When the U.S. announced additional tariffs this week, China’s reaction included launching an antitrust investigation into Google. That might strike you as a peculiar choice for tariff retaliation, because the tech giant’s flagship search engine — along with YouTube — have been largely unavailable in China for years.
The Chinese market has vexed U.S. tech companies for a long time, according to Brent Thill, managing director at the investment firm Jefferies.
For the past couple of decades, “every major executive we interact with says their largest opportunity is in China, but they’re most frustrated with China,” he said.
The country has more than 1 billion tech-hungry consumers, he said, but U.S. companies, for the most part, “just can’t figure out how to crack the code — and it’s largely the barrier of the government and their policies, and so many decided to just stay away.”
Case-in-point: Google. The tech firm started offering its search engine in China back in 2006 with some state-mandated restrictions, said Matt Sheehan, fellow in the Asia Program with the Carnegie Endowment for International Peace.
“If you had searched, you know, what happened in Tiananmen Square in 1989, it would censor those search results,” he said.
Google’s relationship with the Chinese government was often tense, he noted. But still, the company built up a one-third market share in search. Then, in 2010, “they pulled out quite suddenly,” he said.
Sheehan said that happened after China was implicated in a hack of Google’s corporate data.
“This was the reason for Google to pull out, but they also sort of coded it in objections about censorship, saying, ‘We no longer feel comfortable complying with the Chinese government’s demands that we censor search results,’” he said.
And since then, Sheehan added that other once-popular Google services like Maps, Translate and Gmail have all been blocked in mainland China. But that doesn’t stop Google from doing business with Chinese firms.
“The one thing that Google has consistently had in China is its advertising services,” he said. “They sell a good number of ads to Chinese companies who want to advertise on the global internet.”
It’s one reason Google maintains offices in Beijing, Shanghai and Shenzhen. But those ads don’t add up to much as a share of Google’s global revenue, per Dan Ives, head of tech research at Wedbush Securities.
“It would be very low single digits — 1% or 2%,” he said.
Most Chinese smartphones also use Google’s Android operating system. Since that’s an open-source platform, however, it doesn’t make much money either. Considering all of that, Ives said that Google can pretty much brush off China’s antitrust investigation.
“So I view this more at this point, a little more political theater than significantly impacting Google in terms of its business,” he said.
Because, Ives added, there’s not much business there for the company in the first place.
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