Saturday, 16 January 2010

Google beards Chinese tiger

Google’s dispute with China over censorship and spying is fascinating on many levels. But one aspect that has been largely overlooked is the sheer scale of the financial sacrifice Google is making by taking its moral stand. In pursuit of their laudable aims, the co-founders Sergey Brin and Larry Page are burning dollar bills on an industrial scale.

It is hard to think of any listed company flushing away anything more than petty cash on a matter of principle alone. Yet Google is poised to write off certainly hundreds of millions of dollars, probably billions of dollars.

To recap, Google, after falling victim to a string of cyber-attacks on customers who were human rights activists, announced this week that it would continue to operate its Chinese language service only if it was no longer subject to censorship by the authorities. Water buffalo are more likely to fly than Beijing is to allow uncensored coverage of topics such as the Tiananmen Square massacre, so looks like (sesame seed) toast.

The potential financial impact has been played down by some. It is argued that Google’s Chinese revenues, estimated at $350 million, are a tiny fraction of Google's $20 billion of total sales.

But revenues are a poor proxy for value. It is China’s exciting growth prospects, vast population and soaring appetite for search which makes the business so valuable. Google is number two in China, with a 30 per cent market share, a well entrenched position that most firms in most industries would drool over. Nasdaq-listed Baidu, the search market leader in China with 60 per cent share, is valued at $16 billion. Even at a conservative estimate, therefore, the Chinese arm of Google would surely have a price tag in the low billions. Read more
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