“Figuring out how to make good on our promise to stop censoring search on Google.cn has been hard. We want as many people in the world as possible to have access to our services, including users in mainland China, yet the Chinese government has been crystal clear throughout our discussions that self-censorship is a non-negotiable legal requirement,” wrote David Drummond, Google’s SVP of corporate development and chief legal officer, on Google's official blog. “We believe this new approach of providing uncensored search in simplified Chinese from Google.com.hk is a sensible solution to the challenges we've faced - it's entirely legal and will meaningfully increase access to information for people in China.”
Google looks to “continue R&D work in China and also to maintain a sales presence there, though the size of the sales team will obviously be partially dependent on the ability of mainland Chinese users to access Google.com.hk,” Drummond continued, noting that Google.com.hk’s accessibility in the market is dependent on the Chinese Government, which can choose to block the site at any time.
There is no word whether Google’s mobile operations, which has been a focus for Google China, will be supported in the country.
The news ends a standoff between Google and the Chinese Government. In January, Google announced that it would stop censoring its search results and would “review the feasibility of our business operations in China”.
During the company's investigation into these attacks, it had uncovered evidence to suggest that the Gmail accounts of dozens of human rights activists connected with China were being routinely accessed by third parties, "most likely via phishing scams or malware placed on their computers".
Google announced the attacks, combined with attempts over the last year to further limit free speech on the web in China, "including the persistent blocking of websites such as Facebook, Twitter, YouTube, Google Docs and Blogger," had led it to conclude it could no longer continue censoring the results on Google.cn.
In America today, The White House was quick to voice its "disappointment" that an agreement could not be reached, and attempted to make clear the move was soley a business decision.
"We are disappointed that Google and the Chinese government were unable to reach an agreement that would allow Google to continue operating its search services in China on its google.cn website," said Mike Hammer, spokesman for President Barack Obama's National Security Council.
"National Security staff was informed by Google shortly before their announcement was made. Google made its decision based on what it believed was in its interest."
It is unclear at this stage how the Chinese government will respond, although Google says it is "well aware that it could at any time block access to our services".
Google's potential exit from China prompted its advertising partners to issue Google a letter last week pressuring the company to shed light on its situation and demand compensation if the site shuts down. Reports noted that 27 ad sales companies said Google’s indecision has damaged their business and jeopardised future investments.
According to Antony Yiu (managing director at iPropsect Hong Kong and regional search director for North Asia), Google currently garners approximately 30 per cent of search advertising revenue in China, while market leader Baidu claims as much as 70 per cent. Considering that market studies peg Google’s search share anywhere between 20 and 35 per cent, Yiu says Google is a profitable advertising generator, and attractive because of the white-collar searchers who are the foundation of the site.
“If you decide to be a search advertiser on Baidu you will reach a hell of a lot of people, but it’s targeted to people by their geographic locations, while Google’s inherent user profile is niche and perfect for middle- to high-end products. It’s a very effective advertising medium,” he explained.
Overall, Google made an estimated US$300 million in China last year, and it became profitable by the end of 2009, partner at SoftBank China & India Holdings, William Bao Bean, cited. The idea that this figure represents merely one per cent of Google Inc.’s total sales has prompted analysts to suggest that its exit from China is not crutial, but Bean notes that, over time, “it would have been immense for the company in the long run as the company takes shift”.
Google’s departure is poised to benefit not only direct search competitor Baidu – which claims approximately 60 per cent of China’s search market, compared to Google’s 35 per cent – but portal, gaming and messaging company Tencent.
“This is definitely going to open the market up to the guys, including Tencent and to some extent Sohu and e-commerce search engines like Taobao’s,” Bean said. “In terms of taking over, some of the more traditional portals have an opportunity there and Tencent is well-positioned. It has the image of being a platform for younger users but these users are going to grow up with the company. For example, MSN was the messenger of choice for corporate users but the number of QQ IM users has grown and now it dwarfs MSN.”
Tencent, which last week reported a fourth-quarter YOY spike in net income by 73.5 per cent to $221.2 million, has voiced plans to launch its own search engine. Tencent has maintained a distinctly different reputation than Baidu, which faced scrutiny on numerous occasions for its involvement in blocking searches related to the melamine scandal and lawsuits from the world’s most powerful record companies. With this, Tencent may attract the white-collar searches that were previously conducted through Google.
But, analysts say it’s difficult to pinpoint what will happen in the future because there’s enough business going around to sustain a new player.
“A lot of people are going to ask if this is going to be a massive blow to the industry and I think it’s a very, very important move, but in terms of affecting the industry, I think the industry is very, very efficient here,” Bean said. “Competition in China is like water moving through a crack in a rock – they jump down and fill the gap really quickly. They’re sharks waiting to attack.”
“What could happen is that players that were not taking search seriously, because they thought it was just going to be a game won by Baidu and Google, now feel they have the opportunity to enter the market and succeed,” said Jason Kuperman, vice president of digital development at Omnicom Group Asia-Pacific.
While Google’s departure may benefit China’s largest home-grown companies, both netizens and advertisers will ultimately suffer, Kuperman added. Google is an innovator, and China’s complicated internet landscape benefited from its presence.
“In general, Google is the world leader on research and planning tools and its innovation is unparalleled by any company, so there will be less examples that China’s search market can look to for best practices, and there will be less pressure on them to develop these things,” he said. “There are really two things that come to mind in terms of the market after Google leaves: the lack of competitive pricing will be a bad thing, and the fact that it won’t provide as much incentive for innovation.”