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March 24, 2010

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Titan's move to pull out set to hit booming Internet market

GOOGLE Inc's decision yesterday to shut its Chinese mainland Website and pull out from the market will unsettle the domestic dot-com sector, telecommunications industry and also has an negative impact on the Internet giant itself, industrial officials and analysts said yesterday.

"It will hit the booming Chinese Internet search market," said Li Zhi, an analyst at Analysys International, a Beijing-based Internet consulting firm.

"However, Baidu is not likely to become the biggest winner as smaller search engine providers, including Sogou and Tencent Soso, may also take this opportunity to enhance their position in the industry," she added.

Google, the world's No. 1 Internet search provider, is one of the two major Internet search players in the Chinese market, with more than 300 million Internet users. Domestic rival will probably dominate the domestic market following Google's move, analysts said.

"Competition is necessary to fuel market development but now the Chinese search market lacks it, at least in the short term," said Li.

IT commentator Xie Wen is worried that Google's withdrawal may cause Baidu to "focus less on providing creative products for its users after it gains the leading position in the market, and instead it will pay more attention to boosting sales."

Google's loss

It's also a loss for Google to pull out and lose the market share it has gained, market watchers said.

Google is leaving the "fastest growing market," they said. Google is the only major global Internet company that has been increasing its market share in China while most other international players, including eBay and Yahoo!, are being marginalized, said Richard Ji, an analyst at Morgan Stanley.

To date, Google has captured a 32 percent share of the paid search market in China, compared with less than 20 percent three years ago, according to Analysys.

Google China saw its revenue jump 50 to 60 percent annually in 2009 compared with only a 5 percent rise in the United States market, according to Morgan Stanley. At present, Google China contributes only 1 to 2 percent to Google's total revenue. The penetration rate of China's Internet population, which has already exceeded the entire US population, is only 30 percent, compared with 80 percent for most developed countries, implying there's ample upside for the Internet market to expand in China, Ji said.

The majority of Google China's employees won't be affected adversely by the move although some departments face uncertainties, a Google source told Shanghai Daily.

"Divisions like research and media distribution (of Google China) won't see big changes but the advertising sales team may be affected," a Google China staff, who declined to be identified, said during a phone interview yesterday.

Google may move some positions on the Chinese mainland to Hong Kong if necessary, the company said later yesterday.

The Internet titan's decision raised a hot debate among Chinese Netizens and worries from Google's advertising sales agents.

The shut down of Google China would probably hit the business of its advertising agents and their customers, said a letter on the CCTV Website last week, signed by 27 Google China advertising agents.

Google, which operated in 2006 with former Microsoft executive and IT industry veteran Kai-Fu Lee, employs about 600 employees now in China. Half of them are engineers and the balance work as advertising sales agents.

Lee, former president of Google China, left the search engine giant last year after Google China was repeatedly criticized by Chinese authorities for providing "pornographic and improper content" in search results.

Other market players and collaborators were cautious about commenting on the issue.

"We don't have plans to stop the partnership with Google at the moment, and we will evaluate whether we should switch partner or use our own search service, iAsk," said Robert Liu, deputy general manager of Sina marketing center.

Google's move is also critical for mobile phone vendors that have adopted the Google-developed mobile system, Android.

Phone vendors Motorola Inc and HTC Corp have gradually transferred to the Android system. Both companies stand to lose market opportunities in the world's biggest cell phone market of more than 700 million users.

"We are concerned about the issue. It may be troublesome if Google really leaves China," Paul Hsu, chief operating officer of Dopod, HTC's domestic brand, said in an interview last month.

September 2004

Google launched a simplified Chinese version of news service.

July 2005

Google began operating its Research and Development Center in China, headed by Kai-Fu Lee, with its office located at NCI Tower. It later moved to Tsinghua Science Park in early 2006.

January 26, 2006

The local domain version of Google,, goes live in China.

April 13, 2006

CEO Eric Schmidt announced in Beijing that Gu Ge will become Google's official Chinese name and it also became the only non-English brand name of Google.

January 2007

Google announced a partnership with China Mobile to provide mobile and Internet search services in China.

February 2007

The Chinese version of Google Docs & Spreadsheets was introduced to allow online editing and sharing of files.

February 2008

Google Finance China is launched, allowing Chinese investors to get stock and mutual fund data.

August 2008

Google China launched a legal music download service, Google Music, in a partnership with, to compete with rival Baidu's similar offering.

April 2009

Google Simplified Chinese Toolbar was launched.

September 2009

Kai-Fu Lee announced his surprise exit to start a venture fund in Beijing. Yeo Boon Lock took over research and development team while Liu Yun heads business operations.


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