04:12 AM

Analysis: Financial Times Says GOOG Has Detailed Plans To Close China Search

Richard Waters at the Financial Times, reports that a source "familiar with the company's thinking" has told him that Google is 99.9 percent certain it will close its Chinese search service.

...the company is likely to take some time to follow through with the plan as it seeks an orderly closure and takes steps to protect local employees from retaliation by the authorities, the person familiar with its position said.

Google is also seeking ways to keep its other operations in China going, although some executives fear that a backlash from the Chinese authorities could make it almost impossible to keep a presence in the country.

Foremski's Take: The move was expected following yesterday's remarks by a senior Chinese government official that censoring the Internet was vital for public stability.

Looks Like Google Is Out Of China - Senior Official Says It Must Obey The Law

It also shows that there is a deep division within the ranks of Google's leadership. Eric Schmidt, the CEO, has repeatedly said that Google is committed to China. But he was unable to persuade Larry Page and Sergey Brin, the co-founders, from separating their concerns about censoring Internet search results in China, from Google's business in China.

It is unlikely that Google can maintain operations within China because any foreign business requires the approval of the Chinese government. Google has shown itself to be in opposition to the Chinese government -- this is an untenable position.

This also means that Google will unlikely be able to take part in joint ventures with others in China. In early February, Reuters reported that Google is a member of a consortium led by Disney, to buy a large stake in Bus Online, a large Chinese advertising company. It's difficult to see how this deal will go through with Google as a member, if it is an opponent to the government's censorship.

This means Google is barred from the world's largest and fastest growing Internet market.

The McKinsey Quarterly just published an article titled: "China's Internet obsession" [free registration] looking at the market Google would leave behind.

Here are some extracts:

...by the end of 2009, the number of Internet users in China had touched 384 million, more than the entire population of the United States. That's an increase of around 50 percent over 2008. Moreover, 233 million Chinese--twice as many as in the previous year--accessed the Net on handheld devices, partly because China's cellular providers started offering 3G services widely last year.


People in the 60 largest cities in China spend around 70 percent of their leisure time on the Internet, according to a survey we conducted in 2009. In smaller towns, the corresponding number is 50 percent. The PC is fast replacing the TV set as an entertainment hub...
One in five consumers between the ages of 18 and 44 won't purchase a product or service without first researching it on the Internet. They shop online at auction Web sites such as Taobao, paying for products and services with prepaid Taobao cards that the post offices sell for a small commission. The volume of e-commerce in China more than doubled last year.


Seismic changes are likely to take place in the Chinese consumer market because of the Internet--and we aren't talking just about the fact that 50 million Chinese may soon have to stop using their favorite search engine, Google.

Too bad for Google it is absent from such a vital market. It's a huge blow to its business and future strategy.

But it is a bold move.

Google's founders see the issue of Internet censorship as being important enough to give up its China business. They've put a huge price on the importance of Internet freedoms -- and that's commendable.

But what future is there for Eric Schmidt? There's a big division between him and Messrs Page and Brin.

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Please see:

Do GOOG Founders Still Need Adult Supervision?