SOURCE: Covario, Inc.

Covario, Inc.

March 23, 2010 14:03 ET

Covario Assesses Google's Exit From Mainland China

Industry Insights From Dema Zlotin, Founder & VP, Strategic Services, Covario, Inc.

SAN DIEGO, CA--(Marketwire - March 23, 2010) -  This morning Google stopped censoring search services (Search, News, Images) in China -- see http://googleblog.blogspot.com/. This has been done by redirecting Google Search users from www.google.cn to www.google.com.hk, so that all such services are being delivered from servers located in Hong Kong. Google hopes that this approach will allow them to maintain uncensored services for mainland Chinese population while adhering to local laws. While this appears to be a clever technical and legal maneuver, we believe this approach will be blocked by the Chinese government shortly, as it violates the spirit, although perhaps not the letter, of the laws in mainland China. This may, however, protect locally based employees from prosecution -- especially in light of today's news about Rio Tinto's employees facing trial in China -- since the violation is not occurring on mainland Chinese soil. It also puts the initiative in the hands of the Chinese government to proactively block Google's distribution, and allow Google to live up to its stated ideals.

If access to Google.com.hk is declined, as expected, then Covario expects the following dynamics to take place:

  1. A large portion of search query volume will shift quickly to Baidu. Spending in APAC accounts for 10-12% of all spending by Covario's mostly technology clients on global basis. Google currently accounts for 74% of Covario's customer spending in APAC, and about 55% in China specifically. We would expect most of the spending to shift to Baidu, but this will take time since Baidu's infrastructure and local offices support has always been poor compared to that of Google and others. There are payment issues, metrics issues, and technical issues that have made Baidu usage and growth very difficult for advertisers and agencies -- especially those located outside of China. We estimate that Baidu's marketshare will rise to over 85% from 60% in a few months once the Google.com.hk site is blocked.
  2. Covario anticipates CPCs in China will increase due to reduced competition and the inherent inefficiencies of the Baidu bidding and tracking system. In the short term, spending overall will likely decrease in China until advertisers and agencies can learn to work better with Baidu. For non-Chinese advertisers, this will have an adverse effect on their ability to drive efficient pan-APAC strategies and quickly launch campaigns given the increased overhead costs of working with Baidu. 
  3. This presents an opportunity for Microsoft to re-enter the market as a highly effective competitor. They already have a major footprint and brand recognition (as Microsoft, not as Bing) in the market, know how to effectively work within the market, and should significantly increase investment in product development and marketing given Google's exit.
  4. Local search sites like SoSo.com and portals like Sina.com may also try to fill the void left -- so advertisers should start running trial campaigns to measure effectiveness on these search engines as well. Sina.com may sever its relationship with Google as its default search engine and either partner or provide their own.

Chinese censorship is nothing new and SEM opportunities still exist with Baidu. Advertisers should continue to spend in this region.

About Covario, Inc.
Covario, Inc. is the leader in SEM and SEO software and services for the Forbes Global 2000. The Covario portfolio provides global organizations with robust interactive and search marketing analytics solutions for paid search advertising, organic search engine optimization (SEO), and display advertising. Covario enables complex and distributed organizations to control brand integrity, ensure budget transparency and deliver quantifiable results across business units, distribution channels and languages. Headquartered in San Diego, CA, Covario's growing customer list include some of the world's best known brands in high tech manufacturing, retail, ecommerce, financial services, consumer electronics, media, entertainment, publishing and consumer packaged goods. For more information on Covario call 858.397.1500 or visit www.covario.com.

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