Will Android Pay for Google's Moves in China?
British scribe Paul Carr is not one to mince words. For him, Google's (GOOG) newfound morality around censorship and China is too little, too late. Four years too late, to be precise. And I agree with him—up to a point. Morality has to be absolute; it cannot be used as a tool of convenience. But despite being a born cynic, I'm actually unable to view Google's decision through the same lens.
I mean, if as a society we're all too ready to forgive steroid-enhanced baseball players when they come clean, how is we can't give a company a second chance when it finally decides to do the right thing? Moreover, the company is risking a lot of money by adopting what Carr describes as "scorched earth diplomacy"—especially when it comes to Android.
JPMorgan estimates that Google's move is going to cost it some $600 million in 2010 revenue. UBS forecasts the sales loss in the $400 million to $500 million range. Others estimate it could be even lower—between 1% and 1.5% of 2010 revenue. Citibank, meanwhile, believes nearly 1% of Google's profits are at risk.
The wide variance in loss estimates makes clear that no one really knows how big a financial gamble this decision is. And that alone makes it a brave move.
The Big Future in Mobile
But while many argue it isn't logical for a publicly traded company to take a stance that's going to hamper its ability to capture the opportunities offered by such a fast-growing Internet market—China currently has 298 million Internet users (and 99.4 million connections) representing just 22% of its population—as far as I'm concerned, the biggest impact of Google's decision will be on its mobile efforts. With more than 638 million wireless users (according to TeleGeography), China has already emerged as the world's largest mobile market. Sales of mobile phones in the country are expected to grow 21% this year alone.
The bottom line is that Google's decision to take on the Chinese political establishment means it no longer controls Android's destiny in China. In theory, Android is open source and, as such, handled by the Open Handset Alliance. But in reality it is closely associated with Google. For starters, the banning of Google.cn would close a marketing channel for Google's Nexus One device, if and when it was launched in China.
The country was well on its way to helping Google exploit Android. Chinese handset makers such as Huawei and ZTE have been some of the earliest supporters of the upstart operating system. China Mobile already sells its own version of an Android-based phone system called OPhone. Motorola is making a big push into the Chinese market with smartphones based on the Android OS.And China's Lenovo has developed numerous Android-based products, including the LePhone. Any undue pressure from the establishment would mean that most of these companies would have to abandon Android in favor of other mobile operating environments.
Google's willingness to risk not only its present (the search business) but also its future (mobile), shows that as a company it's willing to go where no Western company has gone before: in China's face. The next few months will determine whether Carr is being too harsh or I am being too generous in our respective judgments. For now, at least on this one decision, I am on the side of Larry & Sergey.
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