Thursday, March 18, 2010

Google may keep Chinese web services alive - Times Online

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Google may keep Chinese web services alive - Times Online

Google is considering a plan to keep many of its operations in China, even though it is resigned to closing its flagship search engine over a censorship dispute with the Chinese authorities.

The company could keep operating its Beijing research and development centre, advertising sales offices and mobile phone and browser businesses. Some Google web services may survive, including its Chinese music search business and the popular Chinese version of its knowledge market site, Google Answers.

Google has held off from carrying out its threat to shut down its Chinese-language search engine and close its offices rather than bow to government censors. It delivered the ultimatum on January 12 after alleged cyber attacks aimed at its source code and at the Gmail accounts of Chinese human rights activists.

The closure of the site would have limited immediate impact on the company’s multibillion-dollar profits, analysts said. It is thought that the bulk of its estimated $300 million revenues in China in 2009 came from export-oriented companies that would need to keep advertising on its sites abroad even if closed.
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But the longer-term implications of cutting itself off from the world’s biggest pool of internet users — there are almost 400 million in China — have given Google pause. There is huge potential in China, particularly around mobile phones — the company’s latest area of expansion.

Retaining business operations in the country could also provide a springboard for a relaunch of its search site should relations with the authorities improve, analysts said.

People close to the negotiations said that the company was considering how much of a presence could be maintained. It is proceeding cautiously and does not wish to place its 700 employees in the firing line from Chinese authorities angered at the company’s high-profile defiance of its censorship.

Google employs sales staff and engineers in offices in Beijing, Shanghai and Guangzhou. It launched its Chinese-language website,, in 2006, agreeing to comply with local laws requiring censorship. Its flagship English-language site,, which is also available in a Chinese language version, is not required to submit to similar censorship, but the Chinese government filters content through its own internet firewall. Popular websites such as Facebook, Twitter and Google’s YouTube are blocked.

Analysts said it appeared that Google was aiming to reach a pragmatic solution. Whit Andrews, an analyst with Gartner, said: “If I were a shareholder, I would feel that it does not make sense for them to forgo all future profit based on their frustration with censorship. There are an enormous number of businesses they can continue to pursue that are not touched by the censorship question.”

He added that web applications such as Gmail, Google Documents and other services had enormous potential.

Earlier this week Patrick Pichette, Google’s chief financial officer, said that its Android mobile operating system “should flourish” in China. Google postponed the launch of two mobile phones in China that used the platform amid the uncertainty around the initial announcement. But since then China Unicom, the country’s second-largest mobile carrier, has said it will sell Android handsets.

Google has high hopes for its Chrome browser in China and is due to launch its Chrome operating system for personal computers worldwide by the end of this year. China is expected to be a key market.

Google could spin off its China music portal, a free, advertising-supported service launched last year in partnership with four global music companies and 14 independent labels.

A group of 27 Chinese advertising agencies that sell advertising space on Google’s search pages has sent the company a letter calling for talks over compensation for possible business losses if the internet giant pulls out of the country.

The biggest winner from Google’s closure of its site is expected to be Baidu, whose search engine already has a 58 per cent market share by revenue in China, says Analysys International. Google has about 36 per cent of Chinese search revenue. Google’s shares have dipped while Baidu shares on the Nasdaq have surged. The closure of might affect Google’s ambitions in the burgeoning mobile search market. China Mobile, the world’s biggest phone company by subscribers with 527 million accounts, uses Google for mobile search and maps and may be forced to go to Baidu.

Google’s exit from search could also benefit Microsoft, which is pushing its Bing search engine. Other Western internet companies, including Facebook, have declined to get involved in China over fears about censorship and regulation.

Yahoo! closed its search business and put $1 billion into Alibaba Group, a Chinese e-commerce group, in 2005 in exchange for a 40 per cent stake. Alibaba, which runs Taobao, China’s largest online retailer, criticised Yahoo! in January for supporting Google’s stance over Chinese censorship, underscoring local sensitivities.