INTERNET: Google Outed on China Search Plan

Bottom line: A new report on Google’s plan to launch a new China search engine within the next year looks credible, and underscores the company’s decision to put the market’s big potential ahead of the negative backlash such a move will bring.

Google prepares to enter eye of China storm

A story in a publication called the Intercept is making big waves in China, saying search giant Google (Nasdaq: GOOG) is preparing a major about-face on its decision to leave the country’s large but highly controlled search market. (English article) While I’ve never heard of this particular publication, the level of detail it contains appears to show it’s credible, which is probably why most major western media are running reports based on the story.

In short, the story says Google has quietly been developing a China-specific version of its search engine that will adhere to Beijing’s strict rules for self-censorship, and has code-named the project Dragonfly. Google previously operated such a search engine in China, but famously pulled out of the market in 2010 after deciding it didn’t want to adhere to those self-policing policies that require removal of all links to sensitive subjects.

So what has changed over the last eight years, and why is Google doing this about face? Probably the biggest thing to change has been the rise of the mobile internet during that time, where Google has a major toehold via its Android operating system that powers most smartphones. Google’s Chrome web browser is also quite popular, though probably less so in China than other markets.

At the same time, China’s internet market has grown steadily over the last decade and is now easily the world’s largest based on users. The market has given rise to some of the world’s most valuable companies, most notably Alibaba (NYSE: BABA) and Tencent (HKEx: 700), which have been able to leapfrog counterparts in the west due to China’s lack of established players in areas like telecommunications, financial services and retailing.

Last but not least, Google itself has undergone a change since 2010 by setting up Alphabet as a parent company and handing off the Google name to the leadership of a CEO, Sundar Pichai, who was only named in 2015 and has no connection to the previous high-profile spat with Beijing. The Intercept report actually cites Pichai as a critical force behind this latest initiative. That comes as no big surprise, since company co-founder Larry Page has previously said that Pichai was free to chart a future China strategy of his own making.

No Comment

Google has given the standard “no comment” on the report, and points out it has been active in other areas in China recently including the launch of an app, an online game and a China-based translation service. But all the factors I’ve pointed to above do seem to point to some truth behind the report, and frankly speaking the move does seem consistent with Google’s other steps over the last three years aimed at playing up to Beijing in order to win approval for a larger return to the market.

The report indicates Google is still awaiting approval from Beijing, and that a launch could come in the next six to nine months pending government approval. I’ll admit I’m a bit surprised by all this, as I’ve always thought Google wanted to avoid this kind of self-censorship that is sure to attract lots of negative publicity both inside and outside China. In fact, the apparent source for the Intercept report appears to be a Google China employee who is also unhappy about the move, since it will give more credibility to Beijing’s strict self-policing policies.

All that said, Google has apparently decided it is willing to bite the bullet and suffer the negative publicity for a chance at this massive market. On that side of the coin, I’ll also admit that there are many Chinese who would love to see Google come back to their market and offer some alternatives to the dominance of current search leader Baidu (Nasdaq: BIDU). Many see Baidu as a relatively complacent and somewhat corrupt presence that is willing to sell out users and their privacy and welfare in exchange for advertiser dollars.

At the end of the day, Pichai and Google are clearly taking this return to China as a business decision and putting the market’s profit potential ahead of the minefields they will face from negative publicity. I personally think this may be a mistake, and that Google should find other less controversial ways to re-engage with China, perhaps by opening a Chinese version of its Google Play app store. But Pichai clearly thinks differently, based on this latest development, meaning we could finally see a major return of Google to the market within the next 12 months.

 

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