Chinese officials have already offered criticism of Google’s actions, although no actions have been taken yet. According to The New York Times, and unnamed official with the State Council Information Office told state-controlled Xinhua news, “Google has violated its written promise it made when entering the Chinese market by stopping filtering its searching service and blaming China in insinuation for alleged hacker attacks.” Furthermore, the Chinese Foreign Ministry said on Tuesday that the government will handle the Google case “according to the law”. As evident from the aforementioned Google statement, they feel they are acting within the law. But they don’t sound too confident. In fact, they sound completely unsure. “We got reasonable indications that this was O.K……We can’t be completely confident,” said Sergey Brin, Google founder and chief of technology. It is fairly safe to say that China will react firmly to this move, most likely banning Google’s uncensored search service from Chinese users.  The only question is how much of a grudge they will bestow on the internet giant.

The fact that Google is standing up for what it believes in and making good on its promise to no longer censor search results is definitely commendable. But that does not make it smart. By pulling out of China and facing a blockage of google.com.hk to all mainland China searchers, Google is giving up some fairly significant income. Google does not have the same stranglehold on the search market in China as it does the rest in the rest of the world, with a 33% share of the search market, second to Baidu with around 63%. But even still, the sheer size of the Chinese market means that 7.26% of Google’s non- US searches are provided by China, providing an estimated $260 million in quarterly revenue. This may not be the end of the world for a company that generated close to 7 billion in Q4 of 2009, but when you consider the rapid growth of the online economy in China (already the largest online user base in the world), as well as the broader stigmatisation Google could face from the Chinese government, some serious consequences are at hand.

Emily Parker, a senior fellow at the canter on U.S.-China Relations at the Asia Society, said that, “This has become a war of ideas between the American company moralizing about internet censorship and the Chinese government having its own views on the matter.” In turn Google has positioned itself to be in opposition to the Chinese government. Although it has pulled its search engine out of mainland China, it has left its sales team as well as its R & D operations. Furthermore, Google has been identified as a member of a consortium led by Disney, to buy a $100 million stake in Bus Online, a large Chinese advertising company. What needs to be highlighted here is that any foreign business requires the approval of the Chinese government. China could ban Google, or any company linked to Google, from conducting any business in China. In the largest internet user base in the world, nearly 400 million people use the internet, 235 million of which access the net via handheld devices, spending 70 percent of their leisure time online (in 60 largest cities). The fact that these figures are seeing huge incremental growth each quarter could prove to have momentous consequences for Google down the road.

Eric Schmidt and the Google founders hold the issue of internet censorship to great importance. They have put an inestimable price on upholding these freedoms, and that is without a doubt praiseworthy. From a business perspective they have taken a massive gamble, and it is never smart to bet with your heart.

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In what has become a standoff between Google and newspapers from all over, both camps offer their explanations.  The newspapers themselves believe that they are being short changed by Google. Google believes that newspapers offer a lack of user engagement and do not utilize their information or content. The fact is that it is both: Google claims a large chunk of advertising revenues through Adwords and delivers traffic in verticals that are hardest to monetize while newspapers have not shown a great deal of innovation or creativity in harnessing the huge amounts of traffic and specialized content they hold. But the events of the past few weeks have seen the two camps come together in an effort to finally sort this issue out.

In the US, search engines account for 30-40% of traffic to major news sites. Out of how many millions or billions of clicks a month that is, let’s say Google accounts for half. The problem is, while Google takes in vast amounts of money through their Adwords and other advertising, they send loads of traffic to news sites in verticals that are not easily monetized. In other words, Google is capturing purchases and driving traffic to specialized sights for news related search queries in the valuable travel, health, electrical, computers, and entertainment verticals while driving the sports, news, current events, and local related traffic to online news sites. In turn, the traditional cross-subsidisation model of newspapers is broken. “While before, in print, advertisements in special interest sections such as motoring, travel, or home & garden helped finance the general news production, now most of the search clicks are in categories such as sports, news and current events, and local.” It is for this reason that online ad revenue accounts for only 5% of the total for newspapers.

At the recent two-day workshop on the future of journalism held by the Federal Trade Commission, Google defended its innocence in the case of failing newspapers, and offered some interesting insight into some alternative explanations. Hal Varian, Google’s chief economist, held that “The news industry’s financial problems came well before the web came along”. Google argued that the key to newspapers’ survival online is engaging more with readers, rather than seeking to charge them directly. The facts are simple. “The average amount of time looking at online news is about 70 seconds a day, while the average amount of time spent reading the physical newspaper is about 25 minutes a day”. The reason for this is that online readers generally check in during working hours, when they do not have much spare time. Varian added that newspapers must increase the involvement of readers during leisure hours.

The simple fact is, charging users for news content will not be the solution to the problems of news publishers. As it appears that Google will not take part in any kind of revenue share of or change it’s indexing, the ideas of online news sites becoming more engaging and more interactive seems to be the way forward. In order to increase the amount of time each user spends on their site, newspapers need to attract readers during their leisure time. Google has also developed an interesting new feature, Living Stories, that allows users to track developments on various news stories and create a personal hub for various topics. Newspapers such as The Guardian, offer a range of reviews, videos, blogs, and local news. Not only does this improve online news, but it enhances ad targeting and measurement. There is no doubt that the key to newspapers solving this problem lies within the vast amounts of user information they have access to. The only thing to do now is expirement, and harnesses that information. We are entering an age where the increasing digitization of all content will see a further decline in offline news circulation. But devices such as the iPad are providing interesting new ways to consume this content. With toys like this becoming the new gateway to news, publishers must re-create online news as a leisure time activity. Their fate depends on it.

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