Thu, Mar 25, 2010 - Page 9 News List

Remaining Google units exposed to whims of an angry Beijing

Beijing’s initial reaction has been chilly, leaving Google’s advertising operations at risk — meanwhile, competitors stand ready to reap the dividends

By Doug Young

REUTERS, HONG KONG

Google’s gambit in pulling the plug on its flagship search engine in China leaves its remaining operations there exposed to the whimsy of Beijing, whose initial reaction is far from reassuring.

Google plans to maintain an advertising sales force as well as its large research and development operations in China, but risks losing market share, revenue and staff to rivals including market leader Baidu, up-and-comer Tencent and US heavyweight Microsoft.

Opportunities to develop and market its Android and Chrome operating systems for cellphones and PCs in China could also be threatened, a potential setback for partners such as handset makers Dell and Lenovo.

“There’s no doubt the Chinese might make life difficult for Google,” said Vivek Couto, an analyst at Media Partners Asia. “But they don’t want to go directly after them. China also has to be a bit cautious.”

Google’s decision to shut its Chinese portal and reroute searches to its Hong Kong-based site to avoid the self-censorship Beijing demands was seen more as an escalation than a compromise in the two-month old dispute.

Though tensions could ease after an initial round of finger-pointing, the uncertainty and need for Beijing’s tolerance, if not support, threaten Google’s prospects in the world’s largest Internet market.

Initial indications that Google’s gambit was getting a chilly reception came from the official Xinhua news agency, which cited an unnamed official calling the move “totally wrong” and in violation of Google’s written promises.

In direct terms, Google may have to give up some or all of its revenue derived from China’s search market, depending on whether its advertisers follow it to its redirected China site at google.com.hk.

Analyst estimates of Google’s annual revenue in China range from US$300 million to roughly US$600 million, a small portion of its US$24 billion in annual revenue.

Other stakeholders exposed to Google’s actions include cellphone makers like Dell and Lenovo, which are both developing Android-based phones for China, as well as the hundreds of people who independently sell ads and develop software for Google’s products.

Spokeswomen at Lenovo and China Mobile, which is planning to offer the Dell Android phones on its network, had no immediate comment.

Meanwhile, other search sites operators stand ready to benefit most form Google’s withdrawal, most notably Baidu — which has 60 percent of China’s search market — and others such as fast-growing Tencent, analysts said.

“It will benefit everybody in China, but the obvious immediate beneficiary will be Baidu,” said CLSA analyst Elinor Leung (梁向奕). Microsoft, which has launched a beta version of its Bing search site in China, could also pick up market share, she added.

Other Web players could benefit as well if Google decides to use them as a back-door strategy to invest in China’s Internet market. Yahoo used a similar strategy after abandoning its own efforts in China in favor of buying 40 percent of leading China e-commerce operator Alibaba Group.

Despite the potential for collateral damage, observers and those who work for Google were cautiously optimistic that the current conflict wouldn’t spiral out of control, saying such escalation was in no one’s interest.

Google’s interest in the market is already clear.

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