HONG KONG - The winners and losers in Google's confrontation with the Chinese
government are becoming more apparent some three months after their clash over
Internet censorship became public and two weeks after the US-based search
company pulled the plug on its Chinese-language search website, Google.cn, and
diverted traffic to the non-self-censored Hong Kong site, Google.com.hk.
One clear winner is Baidu, Google's main rival in the mainland. Baidu's
Nasdaq-listed shares soared 50% from January 12, when Google announced its
intention to leave China, to April 1, adding US$6.9 billion to the Chinese
company's valuation. Google's shares dropped 5% in the period, costing $10
billion in market
capitalization, while the technology-heavy Nasdaq composite index gained about
Another winner is the government in Beijing. By standing firm in the face of
Google's demands that it be allowed to run uncensored Internet searches, it
upheld the principle that every company in China has to obey Chinese laws.
And Google, too, is arguably a winner - the company can say it stood by the
principle of Internet freedom (and its motto of "do no evil") and its wish to
run an unfiltered search engine in China. At the same time, it is still milking
the vast Chinese market through its other interests.
"In a way, this is a solution
allows both sides to save face," said an industry insider who in January predicted the possibility
of Google running its Chinese search engine outside of the
Google searches for lock on China Asia Times Online, January 20, 2010).
And after all the hoopla, Chinese citizens in their Internet cyber-cafes and on
their computers at home or in the office, the end-users, are little affected.
Instead of self-censorship by Google, the censorship is now done by the Chinese
government, blocking whatever it does not want its 384 million online netizens
to see on the new site, Google.com.hk.
A person in mainland China using the Hong Kong service said he was now able to
see search results after searching for the likes of "Tiananmen event" in
Chinese. But the site was blocked once he clicked on the result.
Google, of course, is far from being the only company to feel the impact of the
Chinese government's mastery in blocking unwanted information over the
Internet, what the industry calls the "Great Firewall" of China. Popular social
network sites such as Facebook, Twitter, YouTube (which belongs to Google), and
Blogger (also Google's) have long been routinely blocked, to the frustration of
many people living in Beijing and elsewhere.
Nevertheless, axing its mainland search site takes Google back to where it was
about five years ago. Between 2002-2005, the Mountain View, California company
ran its service in China from the US site, Google.com, with search results
routinely blocked whenever there was sensitive news about China. Traffic to
Google.com was also often diverted to rival Chinese search engines, such as
Trying to solve such problems and seeking to gain a better foothold in the
world's largest potential Internet market, Google eventually agreed to Chinese
government terms and started censoring its search results in the mainland with
the launch of a Chinese site, Google.cn, in mid-2005.
The cost and damage of turning the clock back is less severe, three months into
the "crisis", than many expected, with traffic to Google in China reduced, but
TR Harrington, who runs Darwin Marketing, a Shanghai-based search engine
marketing firm that promotes its clients by buying keywords in search engines,
said that in the past four years most of his clients' budgets went to Baidu and
Google, as they are the two most popular search engines in China.
"Before the crisis, about 70% of our budget went to Baidu and 29% to Google,"
said Harrington. This was roughly equal to Baidu and Google's market share as
reported by third-party market research firm, Analysys International, which
said Baidu had 58% market share in the fourth quarter of 2009 and Google had
"Right now, Baidu has gained 3% [of his clients' budgets] to about 73% at the
expense of Google," said Harrington. Now, clients are spending on Google's Hong
Kong site, as "there is traffic from Chinese users and that is what my clients
want - to reach Chinese consumers - there are clients who want Google in their
marketing campaign no matter what the traffic is because it reaches a different
kind of user from Baidu."
Harrington pointed to two other Google business lines in China that should
continue to thrive undamaged despite the censorship row - Google.com itself,
through selling search ads to Chinese advertisers targeting the international
market, and Adsense Network, through which Google directs clients' ads to
websites that have joined its affiliates program.
Adsense is the largest affiliated advertising network in China, with more than
200,000 Chinese website partners. "For many of the smaller websites in China,
Google Adsense is the only way they can make money," said Jacky Huang, former
China Internet Research Manager of IDC, a US-listed market intelligence
Baidu runs a similar affiliates program, Baidu Union, but gives its partner
sites a smaller share of revenue, at 30% to 40%, compared with Google's 60% to
70% shareout, according to one industry insider.
Small and medium-sized (SME) companies in China, which play an increasingly
important role in the mainland economy, still see buying a keywords ad in
Google as the way to promote their products or services abroad. Baidu, although
the number one search engine in China, has essentially few followers overseas.
Its initiative to develop a Japanese search engine did not make serious inroads
on the market there.
EBay, the US Internet auction company, has already shown the world - and Google
- that it is possible to profit from mainland business despite formally
retreating from China, which it did in 2007. The China unit of PayPal, eBay's
payments and money transfer subsidiary, is doing well, according to a senior
executive, with SME exporters using eBay to sell globally and PayPal to collect
the money. PayPal China now employs more than 1,000 people to handle its
Even so, other aspects of Google's China business are feeling the impact of its
clash with the government, notably the US company's mobile initiative. China
Unicom, the country's second-largest mobile phone company, has ordered Google's
Android phones to sell to its customers but says it will not use Google's
search engine on those gadgets. Illinois-based Motorola has also said its
phones using the Android operating system in China will not be preloaded with
Google's search engine, and will instead be preloaded with Baidu's.
An even bigger loss may be Google's contract with China Mobile, the country's
largest mobile operator, with about 70% of China's mobile phone users.
Google has been China Mobile's mobile search partner since 2007, but analysts
predict that will end soon and that the carrier will seal a new contract with
Baidu. Google's archrival in China has already signed up the other two mainland
mobile operators, China Telecom (in May 2009) and China Unicom (in October
2009), to be their mobile search partners. Now, Baidu will probably have the
complete market, with over 747 million mobile subscribers.
Ironically, Google focused on mobile search in China in 2007, well ahead of
Baidu, which started to be serious about it only as recently as 2009. With
third-generation technology, and its fast Internet access, becoming
increasingly available across China in the coming years, mobile search is
expected to be a fast-growing revenue earner.
As to Google's core search business, Harrington is pessimistic about Google's
future in China. "Its market share in China might fall to about 15%," he said.
"It depends on user experience. As the [Hong Kong] site is outside [mainland]
China, its speed will be slower. Also, the Chinese government might increase
blocking of the site, or block it completely, if Google continues to provoke
Other aspects of Google's business might continue, but "this is not the same.
If Google did not leave China, it would be much bigger," he said.