Q+A - Without search service, what would Google do in China?

SHANGHAI Thu Jul 1, 2010 2:02pm IST

A man walks towards the Google China headquarters in Beijing in this January 13, 2010 file photo. Google Inc, which runs the world's largest search engine, is in a pickle as it could lose its licence to operate a China-based search page, while trying to hold onto its anti-censorship stance. REUTERS/Jason Lee/Files

A man walks towards the Google China headquarters in Beijing in this January 13, 2010 file photo. Google Inc, which runs the world's largest search engine, is in a pickle as it could lose its licence to operate a China-based search page, while trying to hold onto its anti-censorship stance.

Credit: Reuters/Jason Lee/Files

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SHANGHAI (Reuters) - Google Inc, which runs the world's largest search engine, is in a pickle as it could lose its licence to operate a China-based search page, while trying to hold onto its anti-censorship stance.

In a bid to appease Beijing and keep its China license, Google said this week it will stop automatically redirecting China users to its uncensored Hong Kong site.

Google's application to renew its license is being reviewed by the government and the results will be posted soon, Chinese state media reported on Thursday.

This marks the latest twist in the saga that began when Google said in January it may quit China over censorship concerns and after suffering a hacker attack it said came from within China.

Following are questions and answers to Google's remaining assets in China if its flagship search engine is disallowed.

WHY IS GOOGLE FIGHTING SO HARD?

Without the Internet Content Provider licence, Google's search presence in China will revert back to when it did not have a localised search page. China users keen to access Google search had to turn to its offshore sites, meaning longer search times -- and a boost for Baidu, the top local player.

Google's current search business in China accounts for a tiny slice of the firm's $24 billion in annual revenue. Analyst estimates of Google's annual revenue in China range from $300 million to roughly $600 million, but the long-term growth prospects are key.

As the world's largest Internet market with nearly 400 million users, China has huge potential. Firms which got out of it early, such as Ebay and Yahoo Inc haven't been able to regain a foothold in China, as local competitors such as Taobao swooped in and dominated the vacuum.

Google is probably aware of this precedent and unwilling to walk away.

Since Google threatened to pull out of China, Baidu shares have rocketed 76 percent on expectations it will gain more market share. Google shares have fallen around 25 percent since then, while the broader Nasdaq is down 8 percent.

Baidu captured more than 64 percent of China's search market in the first quarter, while Google had around 30 percent, according to research firm Analysys International.

WITHOUT SEARCH, WHAT DOES GOOGLE HAVE LEFT?

Without search, Google still has its Android platform, an open source operating system for mobile phones.

Credit Suisse analyst Wallace Cheung expects Android to become the most popular mobile operating system in China in the long run, beating out Apple's popular iPhone.

China's two main telecom firms China Mobile and China Unicom already offer smartphones running Google's Android system.

The non-renewal of Google's ICP licence spells uncertainty for Android as China could also find a way to make it hard for Google to develop and market the platform in China.

Earlier this year, China Unicom said it will still continue to offer Android phones, but will drop Google's search as the default search engine on them.

WHAT'S THE FATE OF GOOGLE'S PRODUCTS IN CHINA?

Google is keen to provide non-search functions on the Google.cn site such as music search and text translation.

Google Maps may face difficulties in the near future as China recently implemented new laws requiring firms wanting to provide online mapping services to apply for a licence.

On Wednesday, China's State Bureau for Surveying and Mapping released a preliminary list of 23 companies approved for online mapping. Baidu was on the list but Google was not.

A source familiar with the situation said the list was not the final one. Google said it was reviewing the new laws and the impact on its products.

Other popular Google products such as Blogger and YouTube are blocked in China, which defends the move on the need to ensure public security and social harmony.

WHAT ABOUT OFFSHORE SEARCH SITES?

Edward Yu, chief executive of Analysys International said Google's market share had stablised in the second quarter, despite the automatic redirection of users to its Hong Kong site.

A non-renewal of the ICP licence could see a fall in the number of users to the Hong Kong site because users who relied on the automatic redirection to get to Google Hong Kong, may now find it a hassle to have to click through to get there, Yu said.

If users flock to Baidu, so will advertisers, meaning that Google's offshore search sites will see drastically reduced revenue from China businesses, analysts said.

(Editing by Anshuman Daga)

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