What does Google’s return to the Mainland mean for China’s Internet?

Source: China Hush

Google is the defacto search engine in almost all countries in the world, however it’s presence is nearly non-existent in China presently. After a brief foray into the Chinese market from 2005 -2010, Google decided to shutter it’s China operations, citing conflict with Chinese government censors. Google, along with all it’s other services (including Gmail,  Google Play Store, Youtube, Google Maps, etc), is blocked in China and can only be reached with the use of a Virtual Private Network (VPN).

In recent years, the growth of China’s middle class and increasing internet penetration has led to discussions about the return of Google to China. Sundar Pichai, CEO of Google Inc., expressed his interest in the Chinese market to the media in February this year, before the company’s restructuring in August, noting that there were massive numbers of Android users in China, and developers there were very interested in looking further into Google Play. Recent developments, such as Android Wear’s launch of full support for Chinese language, and cooperation with mobile device manufacturers in China to develop a Chinese version of Google Play, had also attracted widespread attention in the industry. According to industry sources, the Google Play store may be launching in China as early as 2016.

Google’s renewed interest in the Chinese market was curious, as it was clear that Google remained the world’s largest search engine for years, with market shares of more than 90% in various countries such as Australia and India, according to market analysis back in 2010. Whatever reasons Google had for pulling out of China back then, Google had little to fear due to it’s global dominance.

However, a lot have changed since then and Google’s global market share shrunk. According to data from StatCounter, a market research company based in Dublin, Google’s market share in the USA had fallen  below 75% for the first time in 5 years in February 2015, and numbers had been decreasing for three consecutive months. In contrast, the company’s competitors were growing fast. In September 2014, Microsoft’s Bing started making profits and the company’s global market share held around 10%. Baidu held the third or fourth place for a long time, which was around 8% in global market share rankings, as the world’s leading Chinese language search engine. As of July 2015, Baidu’s MoM (month on month) growth of 1.08% had led the company to reach 19.11% in the said global market share.

According to 2015 statistical data from China Internet Network Information Center (CINIC), China’s number of internet users numbered at 649 million, while internet penetration rate reached 47.9%. This, coupled with China’s recent grand economic plan in the form of “Internet Plus”, which had opened greater tech-related business opportunities, meant ample growing space for Google, as opposed to saturated markets in other countries.

After Google’s restructuring, it became increasingly obvious that the company’s other developing products–its arsenal of robots, self-driving cars, drones, and the Google Glass, to name a few–cannot be completed without massive consumer data input, readily provided by the Chinese market. From the perspective of the new Google, the market in China is more than another place for selling search engine-related products; it is now a new, vital frontier for driving the development of other products and other markets.

One question which is raising concern in the existing IT industry in China is the resulting impact of Google’s pending return. China’s incredibly enormous market had allowed for two dominating companies instead of one, before Google pulled out several years ago. According to iResearch’s data, Baidu and Google China had a total market share of 95.3% in the first quarter of 2009. In the following fourth quarter of the year, right before Google pulled out, the company’s search engine market share reached 35.6%, second largest to Baidu’s first, recorded at 58.4%.

However, Baidu was unable to dominate the local search engine market alone after Google pulled out in 2010, and competition diversified instead. In 2014, total market share of Baidu, Sogou, and 360 Search combined was 98%. The companies most affected by Google’s return would not be Baidu, but Sogou and 360 Search, companies which filled most of the void left by Google all those years ago. This is due to Baidu being supported by a majority of users who had their needs fulfilled by and habits developed with using Baidu all along, while users of Sogou and 360 Search consisted mostly of those dissatisfied with Baidu.

Current online development trends suggest that Google would not be returning merely with search engine services (if it cannot make peace with censors), but also with a variety of internet applications and business enterprises. However, Google is up against some well developed domestic tech giants in the enormous Chinese market, and every inch of market share will need to be hard fought. The return of the Google Play store will be especially interesting to watch, as the current lack of a single unified official store has led to the proliferation of dozens of 3^rd party app stores, complicating the distribution of apps for developers immensely.

Whether Google will be able to navigate through China’s evolved IT sector and comply with government censors remains to be seen. One thing is for sure: Google’s return to China would be a boon to the online market in China, as the resulting competition would significantly energize the market, by encouraging research and development in various areas, as well as the introduction of new products, applications, and services.

Rachel Mok is a writer for Startup Living China (@StartupLChina) an online community and blog about life and entrepreneurship in China.