Google Inc.’s victory in China may prove short-lived.
China renewed Google’s Internet-services license through 2012, though authorities will revisit the decision on an annual basis, Google said Friday.
The green light gives Google a chance to win back search share lost to market leader Baidu Inc. and woo advertisers put off by the company’s half-year dispute with the government. Some Google operations were in jeopardy as it balked at censorship rules that require companies to filter Web content.
China’s government can still use its authority to yank the license if it deems Google’s compliance wanting, said Sandeep Aggarwal, an analyst at Caris & Co. in San Francisco.
“Google remains at risk in China,” Aggarwal said. “Chinese regulators gave them a back door.”
The dispute began in January, when the operator of the world’s most-used search engine said it was no longer willing to comply with Chinese regulations to self-censor content.
“We look forward to continuing to provide Web search and local products to our users in China,” the company said on its blog Friday. The license will be subject to annual renewal, spokeswoman Jessica Powell said, declining to say whether China had imposed any conditions on renewing the permit.
Google, based in Mountain View, Calif., won approval after changing the way it handled search requests, no longer automatically redirecting Chinese users to its unfiltered site in Hong Kong. To allay officials’ concerns, Google added an extra hurdle for Chinese Web surfers, directing them to a landing page that in turn pointed them to the Hong Kong site.
“The landing page strategy for Google.cn adds one more complication to Google’s user experience in China,” Gene Munster, an analyst at Piper Jaffray Cos., wrote in a research note Friday. “Every step added to the search process will ultimately cause Google to lose some users.”
China also made concessions. Letting Google keep operating may help the government show it’s open to outside competition, said Scott Kessler, head of technology equity research at Standard & Poor’s, who rates Google as a “strong buy.”
“There were definitely risks if Google were to be unceremoniously dismissed from a country lock, stock and barrel,” said Kessler, who’s based in New York. “Then, you’d have Baidu as the sole, dominant player there, with the likelihood of continued gains in market share.”
Google Chief Executive Officer Eric Schmidt, who is in Sun Valley, Idaho, at a conference for media executives, said in an interview that he learned of the renewal decision early Friday.
“This is the outcome we were hoping for, we just didn’t expect a decision this soon,” Schmidt said. “I didn’t know until this morning. Literally the good news came overnight.”
China’s decision may partially constitute a nod to the Chinese people who voiced support for the company, partly through lighting candles outside Google offices, said Heath Terry, who rates Google “outperform” at FBR Capital Markets in New York.
“It signifies the importance of Google to China — from the candlelight vigils outside of the headquarters to the sheer usage numbers of Google in China,” he said. “Google is important to the Chinese people, and I think the government heard that.”
China had 384 million Internet users at the end of 2009, the government estimates. That’s more than the total U.S. population. The number may grow to 840 million by 2013, according to EMarketer Inc. in New York.
The license renewal comes after the U.S. said China took a “significant step” last month when China ended its peg to the dollar and allowed markets to drive the currency higher.
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