Like a lot of people, I’ve been following the storm that Google set off with this blog post, and I wanted to share three thoughts. Before continuing, make sure you’ve read the “Clearing Up Confusion on Google and China” post on the WSJ’s China Realtime Report. I’ll reference some of the stats but won’t review all of the info in the post.
Here is what Google has said:
We have decided we are no longer willing to continue censoring our results on Google.cn, and so over the next few weeks we will be discussing with the Chinese government the basis on which we could operate an unfiltered search engine within the law, if at all. We recognize that this may well mean having to shut down Google.cn, and potentially our offices in China.
My three thoughts are that 1) I like Google.cn; 2) shutting down Google.cn does not mean the end of Google’s China business; and 3) Google is almost certainly not going to shut down its China office (but it might dramatically scale it down), and even if they do it doesn’t necessarily mean an end to Google’s China business.
I Like Google.cn
Google.cn is a locally-hosted version of Google.com that is fast and reliable. Â It also censors results in accordance with Chinese law. Â This was a compromise that Google was heavily criticized for, but one they justified by pointing out that Google.com was still available in China. Before Google.cn was established in 2006, Google.com was accessible, but it was periodically blocked and often slow. Â In addition, searching for certain terms (for instance, strangely, the English word “freedom”) would return an error and sometimes leave Google inaccessible from your computer for about 15 minutes.
With the introduction of google.cn, Google also started to invest more in localizing other Google products, and hosted them on the Google.cn domain. Â Google maps (ditu.google.cn) is now a valuable resource, and Google Music (free, legal music downloads at google.cn/music) is almost reason enough to move to China. Â What Google explicitly did not do was introduce services that held sensitive user data (Gmail, Google Reader, Google Docs, Google Apps, etc.) to the Google.cn domain. Â Doing so would have put user data at risk of censorship and even legal seizure by the Chinese government. Â These services were still available through Google.com, but they faced the same (and often more severe) reliability and speed issues as search at Google.com. Â Google Apps, for instance, remains blocked (I think), and Google Docs is currently extremely confusing to access (for instance, spreadsheets are only viewable using https).
I love how Google.cn gives me a fast and reliable Google in China, but I don’t think anyone believes that China will allow Google to run an uncensored version of Google.cn, and Google didn’t leave themselves much wriggle room in their blog post, so it appears likely that Google.cn will shut down. What does that mean for Google’s business?
Shutting Down Google.cn Does Not Mean the End of Google’s China Business
Google had a 13% market share in 2006, before they introduced Google.cn (see the WSJ post referenced above). Â Since the introduction of Google.cn (also accessible from g.cn), they have raised their market share to around 36% (see here). Â If they shut down google.cn, or redirected it to google.com, their market share would not immediately disappear. Â In fact, it would probably remain at well over the 13% it was back in 2006. It’s not even beyond the realm of possibility that Google would be able to continue to expand their marketshare. Â In addition to expanding marketshare over the past several years, Google has also expanded its “mindshare”. Â While it used to be conventional wisdom that Baidu had better results in Chinese, Baidu’s reputation was damaged by their practice of mixing paid and “natural” search results, and Google continued to improve its Chinese search results.
It’s worth pointing out that life as a Google search user in the days before Google.cn wasn’t really that bad. Â I used Google, as did 13% of all internet searchers in China. Â When Google hiccuped, I used Baidu, but I always went back to Google. Â
So if Google.cn goes away, Google’s China business doesn’t automatically go away. Â Ads for Chinese companies appear on Google.com searches as well, so Google’s China search revenue wouldn’t just disappear, and Google’s other Chinese products could fairly easily be moved over to google.com and served to Chinese users (as far as I know, the only difference between a maps.google.com search and a ditu.google.cn search is that the .cn one is probably slightly faster)
I wonder what Google’s market share today would be if they had not started Google.cn in 2006 and had instead focused their efforts on ensuring better access to Google.com products in China? Â A safe guess is somewhere between 13 and 36%.
Google Is Almost Certainly Not Going to Shut Down Its China Office (But It Might Dramatically Scale It Down), And Even If They Do It Doesn’t Necessarily Mean an End to Google’s China Business
Google closing its China office strikes me as a very remote possibility. Â The blog post mentions it, but it also states that Google China executives had not yet been involved in the decision-making process. Â I’m fairly certain that Google’s China executives will be able to convince headquarters to maintain an office in China. Â Suppose, though, that Google did decide to close their offices here. Would that mean an end to Google’s business in China? Â Maybe, but maybe not. Â Even leaving a shell company in China to collect money would allow Google to continue to do business here. Â While Google has depended more on a physical sales force in China than I assume they do in other countries, they could very easily do sales remotely from the US. Â
Google appears to be worried that their China staff has been compromised, and may not feel comfortable maintaining development teams in China. One possibility in the short term is that they may outsource all China-related R&D to other countries, and only leave a sales force and PR team in China. Google already has a huge number of high-caliber Chinese employees working for them around the world, and they are working on and could continue to work on localizing and creating excellent Chinese-language products (I have no data to back this sentence up, but I know it’s true). Â
Again, I don’t think that Google will close its China office, but want to point out that doing so wouldn’t necessarily mean the end of Google’s business in China, or, more important in the long-term, Google’s presenceÂ in China.
Those are my three thoughts. My hope is that Google will focus their energy on improving access to Google.com products in China, but I’m worried that their blog post was a heavy-handed start to the delicate negotiations that will be required.