Who wins when Google leaves China? Microsoft and Baidu might not like the answer
The big question in China isn't why Google is leaving but who will take its market share. Microsoft wants it, Baidu's a favorite, but local powers like Sohu and Tencent are more likely to be the big winners.
By Bill Powell, senior writer
The days are winding down for some of the best and brightest who went to work for Google (GOOG, FORTUNE 500) in China over the last couple of years. They can't say so publicly, of course—and some of the more than 700 employees who work at headquarters in Beijing will no doubt retain their jobs. But to say that others are fatalistic is to put it mildly. Â "What can we do?'' says one computer scientist who has worked at Google China for more than two years. "If the search business in China is shut down, it's shut down. If I have to find another job when it happens, I'll do it. I don't want to—I like it here—but I will."
It's no longer a matter of if, but when Google is forced to exit the search business in China—and when could be in a matter of weeks.  The Mountain View giant's extraordinary insistence that it would no longer censor the search results on Google.cn—the second leading search engine in the country with the most Internet users in the world—will soon lead to the demise of its Chinese language search business. The Chinese government was never going to negotiate with Google on the issue of censorship—particularly not after the U.S. government hitched its wagon to Google's cause, in the form of Secretary of State Hillary Clinton's  January 21st speech on Internet freedom.  In fact, it's only within the last few days that anyone from the Chinese government has even conceded publicly that it was talking to Google at all.  And while Google's move may have sent a thrill up the leg of human rights activists the world over,  a lot of investors were—and remain—furious. Since posting the announcement on its website January 12 that it would no longer censor, Google's stock price has declined 5% to about $567 currently , while Baidu (BIDU), the leading search engine in China, has seen its stock price rise by 50%.
The reason for that is obvious.  January 12 was, in effect, the starting point for the next phase of competition in China's search market: the battle for Google's share, which is about one third in terms of search revenue.  The most obvious potential foreign beneficiary is Bing, Microsoft's (MSFT, Fortune 500) new search entry. And while it may not exactly have been handed the keys to a very rich kingdom, the executives there understand their good fortune—and have not been shy about subtly sticking the knife into Google.  On March 17, Craig Mundie, Microsoft's strategy chief, told the China Daily, a daily, English language house organ of the Communist Party, that  "we feel good enough now (about Microsoft's position in China)," and added: "But it's a 20 year (journey) and not just three years." While Bing has yet to make a dent in China—its market share is less than 1%— Mundie stated the obvious when he said that the company stood to gain share in Google's wake. And, he couldn't help but add: "Microsoft is here to stay."
That's no doubt true. But it's also true of several other domestic Internet companies who are moving swiftly to capitalize on Google's (choose one) self-inflicted wound/inspirational stand. Numerous sources says both Sohu.com (SOHU), a Yahoo-like website founded by MIT graduate Charles Zhang, and a hugely successful instant messaging company called Tencent Holdings, Â are already aggressively trying to hire Google China staff. (Google China declined to comment.) Neither has much of a presence yet in search: both have less than 1% of the market. Â But both were already investing significantly in search even before Google's ultimatum in January, and are now obviously even more determined to take on Baidu.
Analysts believe that of the two, Tencent has the better position to capitalize, given its dominant position in China's booming instant messaging business. According to estimates by Analysys International, nearly 70% of China's 400 million Internet users use instant messaging, and of those, 80% use Tencent's QQ program. That's the major reason why Tencent's current market capitalization is bigger than Baidu's, and an insider at the company acknowledges that search "is very much" a target of opportunity.
All of the potential usurpers do what the Chinese government requires: they censor their search results (as, still, does Google): random searches on all three platforms on March 17 for "Tiananmen Square, 1989," and "Falun Gong"—two hot buttons as far as Beijing is concerned—prompted the usual government approved pablum about both subjects. If Microsoft and the others intend to be "here to stay," as Mundie put it, there is no chance—none— that that will change for any of them going forward.
Since January 12, Google's primary mission when it comes to its China operations has been damage control. What, if any, of its businesses beside search will survive? So far, it appears that Chinese adopters of Google's new Android operating system—including China Mobile and China Unicom, the two dominant mobile phone companies—still have the government's permission to utilize the platform.  But the future of other businesses Google is involved in China—for example, TOP 100.cn. a music portal funded by  Google and several big music labels—is entirely unclear.
To date, in fact, the only thing crystal clear is the market's verdict on Google's stand. Markets don't do politics; they react to politics. And however noble Google's 'no censorship' stand may be, one of its large institutional investors (who did not want to be identified publicly) no doubt speaks for many when he says, "there are still a lot of us who can't believe they are going to be out of the Chinese search market; Â that they've effectively made this choice." Â But out is what the world's dominant search company will apparently be. Â "And I guess," the investor says, "we just get to lump it."
Can you all be so blind/stupid as the media lead you to be?
Facism? Principles? Decent human beings? Oh, please!
Google was placing a bet with 10 to 1 odds. If they were successfull in getting the Chinese government to cave on their "principles", it would have meant $billions$ in increased revenues for Google.
Google folded for now, the games not over. It's that basic.
Ok guys, think back four years ago, when Google announced they have decided they will go to China. Google said they will follow and obey national and local laws of that country. The Americans public and the US goverments were pissed when the news came out. Couples of Google top executives were called to go to Washingtion to testified, they were accused as greedy.
Four years later Google changing their mood. If Google have principals, morls standard liked you all have said, they wouldn't go to China. But they did. Google will find the way to stay there, they won't leave, becase Google is a liar and greedy.
Google is the one company who has deep enough pockets to have clout on areas outside of it's industry, such as politics. Google leaving China will certainly affect the country, despite the fact that competitors will jump in and take their market share. Who does it affect? Everyone who uses Google now (50-60% of the market in China)will notice the difference. It's not just the user friendly interface, but the results that the search engine returns are the best. People will notice. I firmly believe Google is making the right choice. We won't see the effects immediately, but this is a major catalyst that will change Chinese censorship and their regard for human rights in the near future.
Oh give us all a break, Googles technology fundamentally can't be any better than anyone elese, I don't personally think the chinese market is all that financially lucrative, but there are these local/national rules in china,and they have a government obviously more than willing to enforce it. If Google opts to not comply, tough nuggets,then they must go. Lets cut all this high minded high principle stuff. That dog ain't gonna hunt. Plenty of other ISP companies are more than gonna take up all the slack left when google bugs out,so its not a biggie inside china.
Googles fame is as a lifestyle company not that thier fundamental technology is any better than anyone elses. Its more like the "cult of google", the cafeterias, the lavish employee benefits,the gyms, all of that stuff.
If MS takes google's place, then I am an apple user as soon as i buy new, oh and my pc's are already going to linux in the meanwhile...
We founded our country on morals. shame on anyone that thinks money is more important. If you use decency in your work ethic, you may not get rich fast, but you will get there, and stay.
Google provides such a superior product that it practically prints money. Google is the last bastion of freedom. I as someone who believes in free markets do not understand those who think doing business with a government that enslaves it's people as "free market". Our founding father's would have never done business with communists no matter how much money they could make. Freedom is far more important. Our founding fathers were isolationists. Something modern Americans need to start working back to. The fascist world hates America, and we do not need them. Long live Google.
Depending on how you define "winning". If winning means making more money, then Google may not be the winner. For me, Google will be a winner in holding up a just principle, if it actually leaves a dictatorship ruling.
Thank God for a corporate entity finally taking a principled stand against a fascist nation like China. The situation in China is exactly analogous to the Nazis in the 1930s, when there was "free enterprise", except the government owned or controlled all of it. "Those who do not learn from history are condemend to repeat it".
If Google leaves China, Google will lose. China is going to be the number one economy super power in the world 10-15 years from now. As a company, you have to decide.
Dan (3/20, 6:21 and 6:17)
Are you really comparing moderating a bulleting board with preventing a nation of 1.2 billion from communicating with the rest of the world?
I'm also curious as to what you meant by "they have absolutely no idea what they're dealing with." I know you couldn't have meant this, but it sounds strangely like a threat.
History books mention two types of people: dictators and heroes. Our founding fathers undertood all too well how easy the path can lead to dictatorship: censorship. The Bill and Melinda Gates Foundation is into population control just as Planned Parenthood, China and Obama (if you consider that the main problem in our healthcare debate is about forcing all of us to pay for abortion). History books will tell us whether Google will be mentioned as a hero. If free speech dissapears, our history books will be written by the dictator of the day. In Iran's history books, "the Holocaust" never happened. The bodyparts business is a big business in China, just as it is in the USA with fetal parts. Google investors: you can't serve two masters; money AND your conscious, but I'll buy google products from now on and that's money in google's pocket!
Any company that would compromise the fight for freedom in China just for the sake of profit should be shunned by all peace and freedom loving peoples.
Kudos to Google. If only all CEO's of companies that quickly gain success think the same way, and not forget their responsibilities as decent human beings, while trying to take away everyone's last dollar. Banks for one should learn to follow Google's lead.
If Google leaves China, the entire world, especially the Chinese people, wins. By far the most important take-away message from Google's departure will be, "we can't do business with such an unethical regime." This sets a precedent that terrifies the Chinese regime.
That's why this is far more important than just one company leaving China. It's time for this principled view to spread.
I love that Google is taking this stand! If other companies were as ethical as Google I think our country would be in a lot better shape! Also, for all of those idiots saying this is about profit, DO YOU DUE DILIGENCE Dumba$$! This move will cost Google billions, but they still think it's the right thing to do!
US law gives companies the freedom to freely operate in a foreign country. Chinese law gives their companies a choice too. Do what we say or lose your head. US companies have shown time and again that they have no morals when it comes to doing the right thing if it affects the bottom line. We wouldn't need trade sanctions otherwise. A big + for Google and a bigger - for the rest who stay to pick over the carcass. Are you listening Mr. Softie?
Sure, google may base there policy on profit but the end results they are sending a message to the people of china that there is a world of knowledge political and idealolgy and they should have access to it. The Chinese government should not surpress the knowledge of the people. Control the people you must control access to all information.
The message I received after posting the comment on this blog reinforce the justification for the Chinese government to censor information going into their country. A small magazine like fortune has the right to post or not post my comment based on "deemed appropriate" standard, what do you think the government can do. Just respect the rule. Stupid google ceo whatever they called it .
Business rule number one. Never mix business with politics unless it helps to get more business.
Google is just plain stupid to do what they are doing they are just overwhelmed with newly found wealth and they have absolutely no idea what they are dealing with.
Google knew China very well before they went there to do business. Now they have problems following the rules. You don't want to follow that country's rules, just leave. It's all about MONEY not POLITICS. Google is making decisons based on politics not business.
We will, right from tiananmen Square, I'm so surprised that this page's not been blocked as youtube and facebook...
hacking = human rights? or this is a way get free publicity? either way, it's costing Google tremendously. At least 15 billion was shaved off its market value since their announcement. I believe China can live without Google. but the real question is how long can Google live without China?
Chinese people will revolt. How long Communists dictators can suppress human rights. I think it is a matter of a few years - Chinese juggernaut will roll over the dictators soon.
What's in China anyway? Poor materials,low quality on almost everything...Give them open source search engines LOL
"Google is usually more focused on long term success. It has worked fine thus far. I believe that as they hold true to their values, success will continue to follow the company."
I agree!
Let's be clear that this was not the result of censorship but rather a hacking attack sponsored by the Chinese Gov't. Why should they stay if their systems and data are at risk?
it's just dumb to think google did this cuz human rights.
and for yall believe it, no wonder america is sinking.
now, tell me ebay exit china cuz human rights.
This is an EVENT that will be talked about in history and business schoolbooks for decades. Google earned my respect with this. MS lost whatever respect I had for them. I might just now have to buy Nexus phone. Software by Google, hardware by Taiwan. Suck it Kommies.
BTW, Chinese Communists kill Falun Gong followers and use their bodies for organs. That's what they are keeping from the search engines.
you kiddin me.. its just a hype.. google was as it is not doing good in china.. its a hype that is it.. get real people c the things behind the scene.. Google is just interested in profits..
Go Google !
Straight to Hell with China and all its products AND all the traitorous GIANT companies who make a living importing the land-fill.
Google is an excellent company. Not only is it innovative and hugely profitable, it is socially responsible as well. I am already using at least one google product per day, I will be using google products even more now.
Thank you google. Well done!
I like google before but now will always use Google whenever I have an opportunity. Microsoft descends like a vulture to exploit the situation, at least one company has a conscience.
Google is usually more focused on long term success. It has worked fine thus far. I believe that as they hold true to their values, success will continue to follow the company.
It is very immature of google to leave china. I will not trust Google anymore. Who names tommorow they may not like the color of my hair. It is a personal property of the 2 founders and not worthy of being called a professional business who can be relied on for anything.
Microsoft executive's shameless and unapologetic taking advantage of Google's pullout from China is not surprising. After all those years working hard to monopolize US market it's clear MS doesn't believe in consumer's freedom of choice.
Maybe entire Microsoft should move over to China. There it would be very natural for them to work hand in hand with totalitarian government to censor Chinese people.
Gosh...if only the nazis were still around, some of the amoral Google investors could have hoped to gain their business as well...oh darn. I applaud Google and hope others will as well... and they will be my only search engine of choice....
I cant understand why Google is exiting china or what good this will do for anybody, least of all investors, or even Chinese activists.
Its insane to give up on the most dynamic internet space in the world!
Google should not support anyone trying to split up China in the pretext of human rights. Now I've switched from google to yahoo and bing.
One can only hope that more corporations follow Google's lead and do what is right and just rather than letting greed be a driving force. I have only the utmost respect for Google's leadership team for doing this.
If we allow investors to dictate human rights then we all lose in the long term. The investor's quote shows why. Companies that further oppression for profit ought to be shamed and marginalized.
I don't think Google's decision of leaving Chine is a smart decision. It WILL NOT help freedom of speech in China. China's change to democracy is inevitable. If Google can stay in China, Google can help this change by providing a powerful mean for Chinese people to speak up. No matter what Chinese government will do, the internet is the most powerful channel for ordinary Chinese people to speak up. We can use the US government of dealing with China as an analogy. Breaking up with China is not a right or smart decision, not at all. Google's top executives are making mistake on this one. Google is not serving Chinese government. Google is serving Chinese people. Chinese people needs Google to stay in China.