The tech giant’s multiclass voting structure makes it nearly impossible to challenge its plans for the People’s Republic.
Last year, Alphabet's (NASDAQ:GOOG) (NASDAQ:GOOGL) Google faced a fierce backlash after details leaked about its censored search engine for China, codenamed Dragonfly. In December, The Intercept claimed that Google "effectively ended" the development of Dragonfly, but CEO Sundar Pichai refused to rule out future plans to develop another censored search engine for China.
That refusal sparked a revolt among some shareholders, who tried to persuade Google to conduct and publish a human-rights impact assessment of a censored Google search engine in China. Google recently struck down that proposal during a shareholder meeting, and the company reiterated its "desire to increase its ability to serve users in China and other countries."
That result shouldn't surprise investors. Google still sees China as a big growth market, and its investors don't have any real power over its decisions -- since it uses a controversial multiclass share structure that silences regular investors.
Why Google refuses to give up on China
When Google left China over a row with the Chinese government regarding allegations of censorship and email hacking, it controlled over 40% of the country's search market. Its abrupt exit cleared the way for Baidu (NASDAQ:BIDU), which controlled over half the market, to become China's undisputed leader in searches.
Baidu controls 65% of the market today, according to StatCounter, followed by Sogou's 18% share and Alibaba's Shenma, which controls 8%. That market looks saturated, but there's still a strong demand for Google to return to China.
Last year, a poll on Weibo found that 72.8% of respondents would use Google if it returned to China, compared with 21.7% who preferred Baidu and 5.5% who were willing to use both. If Google returns to China and claims a meaningful slice of the market again, the growth of its core advertising business -- which faces market saturation and tough competition in many markets -- could surge.
What's Google's next move in China?
Google probably still plans to launch a censored search engine in China. But for now, it's taking other steps back into the market through alliances with Tencent (NASDAQOTH:TCEHY) and its e-commerce partner JD.com (NASDAQ:JD).
Google partnered with Tencent in a patent cross-licensing deal; launched social games for Tencent's WeChat, the top mobile messaging app in China; and introduced new mobile apps, including Files Go and Google Translate, for Chinese users. Google also invested $550 million in JD.com and started selling JD's products on its Google Shopping marketplaces overseas.
Those moves, along with the whopping voting power of Google's top brass, indicate that the tech giant still has big plans for China -- and it isn't worried that shareholder revolts will get in the way.
Source: The Motley Fool
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