INTERNET: Google U-Turns Back To China With App Store Plan

By newsdoug on June 9, 2015

Bottom line: Google could open a Chinese version of its app store by the end of this year and spend aggressively to quickly gain market share, but would face negative backlash from western critics for its U-turn back into the sensitive market.

Google lobbies China smartphone makers to include Play Store

Global Internet giant Google (Nasdaq: GOOG) is reportedly eying a return to China, with plans to launch a Chinese version of its flagship Google Play app store. The move, if true, would mark a major flip-flop for Google, which withdrew its core search engine from China in 2010 after a high-profile spat over Beijing’s strict censorship policies. But as many similarly principled companies quickly discover, China is a market that is simply too big to ignore.

That quandary led top business networking site LinkedIn (NYSE: LNKD) to enter China last year, despite expressing its own reservations about censorship, and top social networking (SNS) site Facebook (Nasdaq: FB) is also lobbying strongly for such a move. Google’s latest campaign comes in a the slightly less sensitive area of app store operation, though even that business would involve some self-censorship to eliminate apps that Beijing might consider sensitive for political or other reasons.

This particular campaign has its roots in Google’s wildly popular Android operating system, which is used in the big majority of the world’s smartphones and is the favorite OS of all of China’s major manufacturers like Huawei, Xiaomi and Lenovo (HKEx: 992). Yet despite Android’s huge popularity in China, Google can’t derive much personal benefit from its billions of dollars in investment in the system.

That’s because smartphone makers that use Android have no obligation to include preferential placement of Google’s search engine or other products in their smartphones. And even if they wanted to give such preferential placement, most of Google’s sites and services are blocked in China these days due to its contentious relationship with Beijing. But this newest campaign could mark a major shift in that relationship, as it would see Google open an official Beijing-approved version of its app store for Chinese users.

According to the latest local media reports, Google has been strongly lobbying Chinese smartphone makers to include a link to its app store on their phones, offering them subsidies of roughly $1 per handset for doing so. (Chinese article) The move, which is attributed to unnamed knowledgeable sources, would imply that Google has received permission to open a Chinese version of its app store from Beijing, or that it expects to receive such permission soon.

That wouldn’t be a huge surprise, since media reported last year that Google had first approached Beijing officials back in 2013 about the possibility of opening a China app store. (previous post) Rival Apple (Nasdaq: AAPL) already operates a Chinese version of its own app store, and the country also has many homegrown app stores operated by private names like Wandoujia and 91Wireless, which was bought by Internet search giant Baidu (Nasdaq: BIDU) for more than $1 billion in 2013.

Thus these latest reports would indicate that Google’s negotiations with Beijing have moved forward, albeit slowly, and that it believes it will soon receive the coveted permission to open a Chinese Google Play store. If and when that happens, look for a wave of backlash from western sources that are likely to call Google a hypocrite for returning to China despite a lack of changes in the country’s strict censorship policies.

The fact of the matter is that anyone who opens media-related ventures in China has to censor their content, including LinkedIn and Apple. The iPhone maker itself was at the center of a small firestorm last year when it agreed to store information from its Chinese users on locally-based servers. Some said that looked like a concession that would give Beijing the legal authority to request records on any Apple product users it wanted to investigate, including political dissidents. (previous post)

In this particular instance Google’s China U-turn is being driven by the explosion in the country’s smartphone market, which has soared over the last 2 years to overtake the US and become the world’s largest. It’s hard to ignore a market of that size, especially when Google’s own Android system is powering the vast majority of smartphones now being sold in China. Against that backdrop it’s hard to blame Google for making this big China U-turn, though it should also be prepared to pay a price with the wave of negative publicity that will almost inevitably come after it formally opens its China Play store.