Jefferies and Company is out with a short research note this morning, which ponders the question of whether Google Inc. (NASDAQ: GOOG) can survive and thrive in China now that they can no longer redirect searches to its Hong Kong operations.
The Jefferies analysts said, “Even if Google is able to “stay” in China, we find its position dramatically weakened, with its share of search traffic in that country likely to deteriorate meaningfully over time. While not material to the P&L short-term, it reflects poor management judgment. We expect similar issues to arise in Google’s mapping service as well. They added, “Google’s work-around to provide links on Google.cn site to manually redirect users to its Hong Kong site may prove confusing for the average online user from the Mainland, even if it appeases the authorities. It is unclear at this point how much of Google’s original search experience will be replicated if/after the license is renewed, given that every user interaction gets filtered through stringent Chinese firewalls. Our informal channel checks in China suggest that access to Google site from the Mainland has been sporadic and inconsistent at best, due to the redirection to HK and ongoing IT disruptions from the government.
The analyst noted, “We believe that the authorities are more likely to allow Google to continue serving in China, albeit less effectively, instead of shutting it down completely, and that Mainland users will continue to use the engine mainly for int’l content. That said, Google would find it increasingly difficult to maintain its Mainland traffic and existing search partnerships (AdSense) given the strenuous relationship with authorities and the resulting sub-optimal experience.
Jefferies and Company is out with a short research note this morning, which ponders the question of whether Google Inc. (NASDAQ: GOOG) can survive and thrive in China now that they can no longer redirect searches to its Hong Kong operations.
The Jefferies analysts said, “Even if Google is able to “stay” in China, we find its position dramatically weakened, with its share of search traffic in that country likely to deteriorate meaningfully over time. While not material to the P&L short-term, it reflects poor management judgment. We expect similar issues to arise in Google’s mapping service as well.”
They added, “Google’s work-around to provide links on Google.cn site to manually redirect users to its Hong Kong site may prove confusing for the average online user from the Mainland, even if it appeases the authorities. It is unclear at this point how much of Google’s original search experience will be replicated if/after the license is renewed, given that every user interaction gets filtered through stringent Chinese firewalls. Our informal channel checks in China suggest that access to Google site from the Mainland has been sporadic and inconsistent at best, due to the redirection to HK and ongoing IT disruptions from the government.”
The analyst noted, “We believe that the authorities are more likely to allow Google to continue serving in China, albeit less effectively, instead of shutting it down completely, and that Mainland users will continue to use the engine mainly for int’l content. That said, Google would find it increasingly difficult to maintain its Mainland traffic and existing search partnerships (AdSense) given the strenuous relationship with authorities and the resulting sub-optimal experience.
