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The Honolulu Advertiser
Posted on: Thursday, March 25, 2010

Google losing traction with Beijing partners

Associated Press

Hawaii news photo - The Honolulu Advertiser

Security guards lurk near the Google logo at Google China headquarters in Beijing. Google's partnerships are unraveling as the company challenges China's censorship laws.


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BEIJING Google Inc.'s business ties in China unraveled a little more yesterday amid a widening backlash to the U.S. Internet company's decision to move its Chinese search engine offshore in a challenge to the country's online censorship laws.

While the stand is winning Google praise in the U.S. and other countries, it's threatening to turn the company into a pariah in China.

A high-profile Communist Party newspaper skewered Google in a front-page story. And more of its partners and advertising customers in the country appeared to be distancing themselves from the company.

Google, based in Mountain View, Calif., still hopes to expand its nonsearch operations in China, but its refusal to play by the government's censorship rules could make that unrealistic.

By challenging the often tetchy government, Google appears to have violated an unspoken rule of doing business in China, especially in the Internet industry whose control Beijing sees as crucial to maintaining its authoritarian rule.

"Everybody in the Internet space operates under the good graces of the government, and if the government's not happy with your partner, you probably are going to have to change," said T.R. Harrington, founder and CEO of Shanghai-based Darwin Marketing, which specializes in advertising for China's search engine market.

Investors already seemed to have concluded that Google won't be bringing in as much revenue as they once anticipated. And Google's losses could turn into a windfall for China-based Baidu Inc., which already held a commanding lead in the country's search market.

Google shares gained $8.33 yesterday to close at $557.33, but they have fallen by more than $30, or nearly 6 percent, since the company's Jan. 12 announcement about its intention to stop censoring search results in China. About $10.5 billion of Google's market value has evaporated in the decline.

Meanwhile, Baidu's U.S. shares have climbed 57 percent during the same period, closing yesterday at $608.50, up $13.62. The surge has added nearly $8 billion to Baidu's market value.

Setting up a search engine on Chinese soil four years ago helped Google build new business relationships. But those alliances have started to fracture since Monday, when Google started to redirect search traffic from mainland China to an uncensored Hong Kong service on Monday. Though part of China, Hong Kong has a semiautonomous status due to its history as a British colony, and Google is not legally required to censor results there.

Tianya.cn, a popular portal that claims 32 million registered users, said it was taking full control over social networking and question-and-answer services operated jointly with Google. A company spokesman would not say whether the government exerted pressure but said in a statement that the takeover was being done to "guarantee each product, normal business and good operations."

Industry executives said that Google's China revenues were diving as companies shied away from placing new ads with the search engine. Deals with China's top two mobile companies were also in doubt.

In Hong Kong, executives with China Unicom Ltd., a unit of one of China's biggest mobile phone companies, hinted that it would shelve plans to offer two cell phones running Google's Android software.

Asked by reporters whether the deal to cooperate with Google to sell the phones was still moving forward, China Unicom Chairman Chang Xiaobing said the company was "open to cooperation with all the vendors but at the same time we need to abide by the laws and regulations in China."