economics

January 29, 2010

Google Exiting China Could Hurt Android Adoption in Region

Filed under: Uncategorized — ktetaichinh @ 3:19 am
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Google Inc.’s mobile aspirations in China, including the adoption of its Android mobile operating system, could hit a snag if the Internet giant decides to pull out of the country.

Associated Press
A Chinese flag flutters outside Google’s China headquarters in Beijing.

Google’s push to get into the smartphone business was driven by its desire to take the lion’s share of future mobile advertising revenue. But if the company pulls out of China, it could dampen interest in Android and hurt its position in the nascent but rapidly growing market just as other smartphone players step up their game.

The problem could “potentially be huge,” said Kevin Burden, analyst at ABI Research. For example, the largest wireless carrier in China, China Mobile Ltd., has roughly 500 million subscribers.

Some–but not all–of the Android phones could be affected. Google has pushed forward two lines of smartphones: devices that feature the latest Google software and programs; and phones that run on customized software developed by the handset partner.

The Nexus One, for instance, has Google’s fingerprints all over it. As does Motorola Inc.’s Droid. Both devices carry a “with Google” tagline printed on the back.

These devices may get the cold treatment in China if Google decides to pull out. The devices put their ties into services such as Gmail and Google Voice at the forefront of their features, so the loss of Google’s support would be even more glaring.

Other Android devices, though, may not be affected. Devices like Motorola’s Cliq or HTC Corp.’s (2498.TW) Hero or Droid Eris have a second layer of software running on top of Android that changes the way the phones look and feel. The devices aren’t as reliant on Google programs, and they could still sell well in China.

“I think they will be treated totally different,” said Ken Dulaney, analyst at research firm Gartner Inc. “The operating system is more of an ingredient than a finished product.” Dulaney noted that the Android software is managed by the Open Handset Alliance, and not Google, despite the company’s overarching influence.

While Google may be able to pull out of China, other companies don’t have that luxury. Motorola, which has struggled to regain its footing after a long gap between hit phones, sees China as one of the strongest sources of future growth.

“China is a critical market for Motorola, and we are committed to providing the most innovative products and services, as we have in China for the last 22 years,” said Motorola spokeswoman Jennifer Erickson.

An HTC spokesman said the company wasn’t in a position to comment.

China-based Lenovo Group Ltd., meanwhile, unveiled a number of Android-powered devices, including a smartphone, at last week’s Consumer Electronics Show. And Dell Inc. launched its Mini 3 smartphone in China in November.

It remains unclear, however, whether Chinese consumers will be willing to buy a device that lacks critical Google features, even if the handset maker adds other bells and whistles. In addition, there is heightened competition with the Apple Inc. iPhone now available in the country, and Research in Motion Ltd.’s Blackberry, slated to hit China in the third quarter.

Many Chinese consumers are willing to pay the extra money for a device with all its features. They may not be so willing to buy a device that’s crippled in one way or the other, Burden said.

Android also has made an appearance on netbooks and smartbooks, devices that fall in between laptops and smartphones. Manufacturers can take more liberties with the hardware to distance the product from Google, and analysts feel there is less of a threat to those devices. But if there is a backlash against Google products, the companies will opt to use Microsoft Corp.’s Windows software, or an alternative Linux platform.

“It’s too important for the manufacturers to ignore the Chinese market,” Burden said

China Ratchets Up Web Privacy Fight

Chinese state-run media trumpeted comments by Microsoft Corp. Chairman Bill Gates that played down China’s Internet restrictions, as the government continued to ratchet up its rebuttal of recent U.S. criticisms of its Web policies.

Getty ImagesBill Gates

0127bgates

0127bgates

Mr. Gates, in an interview with ABC’s “Good Morning America” this week, said that China’s “efforts to censor the Internet have been very limited,” and likened its controls to those of other countries. In separate comments, he criticized Microsoft rival Google Inc.’s statement this month that it would stop obeying Beijing’s censorship rules on its Chinese-language site, and might close its offices in the country.

On Wednesday, several Chinese newspapers gave the comments prominent display. “Bill Gates Bats for China,” read the lead headline in the English edition of the Global Times, a tabloid published by the People’s Daily, the Communist Party’s official newspaper. The tabloid’s Chinese version, which claims a daily circulation of 1.5 million, also devoted its front page to Mr. Gates’s comments and to Western media reports of them, while China Daily, the country’s main English-language paper,also highlighted the comments on page one.

Mr. Gates’s comments echoed similar remarks made last week by Microsoft Chief Executive Steve Ballmer, but Mr. Gates’s celebrity status in China appears to have given his words greater weight. His comments followed a speech by U.S. Secretary of State Hillary Clinton last week vowing to make Internet freedom a centerpiece of American foreign policy and praising U.S. companies that promote free information.

Chinese media have mounted a concerted effort to discredit Mrs. Clinton’s remarks about China in that speech, as well as Google’s allegations in its Jan. 12 statement that it and other companies were targeted by cyberattacks originating in China. Dozens of commentaries published since last week have described the U.S. criticism as hypocritical and alleged that Google is being used as a pawn by Washington.

Mr. Gates said the Internet has helped free expression, and that in China it is “easy to go around” the government’s system of controls. “And so I think keeping the Internet thriving there is very important,” he added. He said other countries restrict some Web content, such as pornography, and noted that Germany censors statements related to the Nazi Party. “And so you’ve got to decide: Do you want to obey the laws of the countries you’re in, or not?” the Microsoft co-founder told ABC host George Stephanopoulos on Monday.

Chinese officials have made similar statements, saying China’s management of the Internet is in line with international practice and that foreign companies in China must obey its laws. In separate comments Monday to the New York Times, Mr. Gates belittled Google’s China statement. “They’ve done nothing and gotten a lot of credit for it,” he said. “What point are they making?”

China’s Internet controls go far beyond those of countries like Germany, censoring a wide range of politically sensitive content and blocking access entirely to foreign sites like YouTube and Facebook. Chinese authorities have arrested numerous dissidents for using the Internet to criticize the government, including Zhao Lianhai, who was jailed last year for running a Web site to help families like his whose children were poisoned by tainted milk powder made by government-owned companies.

Simon Leung, who is head of Microsoft’s China operations, declined to comment on the Chinese media’s response to Mr. Gates’s statements.

Lian Yue, a prominent Chinese blogger, wrote on Twitter that he thought Mr. Gates’ critique of Google was “silly and unfair,” and that his defense of Beijing’s position “is unwise even from a pure business perspective, as it is damaging to Microsoft’s commercial reputation.”

Microsoft’s Internet business has struggled to gain a foothold in China. The Web search market here is dominated by Baidu.com Inc. and Google, which had combined market share of about 94% in the fourth quarter of 2009, according to research firm Analysys International. Microsoft in June introduced a Chinese version of its Bing search engine, which like other search engines in China strips politically sensitive links from its search results. In 2006, Microsoft was criticized by U.S. lawmakers and free speech advocates after it deleted a popular Chinese blog that was critical of the government at the request of Chinese authorities.

In a separate development, a Ministry of Industry and Information Technology spokesman said the Chinese government won’t limit the use of Google’s Android operating system for mobile devices by Chinese telecommunications operators. The comments were China’s first official word on the future of the Android operating system since Google’s announcement that it will stop obeying government censorship rules on its Chinese search site as a result of concerns over hacking and censorship.

The spokesman’s comments suggest that the government might be open to permitting parts of Google’s business to continue to function in China despite that announcement.

“As long as it complies with Chinese laws and regulations, and as long as it has good cooperation with operators … their use of the system won’t be limited.” MIIT spokesman Zhu Hongren said Wednesday at an annual news briefing.

There are several Android-based phones already in China, and the country’s three major telecom carriers-all of which are state-owned—are planning to launch more. Last week, Google said it was delaying the planned China launch of two mobile-phone models using Android. The phones, made in partnership with Samsung Electronics Co. and Motorola Inc., were to be sold in partnership with carrier China Unicom (Hong Kong) Ltd.

—Aaron Back and Sue Feng contributed to this article.

Write to Sky Canaves at sky.canaves@wsj.com

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