Date
17 August 2018
Google is looking for ways to capture revenue from hundreds of millions of Android phone users in China. Photo: Reuters
Google is looking for ways to capture revenue from hundreds of millions of Android phone users in China. Photo: Reuters

Why is Google seeking ties with Chinese tech firms?

In March 2010, Google shut down its Chinese search engine and began redirecting traffic to its web servers in Hong Kong following a standoff with Chinese authorities over Internet censorship. Nearly eight years after that move, the US tech giant appears to be preparing for a comeback of sorts to the huge market to tap the immense potential from mobile internet.

The company announced last Friday that it has struck a patent cross-licensing deal with China’s largest Internet firm, Tencent Holdings, signaling possible future collaboration on technology.

The agreement will help Google and Tencent cooperate with each other so that they can “focus on building better products and services for their users,” a Google executive said.

From a purely technology perspective, it is quite strange that Google had sought an alliance wth a Chinese firm, given that the US tech behemoth usually seeks to develop own technologies for the most part and not rely on partners from elsewhere in the world.

So, what could be the actual motive behind the alliance, looking past the press releases and the public relations spiel?   

Well, we have enough reason to believe that the Tencent deal could be just a case of Google buying some political insurance as it eyes a comeback to the Chinese market.

Google has been missing out on billions of dollars by not offering its Google Play app store service in China. According to a survey from App Annie, a US-based app analytics and market insights firm, Chinese smartphone users spent nearly US$35 billion on apps in 2017, representing an increase of about 270 percent in two years, with more aggressive growth likely ahead.

Such growth means that Google is missing out on an ever-expanding revenue opportunity as it fails to re-launch its Play Store in the market.

Currently, almost all the smartphones made by Chinese firms such as Huawei Technologies, Vivo, Oppo, Xiaomi and Lenovo use Google’s Android operating system. However, as Google has no operation in China, the Android smartphones don’t feature a series of apps developed by Google.

Chinese Android smartphone users download apps via non-Google platforms provided by a number of service providers from Xiaomi to Tencent QQ to Baidu. In this situation, Google is clearly having no direct relations with Android smartphone users.

Google has over the past year indicated that it wants to increase its presence in the Chinese market. The Tencent partnership could help the firm in furthering its ambitions. 

The US tech titan, which is now under a different leadership team compared with that in 2010, could be reworking its China strategy.

The 2010 exit from the market affected Google’s revenue generation from its Play Store, given that China has emerged as the world’s most important smartphone market.

For navigating the tricky market and the regulatory challenges, Google can learn from a fellow American tech firm – Apple.

Apple has been operating its own App Store in China for a long time. Despite facing intense competition and other challenges, the company rode on the uniqueness of its technology to establish its own position in the market.

The iPhone maker follows Chinese laws as it removes “sensitive” apps from the App Store. It has accepted the fact that some compromises are necessary if one needs to operate in China.

On January 10, Apple announced that it will outsource its China iCloud operation to a Chinese company at the end of February. The move is being made in order to comply with local laws.

The news sparked worries among Chinese iCloud users about data sharing with a government-linked entity, but Apple didn’t have any real choice.

By bending to the diktat of Chinese authorities on cloud operation, Apple has protected its business prospects in the country in other areas such as hardware sales and technology development.

Now, Google may be seeking some sort of breakthrough for itself in the Chinese market, which prompted the latest decision to ally with Tencent.

The company had earlier announced other initiatives related to China, including the launch of a AI research lab in the country.

Earlier this month, it disclosed that it had invested in Chinese livestream gaming app Chushou.

Google may unveil further initiatives going forward as it realizes that it cannot afford the loss of potential revenue from hundreds of millions of Chinese mobile users.

– Contact us at [email protected]

RC

EJ Insight writer

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