Google China Pullout May Not Benefit Microsoft Bing

Google may pull out of China after a series of determined cyber-attacks and concerns about censorship, but its departure may not be enough to allow Microsoft's Bing search engine, currently with single-digit market share in mainland China, to fill the vacuum. Despite Microsoft's public assertions that China represents its most important strategic search market, local-grown search engines such as Baidu would likely continue to dominate even in Google's absence.

Microsoft has made public its desire to seize a bigger portion of the mainland Chinese market for its search engine, Bing, but it remains too early to tell whether Google's threat to pull out of China will help or hurt its chances.

"Microsoft is committed to the China market and the search market in China is the most important strategic market for Microsoft," Microsoft told Reuters on Dec. 29. "We specifically set the search technology center in China to get a deeper understanding of what Chinese users need, to be able to deliver the best product to them."

As quoted by Reuters in that article, research company Analysys International estimated that Chinese search engine Baidu held 63.9 percent of the mainland market, followed by Google with 31.1 percent. Although other search engine monitors, including ComScore, have pegged Bing's Chinese market share as strictly in the single digits, an Analysys analyst said the site had experienced 30 percent growth in higher-volume visitors.

That was before Jan. 12, when Google Chief Legal Officer David Drummond in a post on the official blog said the company would no longer censor results on, and would be launching discussions with the Chinese government about whether the Google could operate "an unfiltered search engine" within local laws. If an acceptable agreement cannot be reached, Google has threatened to shut down its operations in China.

Google's decision apparently took into account what Drummond described as a "highly sophisticated and targeted attack" on the company's cyber-infrastructure that originated from within China and that is thought to have attempted to access the Gmail accounts of Chinese human rights activists.

In a Jan. 13 research note, Piper Jaffray analyst Gene Munster offered a 35 percent chance that Google would cease its operations in China. He estimated Google's share of the mainland search market at 30 percent, while Baidu held a 65 percent share.

Google's earnings from China, as a percentage of its gross revenues, currently total between 1.1 and 2 percent, depending on the third-party company doing the estimating. Despite that relatively small number, the expectation among analysts is that China's fast-growing market would provide Google with increased revenue as time went on; pulling out of the market, therefore, has the potential to affect the company's long-term bottom line.

Meanwhile, Microsoft has run into its own difficulties with the Chinese version of Bing. In a Nov. 20 column, New York Times columnist Nicholas Kristof accused the company of "craven kowtowing" to the Chinese government by offering "sanitized pro-Communist results" for politically sensitive search terms such as "Dalai Lama" entered into Bing in simplified Chinese.

"What's most offensive," Kristof wrote at the time, "is that this is true wherever in the world the search is conducted-including my office here in New York."

That same day, Microsoft promised in a blog post to fix the issue.

"Today's investigations uncovered the fact that our image search is not functioning properly for queries entered using Simplified Chinese characters outside of the PRC (People's Republic of China)," wrote Bing Senior Director Adam Sohn. "We have identified the bug and are at work on the fix. We expect to have this done before the Thanksgiving holiday."

Sohn defended Bing at the time as producing "very balanced Web results" for simplified-Chinese queries such as "June 4th Tiananmen," but also suggested that "we can continue to improve our relevancy and comprehensiveness in these Web results and we will." A week later, on Dec. 1, eWEEK conducted its own independent testing of Bing, the results of which can be found here.

If Google pulls out of China, Microsoft with its comparatively small market share could have a hard time gaining against dominant local search engines such as Baidu; however, with its largest U.S.-based competitor removed from the arena, the prospects for long-term revenue growth certainly appear brighter, at least at first glance.

When contacted to see whether Microsoft had any opinion on the latest Google-China developments, a company spokesperson said, "We have no indication that any of our mail properties have been compromised." The spokesperson refused any further comment when pressed about how Google pulling out of China might affect Bing's prospects.