Google Leads U.S. in Search as It Mulls Exit from China

One day after Google boiled the high-tech waters with its threat to exit China's business, Nielsen said Google retained its command of the U.S. search market with 67.3 percent of all searches.

That's up almost two percentage points from the 65.4 percent it totaled in November, the research firm said Jan. 13. Yahoo, which has been steadily losing search share for months, slipped to 14.4 percent from 15.3 percent in November. Microsoft's Bing search service dipped to 9.9 percent from 10.7 percent in November, Nielsen concluded.

The new numbers indicate Google's U.S. search business is clearly healthier than it's ever been. However, Google's pledge to cease operating its search engine in China over hack attacks on its corporate infrastructure and Gmail accounts has put a big question mark behind the company's strategy overseas.  

What will Google lose? Some say a little, some say a lot. Google has never led the Chinese search market, lagging considerably behind Baidu. Still, market analysts at StatCounter said Google has been closing the gap on Baidu over the last six months.

At the end of 2009, Baidu held 56 percent of the Chinese market compared to Google's 43 percent. That's a leap from July 2009, when Google commanded just 30 percent of the market compared to Baidu's 68 percent, StatCounter CEO Aodhan Cullen said in a statement.

However, the company's estimates differ from comScore, which puts Baidu's market share in China at 64 percent, with Google trailing at 31 percent.

Jefferies and Co. analyst Youssef Squali said Google's China business in 2009 reaped only $250 million to $300 million to Google's top line, or some 1.1 percent to 1.3 percent of gross revenues.

Piper Jaffray analyst Gene Munster put a finer point on Google and Baidu's search shares in China. Munster said Baidu commands 65 percent query share and 71 percent paid search budget share in China, with Google grabbing 30 percent of search query share and 26 percent of paid search.

Looking forward, he believes Google China would comprise some 2 percent of Google's total revenue in 2010, which though small, is growing faster than in the U.S. and UK.

Indeed, most analysts agree that the closing of Google's China operations would be a disruption of the company's potential and promise to, if not overtake Baidu, at least pump valuable ad dollars from a virile foreign market.

Collins Stewart analyst Sandeep Aggarwal said that with 360 million Internet users, China offers the largest Internet audience in the world and therefore the largest growth opportunity for Google, Yahoo, Bing or any Internet company.

BroadPoint AmTech analyst Benjamin Schachter said that while China's growth has been solid and its market potential is enormous, Google has "never been a market leader in China and there is certainly no guarantee that its business would become meaningful even if it were to continue to compete in the country."

Moreover, Schachter believes Google's threat to leave the country is more of a warning of action in motion than an idle threat, given the public disclosures of the issue in two blog posts from Google's legal counsel and enterprise president.

"One does not make such a public announcement if it only intends to review its options." He expects Google.cn will be blocked by the Chinese authorities within days or weeks.

Where does that put Yahoo or Bing in China? Not in very good standing. While those companies are No. 2 and No. 3 in the U.S., StatCounter said Yahoo and Bing's combined share of the Chinese search market stood at just 1.18 percent through 2009.

To wit, the spoils of Google's exit from China would go to Tencent, Sohu and other search properties vying for market share in the country.