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Google’s Bold Stand

Google China
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One of the most fascinating business and investing stories we’ve all been following is whether Google would follow through on its threat to shut down some or all of its operations in China.

The issue: cyber attacks the company says China orchestrated and restrictions the country puts on search results and Internet content.

When this story broke in mid January, we talked here in about how it was about more than just business. That remains true, but the business side of the story is significant as well.

Various reports surfaced last week that Google was drawing up plans to pull out of China, though neither the company nor the Chinese government said anything publicly. Google’s partners in China, such as advertisers, were hanging in limbo and reportedly sent a letter asking that the situation be resolved quickly.

And now, as of Monday afternoon, it appears somewhat of a compromise solution is just being announced. Click here for an update.

Should Google have ceased its operations in China, it would have abandoned an enormous revenue opportunity. China is not just the world’s largest Internet market; it’s also the fastest growing. There are 400 million Internet users in China (more than the entire population of the U.S.), and 250 thousand new users come online each day. Google currently captures about 36 percent of China’s search revenue, so there is clearly room for growth.

The leading search engine in China is a domestic company, Baidu, which reportedly brings in 58% of search revenue. In reading analyst reports on this story, most point to Baidu as a company that stands to gain from anything Google would leave on the table. And because it is a Chinese company, it would play by the government’s rules. Microsoft’s Bing search engine has struggled to gain a foothold in China.

In looking at the U.S.-traded shares of these companies, GOOG has jumped 70% in the last 12 months, MSFT is up 74%, and the high-flying BIDU has soared 223%. All outperformed the Nasdaq, which is up 60% in that time.

Google has been clear that it wants to give users a truthful experience when searching the Internet, and whether you agree or disagree with the company’s eventual decision, it was a gutsy move to even consider closing down, not to mention being so public in its criticism of the Chinese government. Most other businesses that operate in China are reluctant to be that vocal for fear of jeopardizing their status there.



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