Last updated: October 19, 2010 5:46 pm

Google’s China market share continues to fall

Google’s market share in China continues to slide as a reorganisation of the company’s distribution network takes its toll on search revenues.

The US company’s share of China online search revenues dropped from 27.3 per cent in the second quarter to 24.6 per cent in the third quarter, iResearch, a Beijing-based internet research house, said on Tuesday.

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The drop continues the process triggered by Google’s stand-off with the Chinese government over censorship and the company’s partial retreat from the country this year.

The fall in market share came as Google restructured its sales distribution network, which it uses to sell Adwords, its main advertising product and source of revenue.

In late September, Google China terminated its contracts with seven companies based near Shanghai that had been selling ads on Google over the past four years. The termination will take effect on October 27 and Google has already started to select new agents to replace those it axed.

The overhaul is part of Google’s attempt to adjust its operations after it moved a large part of its online search from its mainland Chinese site to its Hong Kong site, where it is not required to censor results on behalf of the government.

According to the seven affected agents, they collectively account for Rmb150m ($22.5m) in advertising revenues. Analysts expect the reorganisation to have some impact on the US group’s sales.

“As Google has been overhauling its distribution channels, its ad customer relations will experience an adjustment over the two coming quarters and it will grow more slowly,” iResearch said.

The changes have also led to an angry backlash from the agents, who have protested against the cancellation of the contract and accused Google of treating them unfairly.

On a joint blog, the seven companies accused Google of putting their employees at risk of losing their jobs.

A spokesman for the agents said they had held a protest at Google’s offices on Monday night and Google had agreed to hold talks on Wednesday.

Google has not commented on the criticism and called the changes a business decision.

Liu Yun, head of Google China, said in Beijing on Tuesday that China was still “a very important market for Google”.

The problems could further benefit Baidu, the domestic market leader, whose market share rose further to 72.9 per cent in the third quarter, according to iResearch.

Baidu is due to report third-quarter results after US markets close on Wednesday.

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