Google (NASDAQ:GOOG) is so ubiquitous that its name is synonymous with Internet search in much of the world, but its relationship with the largest country on Earth has been contentious, to say the least.
In 2009, around the time of the 20th anniversary of the events in China’s Tiananmen Square, China blocked access to Google’s search engine, its Google Apps office tools, Gmail, Google Talk and the Google Reader. More recently, China blocked its citizens from accessing Google+, the company’s new social network.
Google pulled its Google.cn website from the country last year after refusing to censor results and after it was hacked by the Chinese government. For investors, this struggle has meant great opportunity with Baidu (NASDAQ:BIDU), the Chinese equivalent of Google that has grown dramatically over the past 12 months. Baidu shares were trading around $67 a year ago. Now, they are trading above $145.
Google has impressed with its unwillingness to kowtow to the Chinese government’s stringent censorship requirements. But at least one of Google’s competitors has been willing to play ball with China: Microsoft (NASDAQ:MSFT). Though its search service Bing has sometimes been brought under the same censorship restrictions as Google — Bing was also blocked around the Tiananmen anniversary in 2009 — Microsoft has never issued a blanket statement refusing to meet those censorship requirements as Google did at the beginning of 2010. Now Microsoft is going a step farther: the company announced on Monday that it was partnering with Baidu to offer English-language search results using Bing’s technology. The partnership is intended to serve Chinese companies looking to market abroad with English language websites as well as help Baidu’s ambition to begin offering services abroad. The company has plans to offer services in 12 languages as it expands out of China.
According to a report on the partnership in Bloomberg, Guotai Junan Securities analyst Jake Li said, “This is not good news for Google.” He believes this signals a continued decline for Google’s audience in China and a broader share of the worldwide search market for both Baidu and Microsoft on a long enough timeline.
That may very well turn out to be the case. Investors following these developments should catch a whiff of desperation from Microsoft, however. Its partnership with Baidu and willingness to bend to China’s censorship betray Microsoft’s growing fear of Google.
That fear is very real. The company’s biggest earning segment, its Microsoft Business which includes the Office suite of business tools, is
slowly losing clients to Google Apps. Its display advertising business, despite its partnership with Yahoo (NASDAQ:YHOO) continues to represent just a fraction of the market in terms of revenue.
Now Microsoft is seemingly willing to agree to a government’s restrictions on access to information online. It’s a strategy that may indeed give Microsoft a leg up against one of its most significant competitors, but it will also continue to diminish its credibility as an ethical business.
As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at @ajohnagnello and become a fan of InvestorPlace on Facebook.
