economics

May 11, 2010

Google Wanes in China Confrontation with government appears to erode Internet giant’s share of search revenue

Filed under: Uncategorized — ktetaichinh @ 2:07 pm
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By LORETTA CHAO

BEIJING—Google Inc.’s market share in China declined in the first quarter, a research firm said, showing how the U.S. company’s clash with China’s government is benefiting Chinese rival Baidu Inc.

Google’s share of Chinese Internet-search revenue dropped to 30.9% from 35.6% in the previous quarter, said Analysys International, a Beijing-based research firm. Google’s share had increased in all but two quarters since 2006, according to Analysys data. The company said Baidu’s market share in the latest quarter rose to 64% from 58.4% in the final three months of last year.

The data also suggest that other Chinese companies have yet to capitalize on Google’s troubles in China. The Mountain View, Calif., Internet giant announced on Jan. 12 that it would stop obeying government censorship requirements on its Chinese search site, citing cyberattacks originating in China and worsening limits on Internet freedom. On March 22 it followed through by moving the Chinese site, Google.cn, to Hong Kong and halting self-censorship of its results.

Analysts have said that Baidu was sure to benefit from any scaling back or withdrawal by Google, and that it also faced competition from other Chinese companies. But those local rivals didn’t perform well in the first quarter.

Market share for Sohu.com Inc.’s Sogou dropped to 0.7% from 1%, and that for Tencent Holdings Ltd.’s Soso dropped to 0.4% from 0.7%, Analysys said. Overall search-market revenue in China dropped slightly to $285.6 million from $288.6 million.

Google’s advertising resellers in China have complained that the months-long uncertainty before its March 22 move caused concern among ad buyers and affected their sales even before the move. Ads from China could still appear on the Hong Kong version of Google.cn after the March announcement, but some advertisers said they reacted by scaling back their spending because they didn’t know how long the site would be available to their target audience in mainland China.

Some Google resellers said Monday that sales are starting to stabilize after the first-quarter decline.

Advertisers also expressed concern that moving the site outside of China’s “Great Firewall” caused confusion and instability for users trying to access the site. Chinese authorities use technology to interrupt or block access to Web sites outside of China, including Google’s Hong Kong site, in order to filter out politically sensitive content and pornography. The practice often discourages use of those sites because it can be cumbersome for users.

A Google spokeswoman declined to comment on the company’s market share, but said the company is “continuing business as usual in China,” adding: “We understand that some partners may not be comfortable with our stance, but we’ve already seen that many others are offering support and want to continue working with us.”

Google’s Hong Kong-based site remains accessible in mainland China. Aside from an unexplained block of its services for several hours on March 30, there doesn’t appear to have been any additional backlash against the company for publicly snubbing the government’s censorship policy.

Investors have continued to bet that Baidu will gain from the situation. On Friday the company’s shares on the Nasdaq Stock Market closed at $645.76, up 64% from the day of Google’s January announcement. They dropped less than 1% Monday, to $640.85 in 4 p.m. trading.

Google’s loss of market share could continue, but analysts say the company will at least retain ad revenue from export-oriented companies in China who target users of Google’s international sites.
—Kersten Zhang
contributed to this article.

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