Google Gone

Google’s China exit plan will affect more than just Google

Google’s declaration that it would stop censoring its search engine and potentially shut down operations in China following a sophisticated China-based “cyber attack” threw the online world into turmoil.

As investors studiously looked over the ticker tape, speculation was rising as to who would snatch up Google’s ad revenues if the search giant pulled out of the country.

Domestic competitor Baidu has been touted as the most likely to grab the larger part of Google’s current 30% market share, consolidating its leading position in the domestic search market. Other companies in the running include Tencent’s search engine, SoSo.

Google’s motives for threatening to pull out of the world’s biggest internet market by user numbers – 338 million according to Analysys International’s estimates – have repeatedly come into question. In particular, the company’s insistence that its decision to go public with the whole affair was based solely on censorship issues has prompted commentators at home and abroad to suggest that Google has nothing much to lose by leaving.

But while street estimates put Google’s China revenue at a few hundred million dollars, or just 2% of the company’s total annual revenue, Google’s short-term objective was not to win the market but to win market share. And it has fought hard for its 30% share, often in difficult situations: Google has come under fire in Beijing’s numerous campaigns to rid the internet of pornography and other content deemed sensitive by the state censors.

In addition, Google’s search operation is not the company’s sole interest in China. China Mobile is heavily promoting OPhone handsets running Google’s Android operating system as it rolls out its 3G network. While there has been little indication that China Mobile’s OPhones will be caught up in the current storm, Google has meanwhile delayed the launch of two Android-based phones developed with Motorola and Samsung for China Unicom, the country’s second-largest carrier.

Google’s squaring off with China’s censors could have repercussions for other foreign internet firms operating in China; Yahoo received a slap on the wrist from its domestic partner.

Yahoo has not itself threatened to pull out of China, but has sided squarely with Google. Alibaba, in which Yahoo holds a 40% stake, called Yahoo’s reaction “reckless,” but it was an understandable public-relations move given Yahoo’s earlier dalliance with censors. In 2004 it emerged that Yahoo China had handed authorities the email account information of mainland journalist Shi Tao. Shi later received a 10-year prison sentence for leaking government information based on data the state squeezed from Yahoo.

Google’s decision to publicly question the price of commercial gain in China was a bold one regardless of true motive or outcome. Beijing’s relative silence to date indicates the government is treading lightly as support for Google grows at home and abroad. The wider impact of the move on both domestic and foreign technology firms operating in China may take some time to emerge.

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