What’s at Stake With Google’s Threat to Withdraw From China?

Google has threatened to withdraw its search product from the Chinese market, following what it has described as “a highly sophisticated and targeted attack” on its systems originating from within China. The search giant says the attacks, which took place in December, targeted a number of Gmail accounts belonging to Chinese human rights activists in China, the U.S. and Europe.

The company has now threatened to withdraw from the market entirely if local authorities do not allow it to offer its search service and results uncensored. Since launching there in 2006, Google has been required by Chinese law to filter search results, specifically in relation to alleged human rights abuses, and events such as the Tiananmen Square demonstrations.

Currently, Google’s Chinese engine lacks the market dominance it does elsewhere in the world. Its market share is estimated at around 30 percent of searches, according to research firm Analysys International. That represents around half the share of local alternative Baidu, which is believed to account for around 60 percent.

In addition, it seems the firm is struggling to successfully monetize what audience it does have there. Speaking in an interview with CNBC, Google’s Chief Legal Officer, David Drummond, described the revenue generated in China as “truly immaterial.” He added, “Entry into the Chinese market was never really a financial move for us. We thought we needed to serve the market.” According to estimates by financial services firm J.P. Morgan, Google stands to make around $600 million in revenue in 2010.

Although the short-term loss for Google may be negligible, complete withdrawal from the market could see the company miss a huge opportunity for long-term growth, particularly in areas such as mobile. Revenue from China may be relatively meager in comparison to its U.S. or European operations, but according to estimates from Analysys, the online ad market there is gearing up for a period of substantial growth, and will be worth around $1.5 billion by year’s end.

Drummond stated that the company would “ideally like to continue to operate in China,” but that it “simply cannot operate a filtered engine.” Ultimately, the Chinese authorities appear unlikely to allow Google to operate uncensored, given that it would essentially be doing so outside of local laws.

Google, Yahoo, Microsoft and others signed an industry code of ethics designed to safeguard human rights and freedom of speech online in 2008. At the time, the Global Network Initiative guidelines, drawn up by Internet firms, academics and human rights groups, aimed to limit the data that is shared with authorities and governments around the world.

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