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Business Impact

Android Takes Off in China, But Google Has Little to Show for It

Google closed its Chinese search service three years ago, just as the mobile market exploded. Now it may be realizing the price.

China has more Internet users than any other country.

As China edges past the U.S. as the world’s largest smartphone market, the rise of the Android mobile operating system should be a huge success story for Google, which developed and maintains Android. In China, cheaper Android devices have exploded past Apple’s phones in the last three years, and now account for more than three-quarters of shipments (see “How the Chinese Smartphone Market Shapes the Battle for Global Dominance”).

On the outside: Google’s offices in Beijing.

But what’s often overlooked is how little Google itself is benefiting from Android’s growth in China. Most Android devices sold in China have been stripped of Google’s advertising-supported apps and services, as well as its Google Play store for third-party apps and music, books, and video. That means the devices are missing the two main ways by which the U.S. Web giant brings in revenue from the free Android operating system. The CEO of Baidu, the desktop Web search leader in China, said this year that 80 percent of Android-branded phones come with Baidu’s search service, rather than Google’s, loaded on the device.

Android could, in theory, have given Google another foothold in the world’s largest Internet market. “Google would have been the big winner” in the country, if not for “Google-China” issues that lead Android device makers to opt for non-Google services, wrote Kai-Fu Lee, who once ran Google’s business in China, in a November blog post.

Lee is intimately familiar with the company’s difficulties there. Google recruited Lee from Microsoft to head its Chinese office, only to significantly scale back its operations in 2010 when it took its search business out of the country in a stand against the Chinese government’s censorship. Google also accused the Chinese government of hacking into the company’s servers (see “Google’s Future in China Hangs in the Balance”).

Now it’s clear that Google is paying a price for leaving the country just as the mobile market took off. Today, it’s barely a factor for Chinese consumers who use mobile phones. Because Google no longer has servers in China, Google Play and Google Web search aren’t particularly useful to people there. Google Play suffers from bad connectivity, and the Web search is routed through Hong Kong. “Google won’t improve the situation unless they resolve the bigger issue of having a presence in China,” says Nicole Peng, the Shanghai-based research director for the market research firm Canalys.

Google also has accused China of slowing or blocking access to Gmail. And its mobile mapping service has fallen from popularity in part because the service is poor and has been infrequently updated while Google has been waiting for the Chinese government to approve a necessary license.

That’s in stark contrast to Apple, which tightly controls its devices—and hasn’t battled with the Chinese government over censorship. It was able to simply remove Google Maps from its phones in China in favor of its own new map service, just as it did elsewhere around the world this year.

Chinese companies, too, are jumping in where Google can’t. Baidu has its mobile search and mapping services and has released a cloud-based service to help developers build apps for Android devices. Tencent’s chat and payment app, WeChat, has become popular. And companies like Xiaomi have developed customized versions of Android that phone owners can install on new phones after their purchase.

Google does not break out its revenue from China, but a large part of what money it does make in China comes from its mobile advertising business, including AdMob, a platform for serving ads in mobile apps across all kinds of operating systems.

But Google will need other ways to tap this large and growing mobile market. That probably explains why it has been trying to assert more control over how Android is used. In September, Google pressured the handset maker Acer to postpone the launch of a device with an operating system from the China e-commerce giant Alibaba. Google asserted that Alibaba borrowed heavily from Android’s code without offering sufficient compatibility with apps built for Android devices. Its app store contained pirated Google apps, said Andy Rubin, Google’s senior vice president for mobile and digital content. Alibaba countered that its system is based on the open-source Linux system and was not derived from Android.

So far, few competing operating systems risk denting Android’s market share (though Microsoft is trying and soon Mozilla will as well). But Google is unlikely to have much success at trying to stop Chinese vendors from using Android’s code however they wish, even if that includes developing their own versions of the operating system. “It’s not under any form of control. Its viral nature is responsible for its success, but it’s also its Achilles’ heel,” says Horace Dediu, a mobile industry analyst.

For now, Google may be realizing the cost of adhering to the principles that led it to stop censoring search results for China. But Peng believes that with the Chinese market beginning to open up, it’s possible the company could come back in fuller force for one simple reason: China is too important for Google’s business.

Hear more from Google at EmTech Digital.

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