Monday, March 21, 2011

Who's Running Google's China Strategy?

By Eric Jackson
RealMoney Contributor

3/21/2011 4:00 PM EDT
Click here for more stories by Eric Jackson

What is Google (GOOG - commentary - Trade Now) thinking in terms of its China strategy?

It was exactly a year ago, in March of 2010, that reports started circulating saying Google would leave China over hacker attacks and China's attempts to limit free speech on the Internet. A few weeks later, Google pulled its servers off the mainland and placed them in Hong Kong.

Looking at the 12 months since then, I would have to say that that decision was a complete failure.

Google's share of searches in China dropped to 27% last summer, down from 36% prior to the pull-out. The prime beneficiary has been China's top search engine, Baidu (BIDU - commentary -Trade Now), which saw its market share rise to 71% from 68% over the same period.

Google's share price has fallen 2% to $569 a share in that time. Meanwhile, Baidu's U.S.-traded shares have more than doubled, from just below $60 a share to $120.50 at the close Friday.

At the time of the pull-out from China, both of Google's co-founders, Sergey Brin and Larry Page, supported the move. Reading the psycho-social tea leaves, it appears that Brin was replaying the childhood trauma of his family fleeing the pre-Glasnost Soviet Union for America in pushing Google to leave China.

As Brin tells it in a recent interview at a TED conference, the decision to leave China was easy:

"We'll do as much as we can, but we don't want to run a service that's politically censored. We're not talking about porn and gambling, things like that, but really the political stuff. ... I want to find a way to really work within the Chinese system and provide more and better information. So, I think a lot of people think I'm naive, and that may well be true, but I wouldn't have started a search engine in 1998 if I wasn't naive in that way. ... Perhaps we won't succeed immediately, tomorrow or not, but we will in a year or two. ... Our focus has really been what's best for the Chinese people. It's not been about our particular revenue or profit or whatnot."

According to some reports, Google's decision to leave China led to some conflict between the co-founders and CEO Eric Schmidt. Though not the only reason, it is perhaps part of the reason why Larry Page decided to assert himself and take over the leadership of Google starting next month.

The recent action in Google's stock since that leadership announcement suggests that the market is still uneasy about Page's ascension and whether he will be a boost to the stock or an inexperienced and undisciplined leader.


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