decision does not necessarily mean Google will abandon China entirely, as it could follow the footsteps of other U.S. Internet companies that have chosen to partner with local companies instead of maintaining their own sites. In 2005, Yahoo Inc handed over exclusive rights to the “Yahoo China” brand and folded its Chinese mail, messaging and other operations into the Alibaba Group, in a $1 billion deal that gave Yahoo a 40 percent stake in Alibaba. In 2006, eBay Inc folded its Chinese operations into a new venture controlled by a local partner, Tom Online as it switched tack in a fast-growing market where it has struggled.

It is highly unlikely that Google would get any support from other internet majors in China. Microsoft for instance has huge investments planned up for China. Yahoo cannot risk its relationship with the Chinese to fall out either as it also has significant vested interests in Thus both Microsoft and Yahoo could be reluctant to take any steps seen as hostile at the risk of endangering its wide-ranging interests in China.

China’s three oldest major Internet firms, Sina, Sohu and Inc, all operate e-mail services in China and are careful to steer clear of content and other actions that could raise the ire of government censors. From their original roots as Web portals, all three have diversified into other services, from online games and e-commerce to mobile added-value services and search. Given their almost 100 percent reliance on the China market, the trio would be the least likely to join hands with any movement by Google.

In the search arena, Google’s main China rival, search engine Baidu, self-censors itself in accordance with Chinese law to avoid sensitive, mostly political, topics.Like Sina, Sohu and NetEase, Baidu would be highly unlikely to Google in standing up to Chinese censors due to its near-total reliance on the China market for all its business.

Analysts have said that working with a local partner in China could help Google get a better competitive footing in a foreign market with different languages and customs.

The wait is now for who blinks first. The Chinese government will be under pressure from international business, the American lobby, its own consumers and more. A compromise solution could also expose Google to some criticism after having taken the stand it would not countenance Chinese censorship.

We will watch the space.

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