Google should boost image with China battle, analysts say

After taking it on the chin from China and critics, Google benefits from taking a stand

Google's decision to go toe-to-toe with one of the world's most powerful countries could provide huge benefits to its image while having little short-term impact on the company's financial condition, analysts said.

Google announced late last night that a major attack launched against its network from China has forced it to consider pulling its business out of the country. After the attack, which was aimed at exposing the Gmail accounts of Chinese human rights activists, Google said it has reconsidered its willingness to agree to censor search results of users in China.

"You know Google and China are in negotiations at this point," said Whit Andrews, an analyst at Gartner, Inc. "[Google's] power is being one of the most popular companies on the planet, and right now they're telling China, 'We're taking a stand against you.' That's their kind of power today. Not many companies could do that."

Dan Olds, an analyst with The Gabriel Consulting Group, noted that as Google tries to hammer out a new agreement with China, it may have a leg up because the country needs to maintain a strong link to the rest of the world.

"There's a good chance that pressure in China will force the government to back down," said Olds. "China is one of the world's largest trading partners and companies like Google, Microsoft, and Yahoo are vital to connecting China to worldwide commerce. Over time, we'll see what's more important to China -- its political control and ability to quash criticism or the value that a free flow of information can bring to their economic endeavors. It will be fascinating to see how it ends up."

Taking a stand against China largely is being met with support from industry watchers, who noted that the search giant took a major hit in good will in recent years by ceding to China's censorship demands .

Whether Google pulls out of China or is able to force the Chinese government to back down from its demands, it will clean up some of the tarnish on the Google image , analysts said.

"Google is taking a refreshingly bold stance from a political point of view," said Hadley Reynolds, a director at analyst firm IDC. "The company has gotten a lot of negative press over the last several years for its apparent willingness to go along with Chinese government censorship . Taking a strong stand against the recent cyber-attacks and calling out the Chinese on its behavior is the right thing to do for a company whose business principles revolve around open information access, recognition of intellectual property rights, and individual rights to secure communications."

Andrews added that the search company's earlier deals to censor search results in China violated one of Google's guiding tenets -- do no evil. Google's actions prompted some users to believe that its pledges were all talk and no substance, he said.

"If they win the good will back, it has the potential, in the long run, to be enormously important," added Andrews. "At this point, the stakes are very high. If their image is cleaned up ... that's an unmeasurable quantity."

And he added, capturing the good will shouldn't significantly hurt the company's top and bottom lines in the short term. Several analysts were quick to point out that China is not a major revenue source for Google, though Ezra Gottheil, an analyst with Technology Business Research, noted that it's long term potential could be huge.

"Right now, China is not a big piece of Google's business," he added. "It's not even the largest or fastest-growing search engine in China. But China is a large market and it's growing faster than most of the rest of the world. So not serving China would mean slower growth in all of Google's businesses going forward. Not slow -- Google is still a rapidly growing company. But slower than it would have grown with China."

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