China fight could hurt Google in long run

Google's defiance of China over internet censorship will not have a short-term financial impact on the company but could prove significant in the long run, analysts said.

At the same time, Google's decision to no longer censor web search results in China does allow the internet giant to realign itself with the principles of its founders and the company motto of "Don't be evil", they said.

While China is yet to make its intentions fully known, Beijing reacted angrily to Google's announcement on Monday and the California company risks seeing itself shut out of the world's largest online market.

In financial terms, a closure of Google's operations in China would not have a significant impact on the company's bottom line, analysts said.

Youssef Squalie of investment bank Jefferies said China is "not material to Google's revenue" of some $24 billion (Dh88bn) a year, the vast majority of which is drawn from advertising placed alongside search results.

"We estimate China accounts for $250 million to $350m, or one to two per cent of Google's net revenue," Squalie said.

"Right now, it's not a lot," agreed technology analyst Rob Enderle of Silicon Valley's Enderle Group.

"But it would be like a major company exiting the United States because they feel that they can't compete and doing it in such a way that they may not be allowed back in," Enderle said.

"That makes a statement about the company and the company's future and that statement clearly is not positive," he said.

"Google has kind of slapped China in the face and China is likely to stew on this a bit and then slap Google back," Enderle said. Unveiling the plan to shift traffic to its China search engine, Google.cn, to an uncensored site in Hong Kong, Google Chief Legal Officer David Drummond acknowledged the company was at the mercy of the Chinese government. "We very much hope that the Chinese government respects our decision, though we are well aware that it could at any time block access to our services."

Drummond said Google would like to continue to have a presence in China, which has an Internet population of nearly 400 million and where Google has embarked on a number of ventures besides search.

"In terms of Google's wider business operations, we intend to continue R&D work in China and also to maintain a sales presence there," Drummond said. (Reuters)

 

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