Google Advertisers Urged to Defect on Speculation of China Exit

Google Inc. advertisers in China are being advised to switch to rivals such as Baidu Inc. and business partners are exploring alternatives as speculation grows the U.S. company will shut its Web site in the country.

“When we talk to clients, we have been pushing them in the direction of Baidu more,” said Vincent Kobler, managing director at EmporioAsia Leo Burnett in Shanghai, which buys advertising on behalf of customers. “The Chinese government has taken a firm stance, and Google, they have their own principles, and are going to shut down.”

Google clients and partners may be turning more pessimistic about the company’s prospects of operating in China after the government last week said a plan to end censorship at the Google.cn site was “irresponsible.” Failure to end the dispute may lift sales at Baidu and Sohu.com Inc., and force partners such as China Mobile Ltd. and Sina Corp. to review co-operation.

“To me, it seems an inevitable outcome, given the stance they have taken,” said Paul Wuh, head of Internet research at Samsung Securities Co. in Hong Kong. Google’s mobile phone operations, in addition to its search-engine business, will be undermined, Wuh said.

Mountain View, California-based Google said on Jan. 12 it plans to stop censoring search results on its Chinese site after the company was hit by cyber attacks originating in China, and may end its local operations pending talks with the government on the proposal. Chairman Eric Schmidt said last week that the negotiations may yield an outcome “soon.”

Alternative Arrangements

“Our co-operation with Google rests on the company maintaining its operations in China,” said Liu Qi, a Beijing- based spokesman at Sina, operator of China’s third-most visited Web site, which has Google’s search engine built in. The Chinese company has alternative arrangements in place to ensure it won’t be affected by Google’s possible pullout, Liu said.

In 2006, Google agreed to comply with requirements to filter its search results on the Google.cn site to expand its operations in China, where the ruling Communist Party restricts information it deems unfavorable.

“The company will have to bear the related results” if rules are violated, Li Yizhong, minister of industry and information technology, said on March 12. The plan by Google to end censorship is “unfriendly and irresponsible,” he said.

Chinese regulators told some of Google’s biggest partners on March 12 that they should plan for the company’s retreat from the country, the New York Times reported yesterday, citing a person with knowledge of the notice. It indicated negotiations with the government had reached an impasse, the report said.

Detailed Pullout Plans

Google has drawn up detailed plans to shut its search engine in China and is “99.9 percent” certain of going ahead with the closure, the Financial Times reported March 13, citing a person it didn’t name.

“If Google is no longer available, we will turn to other service providers,” said K.K. Tsang, Hong Kong-based chief executive officer at GroupM, which buys ad space for clients.

China, home to more Internet users than the total U.S. population, censors online content it deems critical of the government by shutting down Web sites based in the nation and blocking access to overseas sites including those of Facebook Inc., Twitter Inc. and Google’s YouTube. Authorities also censor media through state ownership of all newspapers, television and radio stations.

China ‘Open’

China’s market environment “is sufficiently open,” Kai-fu Lee, who quit as head of Google’s operations in China in September to found his technology investment company, said in an interview in Zurich last week. “People in China are getting access to more information than ever before,” said Lee, who declined to comment on the discussions between Google and the Chinese government.

China Mobile, the world’s biggest phone company by market value, has offered Google’s search services to its wireless users since 2007. Rainie Lei, a Hong Kong-based spokeswoman at the carrier, declined to comment.

In January, Google indefinitely postponed plans to introduce two handsets co-developed with China Unicom (Hong Kong) Ltd. Chinese mobile-phone makers including Lenovo Group Ltd. have said they will design products using Google’s Android technology.

Compromise Speculation

Toward the end of February, advertising officials such as Kobler said business with Google was returning to normal on speculation that the company may reach a compromise with the government or that any pullout won’t occur soon.

“Things have stabilized,” Kobler said Feb. 24 as the U.S. company posted recruitment ads for engineers, managers and sales staff on its Web site and employees at its Beijing office said life had returned to normal six weeks after the pullout threat.

Advertisers were returning after more than 20 percent of Google customers in China probably switched to alternative paid- search providers in the wake of the Jan. 12 announcement, Steven Chang, chief executive officer for China at ZenithOptimedia Group Ltd., which buys advertising on Google’s site on behalf of companies, said at the time.

Baidu, China’s biggest Internet search engine, will pick up “the lion’s share” of Google’s search business should the U.S. company leave, Nomura Holdings Inc. analyst Jin Yoon wrote in a Jan. 13 report. Tencent Holdings Ltd., operator of China’s biggest online chat service, and Sohu also will gain, Yoon said.

Google is expected to generate between $300 million and $350 million of revenue from China this year, Citigroup Inc. analyst Mark Mahaney wrote in a Jan.