Google Beats China at the Political Game

Google has essentially won its censorship battle with the government of China, but that political victory may be expensive at the business level.

The row started back in January (see, "The People's Republic of Google"), when Google refused to keep censoring search results in China and threatened to pull its search business out of the country. Google started to automatically forward users of its China site to an uncensored Google search engine based in Hong Kong.

On Friday, the Chinese government basically backed down. Google offered a compromise in which visitors must click once before they are transferred to the Hong Kong-based site. This, one might conclude, puts the onus of complying with Chinese law on the heads of Internet users, not Google. It is no longer, technically, offering an uncensored search service in China, but a Chinese-language service is there for the asking, and there is a link to the Hong Kong site on the China-based Google server. So, Google wins this political fight.

"China has renewed our license," a Google spokeswoman told Reuters on Friday. "We are very pleased that the government has renewed our ICP (Internet Content Provider) license and we look forward to continuing to provide Web search and local products to our users in China."

Yet Google may pay quite a price for the sake of its moral and political victory. It has established itself as a company willing to stand on principle, and that may be an asset as it develops its brand in China and elsewhere. But in China, where the state plays a big role in creating and managing the playing field, Google is at a disadvantage with its key customer, the government.

China accounts for only $300 million to $600 million worth of Google's $24 billion in revenue, according to Reuters. But China is a huge growth opportunity. It's the largest market in the world, and Internet penetration is low. As Google's search business in the U.S. matures, it will need to establish new growth opportunities.

Google shares rose 2 percent today. Investors were relieved that the company's license in China was renewed. But Google may have given an opening to rivals such as Microsoft and Baidu and other smaller startups.