December 6, 2010 10:11 pm

Google seeks way to rebalance in China

Google is trying to balance the loss of search market share after its partial retreat from China by aggressively expanding the business of placing video and banner advertisements on other websites, according to its top executive in the country.

“Over the last 12 months, China has been one of Google’s largest display markets in the world, and it continues to grow rapidly,” John Liu, the company’s vice-president for greater China operations, told the Financial Times.

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“Display” refers to Google’s growing advertising network business, rather than to the ads placed next to search results on its own website.

The interview marks the first time that the company has discussed the business consequences of confronting the Chinese government over censorship in January and moving its China web search to its Hong Kong site in March.

It also comes as US diplomatic cables released on WikiLeaks at the weekend highlighted Google’s relationship with the Chinese government again. They showed the increasing pressure last year from Chinese authorities for stricter self-censorship of Google’s China site.

According to one source quoted in the cables, Chinese authorities demanded that Google cut the link from its self-censoring China search site to its international site after a senior Chinese leader found reports critical of him in a search for his own name on the uncensored global site.

Mr Liu refused to comment on the cables’ contents and avoided addressing in detail how the showdown with the Chinese government has eroded Google’s hard-won share of the Chinese online search market.

Google’s share of China online search revenues fell to 21.6 per cent in the third quarter, from a high point of 35.9 per cent in the fourth quarter last year, immediately before Google’s move, Analysys International, a Beijing-based research firm found.

Mr Liu insisted he was upbeat about business prospects in the country. “We still have good traffic, and revenues are growing quarter on quarter,” he said.

The company’s bet on growing display revenues in China is in line with its global strategy. Eric Schmidt, chief executive, has identified the segment, as a growth driver.

Mr Liu said he considered the Chinese display ads market much larger than that for search ads.

Chart: Internet search engines in China

According to eMarketer, a digital marketing consultancy, the Chinese display market is forecast to reach $1.78bn this year, compared with $1.44bn in search ads.

Apart from display ads, Google has high hopes of attracting ads from Chinese companies to its websites in other markets – a business it calls export.

This “accounts for a very substantial part of our China revenues,” said Mr Liu. Estimates of the importance of ads on Google sites outside China range from one-third to half of the company’s China revenues.

Adwords, Google’s main advertising platform, uses search technology to help advertisers target ads at foreign markets where they might produce the strongest interest.

Mr Liu said Google employs roughly the same number of research and sales staff in China as last year and is still hiring.

“The team is committed; the team is enthusiastic,” he said. He suggested that users’ loyalty and preference for Google would keep the company’s following strong.

“People love Google. You can hear them crying, ‘Google, we want you to stay’. Sometimes they face difficulty in accessing the site, but they find all kinds of ways around it,” he said.

However, Google could face further challenges in China.

So far, its map service for China, unlike web search, remains on its mainland website – and provides a useful marketing and advertising platform. But new Chinese rules on online mapping require companies offering such services to apply for a licence and place their servers in mainland China – something Google has not yet done.

In theory, the Chinese government could use the regulatory regime to make fresh censorship demands on maps.

Beijing has extended a deadline for Google and Microsoft’s Bing to apply for the licences from the end of the year until March.

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