Google's China Doctrine Could Be Good for Apple

Ask many China experts about the government and you'll hear a couple of consistent trends: The State doesn't forget; and the State can be very vindictive, which is why Google's nascent China Doctrine or a threatened pull-out because of cyber attacks and censorship, might end up being very good for Apple Inc.


Google still derives better than 95 percent of its revenue from Search advertising, but that doesn't mean the company is satisfied with that business model. That's why Google is spending so much on researching and developing things like the Android mobile operating system, the Chrome operating system, YouTube, and so many other, as-yet unnamed initiatives. And that's why Google's stance on Search might send ripples onto Apple's balance sheet. The company's public posturing and bluster might be a great political move with very little immediate economic risks (see my earlier post), but it could have a big effect on how successful Android smart phones might be in China.

Google's new Nexus One isn't in China just yet, but Motorola has already announced plans for Android phones on both China Mobile and China Unicom coming in a few months; Samsung also has Android phones launching in China. It stands to reason that if Google angers the Chinese political machine enough, that machine might sanction anything with Google's fingerprints on it. Is it realistic to think that China could issue some kinds of access restrictions on phones running software from Google? Absolutely, say the experts I'm talking to.

Further, could we see a scenario in which the two "competing" wireless companies in China actively tout phones based on other platforms at the expense of those running Android, ala Apple and the iPhone? Absolutely. Fact is, Apple and China Unicom announced their partnership on September 28th, and iPhones began selling in China October 30th. (Name-drop alert:) Steve Jobs once told me that China was absolutely critical to Apple and the iPhone. Research in Motion too has declared that China is key to the company's growth plans, and when the company formally announced entry into China, its stock spiked on the news.

I don't think Google is cutting off its nose despite its face with threats of a Chinese market pull-out. But winners and losers in this game stretch far broader than merely a Google vs. Baidu kind of story. There are hundreds of millions of potential Chinese smart phone users, and most companies trying to tap that financial vein have proclaimed how ripe the market might be for them. Manufacturers basing new devices on Android may not now see the success and penetration they were counting on, depending upon how the Google war of words escalates with China.

Long shot, you say? No way China would extend its beef with Google to other companies doing business or partnering with Google? The climate in China has polarized noticeably these last couple of years. Xenophobia rules the day. So does vengeance. Just look at the way the Chinese president Hu treated Barack Obama when the two were in Copenhagen recently. There's a growing disdain in China for certain sectors of American culture. Sure, General Motors has woven itself into the fabric of the Chinese manufacturing scene; but for other brands, particularly those in media or the internet or communications, it's a decidedly different story. And with $800 billion in treasuries owned right now, China can essentially do what it wants within the walls of its own country, and there's very little recourse for those trying to break through.

It's not quite a doomsday scenario, but those not accepting those possibilities do so at their own risk. Google can afford to turn its back on the Chinese market because it has very little to lose. In doing so, it's not all bad news. Apple and the iPhone, Research in Motion and its Blackberry, might end up enjoying market share no one anticipated. Motorola , HTC, Samsung, and Google itself, might see some difficulties.

This is getting very complicated. For my money, the more complicated it gets, the bigger the opportunities might be for creative, savvy investors who work their way through…

  • Wall Street frets over Google’s future in China
  • Baidu shares soar as Google weighs leaving China

Questions? Comments?