Now that Google China has won licence approval from the Chinese government, it now has to struggle to rebuild its business, which has suffered badly from its confrontation.
Overlooked by most in the political confrontation with Beijing is Google China’s business relationship with its Chinese partners. In the six months from January to July, many of these companies have loosened their business relationships with Google China, and some have even ended their ties with the company.
In order to come back, Google China needs to claw back, winning their trust, and showing that the company is committed to the Chinese market for the long haul. Even within Google China, some of their best people left during this period. Now, the company has to manage a major rebuild of its reputation, its relationships, and internal staff.
During this confrontation period, the search engine market in China continued to show strong growth, showing record growth of 53.2% worth 2.64 billion yuan, according to a report from iResearch. In the second quarter, Baidu was able to raise its market share from 67.8 to 70.8%, further widening its lead over Google China.
Unlike in most markets, Google’s AdWords service relies on domestic resellers. This is one characteristic which differentiates China’s search engines from other markets, where AdWords accounts are usually directly managed by advertisers or their appointed agencies.
Because of Google China’s dispute with the government, Google China’s resellers were hit badly, causing them to lose advertising revenue. These resellers were required to meet Google’s reseller certification standards, and in event of a dispute, customers could complain to Google China directly. Since 2005, Google has gradually built up its network of AdWords resellers in China to 25.
Lately, news has come out that Google has lost two resellers in China, one based in the inland city of Xian, the other in Suzhou, near Shanghai. If true, these would be major losses for the Google AdWords resellers network. In addition, Google has announced that it will stop providing technical support to the Tianya.cn BBS, which is one of the largest community sites in China, where people talk and gossip about shopping, entertainment and other discussion topics. Tianya is especially popular with Chinese consumers and SMEs.
Two other important partners for Google are Sina and Alibaba. Because of the policy dispute with the Chinese government, both companies loosened their relationship with Google China, actively looking at other partners to replace Google. Google China will now have to stop the bleeding by winning back their confidence again.
For Google, the most painful hit is likely to be losing control of the Android platform in China, and the ability to monetise mobile search results. Because the Android platform is open-source, carriers are free to modify it as they please. In China, this will likely quickly lead to the development of low-cost “shanzhai” Android phones which have many programs pre-installed by the carriers. While Google has managed to maintain a China presence, this is likely to put a cap on its China growth for some time to come.
This is not to say that everything is smooth sailing for the China search engine leader, Baidu. Lately it has been hit by accusations that it has promoted sales of fake medicines in its search engine. Most damaging to Baidu was the accusation that most of the profits did not go to the fake medicine manufacturer, but instead went to Baidu, where the manufacturer had spent most of his profits to promote the fake medicines on the Internet. This has led to discussion that now that Google China is no longer a viable competitor, Baidu will become fat on profits, without regard to the social consequences of its actions.
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