INTERNET: Google Tries Transparency on Road Back to China

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Bottom line: Google should follow the example set by LinkedIn and Apple and be more transparent when it returns to China, and should work with Beijing to forge a more constructive relationship.

Google eyes China return in 2016

One of the strongest signals yet that Google (Nasdaq: GOOG) could soon return to China came late last week, when media reported the company was aiming to open a Chinese version of its Google Play app store next year in accordance with relevant Chinese laws. Such a move would represent an important improvement in the company’s relationship with Beijing, coming 6 years after Google shuttered its China-based search service due to a disagreement on self-policing policies that apply to all sites in China.

The shift is being driven by both sides, amid a realization that they can work together constructively to each other’s benefit. Google’s realizes that China is a market it can’t afford to ignore, with the world’s largest base of 600 million Internet users and 1.3 billion mobile subscribers. Beijing also realizes that a high-tech giant like Google can bring important technology and know-how to the country, whose large stable of smartphone makers already rely heavily on Google’s free Android operating system (OS).
Both sides should seize on this thaw to build a more constructive, mutually beneficial relationship, even as they acknowledge disagreement will inevitably occur on some issues. As part of that effort, Google should also try to be more transparent about the business model it plans to use in its China homecoming to boost confidence among observers and users inside and outside of the country.

Rumors of Google’s planned return to China first began to surface in domestic media during the summer, mostly based on unnamed sources and some observations that Google had started operating servers and registering relevant Internet domain names in the country. (previous post) Observers said such moves would be necessary for Google’s return, and thus could signal that it was planning such a move.

The talk gained momentum last week when global media cited people with direct knowledge of the situation saying Google was aiming to open a Chinese version of its app Play Store next year. (English article; Chinese article) The reports said the planned store would be set up specifically for the Chinese market, and would operate independently of its other global app stores. They added the store would eventually serve as a base for Google to launch other products and services in the market.

Difficult Market

China has been a difficult market for many of the world’s top Internet firms, leading to a steady stream of high-profile failures by such global giants as Yahoo (Nasdaq: YHOO), eBay (Nasdaq: EBAY) and Monster Worldwide (NYSE: MWW). Reasons for those failures were varied, but most involved inability to adapt to local rules and conditions that were often quite different from those in western markets.

Following those earlier failures, a newer generation of companies has found more recent success, including Apple (Nasdaq: AAPL) and LinkedIn (NYSE: LNKD), leaders in the smartphone and professional networking spaces. Each was confronted with difficult issues similar to those faced by Google, but both ultimately decided the move was worthwhile and have made steady progress in China since then.

A key element to both companies’ success has been a high degree of transparency with their moves into the market. When LinkedIn launched its China service last year, it issued a series of statements explaining the reasons for its decision. (previous post) That proactive approach helped to limit controversy, and has allowed LinkedIn to focus on building up its China business since then.

Apple has faced similar issues, since the company operates its own app store to cater to the millions of iPhone users in China. That led to disclosures last summer and earlier this year that Apple would keep information from its Chinese users on China-based servers, and also that Apple would allow audits of its products and services by Chinese inspectors as part of Beijing’s national security requirements. (previous post) While the disclosures in both cases came from anonymous sources, it was almost certain that Apple – which seldom comments publicly on its strategies – was the source of the information in an effort to be transparent about its actions.

The latest reports on the equally private Google also come from unnamed sources, but almost certainly came from Google itself or people who work closely with the company, as part of a similar strategy to be more transparent on its future China strategy. Google should continue using such a strategy in its China return, as it tries to forge a more constructive relationship with Beijing while being transparent about its model for doing business in the market.

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