Market Watch

Google is Staying in China After All



Google and Beijing have reached a new compromise that will allow Google to keep operating in China.

In an unexpected development, Chinese authorities have renewed Google's Internet Content Provider (ICP) licence to operate in mainland China, after both parties have apparently accepted compromises in the dispute that has caused them to clash during the last six months. It means Google's presence in China and Google.cn will continue to operate in the mid-term.

In a public dispute that started in December 2009, Google said it was ready to renounce their license and close Google.cn rather than keep filtering search results. In spring, Google started to automatically redirect Chinese users towards a Hong-Kong-based, unfiltered site (Google.com.hk), in what could be seen as an unsustainable last stand and an escalation of the dispute.

In the compromise that finally led to the renewal of their licence, Google will stop automatic redirection and instead direct users to a landing page where they will have a choice to click a link towards the uncensored website - which will now be only one click away - or stay in the filtered google.cn environment.

Analysis
This new compromise comes as a surprise to Screen Digest, as it does to the majority of observers. The relationship between Google and Chinese authorities seemed disrupted beyond repair just a few months ago. With Google apparently willing to make a major yet costly PR stand, and the Chinese government keen to adopt a tough stance, the divorce looked the most likely outcome.

What observers underestimated is on one hand the Chinese desire to keep attracting foreign investors - and perhaps, to a lesser degree, satisfy domestic public opinion - and on the other hand Google's desire to stay in a search advertising market that is growing by 40 per cent every year and could reach RMB34bn by 2014 (€3.5bn, $5bn).

Google has a market share of 33 per cent in the Chinese search market, second behind market leader Baidu. We believe Google ad sales were in the area of RMB2.3bn in 2009 (approx. €240m, $340m) but at the current market growth rate, it will reach one billion dollars by 2013.

The arguably bizarre compromise will leave the Chinese internet user with a choice between censored (default landing page) or uncensored search (one more click away). The Government's bet is perhaps that only a minority of users will bother to click the link towards the uncensored version. After all, almost two thirds of search users are happy to use Baidu or smaller Chinese search engines which too, abide by censorship rules. Google in the meantime will still reap the global PR benefits of having put up a fight with the Chinese government. This comes in handy at a time where it is facing ever-growing regulatory and political pressure in the Western World.

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