Q+A-Why is China so important to Google?

By Melanie Lee

SHANGHAI, July 9 (BestGrowthStock) – Google Inc (Read more about Google Stock Analysis) (GOOG.O: ) surprised
markets on Thursday when it expressed confidence its China Web
licences would be renewed. In a bid to secure the licence, the
world’s largest search engine said last week it would stop
automatically redirecting users of its China search site,
Google.cn, to its uncensored Hong Kong site.

The saga began when Google said in January it may quit
China over censorship concerns and after suffering a hacker
attack it said came from within China. [ID:nSGE60C01H]

WHY IS GOOGLE FIGHTING SO HARD?

Without the Internet Content Provider licence, Google’s
search presence in China will revert back to when it did not
have a localised search page. China users keen to access Google
search had to turn to its offshore sites, meaning longer search
times — and a boost for Baidu (BIDU.O: ), the top local player.

Google’s current search business in China accounts for a
tiny slice of its $24 billion in annual revenue, with analyst
putting its annual China revenue at $300-$400 million. But the
long-term growth prospects are key.

As the world’s largest Internet market with nearly 400
million users, China has huge potential. Firms which got out of
it early, such as eBay (EBAY.O: ) and Yahoo Inc (YHOO.O: ), haven’t
been able to regain a foothold.

IF ALLOWED TO STAY, WHAT’S THE UPSIDE AND DOWNSIDE?

Google’s hard-fought effort to stay in China may pay off if
it successfully maintains access to the world’s largest
Internet market by users.

With an Internet penetration rate of 25 percent, China’s
online sector is still in its infancy. Japan and South Korea,
the two most Internet savvy Asian countries, have penetration
rates between 70 to 80 percent.

China holds not only huge market potential for search, but
also from other Internet sectors including social-networking,
e-commerce and online gaming.

The downside of operating in such a market is the strict
government controls — a source of friction between Google and
Beijing that was largely responsible for the original dispute.

Allowing itself to be subjected to China’s censorship rules
could undermine Google’s credibility after it won plaudits on
the world stage earlier this year for its tough China stance.

WITHOUT SEARCH, WHAT DOES GOOGLE HAVE LEFT?

Without search, Google still has its Android platform, an
open source operating system for mobile phones.

Credit Suisse analyst Wallace Cheung expects Android to
become the most popular mobile operating system in China in the
long run, beating out Apple’s (AAPL.O: ) popular iPhone.

China’s two main telecom firms China Mobile (0941.HK: ) and
China Unicom (0762.HK: ) already offer smartphones running
Google’s Android system.

The non-renewal of Google’s ICP licence spells uncertainty
for Android as China could also find a way to make it hard for
Google to develop and market the platform in China.

WHAT’S THE FATE OF GOOGLE’S PRODUCTS IN CHINA?

Google is keen to provide non-search functions on the
Google.cn site such as music search and text translation.

Google Maps may face difficulties in the near future as
China recently implemented new laws requiring firms wanting to
provide online mapping services to apply for a licence.

On Wednesday, China’s State Bureau for Surveying and
Mapping released a preliminary list of 23 companies approved
for online mapping. Baidu was on the list but Google was not.

Other popular Google products such as Blogger and YouTube
are blocked in China, which defends the move on the need to
ensure public security and social harmony.

Q+A-Why is China so important to Google?