Two more Chinese ad agents, Universal Internet Media and Xi'an Weihua Network, severed their respective partnerships with Google this month.
They aren't the first to jump ship from Google's Chinese search site. The Chinese mobile phone service provider China Unicom, local portals Sina.com and Tom.com and Tianya, a major Chinese internet forum platform, all reduced or ended their relationship with Google earlier this year.
Universal and Weihua, two of the remaining 25 ad agents still working with Google, represent significant ad revenue for Google in northwest and eastern China.
"Unlike in most markets, Google's AdWords service relies on domestic resellers. This is one characteristic which differentiates China's search engines from other markets, where AdWords accounts are usually directly managed by advertisers or their appointed agencies," said China internet expert Paul Denlinger in a recent blog post. Universal and Weihua are "major losses for the Google AdWords resellers network."
No explanation has been given for the resellers' decision, but Google's ongoing public battle with the Chinese government has made local companies uneasy about working with Google, which subsequently has lost significant market share in the mainland.
Political problems and a market share drop
The reasons may not be that simple, however, said T.R. Harrington, strategic direction and product development at the search marketing consultancy Darwin Marketing. "Business relationships come and go over time and there is no way to directly tie news regarding ending the relationships with two re-sellers to Google's potential future in the market. That would be too much of a leap in my opinion."
Google's political problems started in January 2010 when the company suddenly announced it would no longer censor search requests on Google's Chinese site, Google.cn. Last spring, Google began redirecting search queries to its Hong Kong-based Chinese site, which is not subject to mainland China's censorship laws, a move that appears to have displeased government officials.
Google's business problems have been around even longer. It has run a distant second to market leader Baidu from the start. Google's share of China's search market fell to 24% in the second quarter of this year, down from 31% in the first quarter, according to research firm Analysys International.
Baidu sales reach new high
Baidu's share, meanwhile, rose to 70% in the second quarter of 2010, a new high for the company, while earnings doubled. Baidu reported net income of $123.6 million for the quarter that ended June 30, 2010, up 119% from a year earlier. Sales rose 74% to $282.3 million. Baidu has also expanded recently into mobile search.
Ad resellers leaving Google "is a death knell" for the U.S. company, said Lonnie Hodge, CEO of Culturefish Media, an online marketing firm in Guangzhou. "Baidu can now kick Google while they are down as there is little fight left in them."
The "big question," he added, is whether or not Baidu "can truly capitalize on Google's losses. They may gain market share as the market grows, but their demographic is set to change. The younger crowd no longer trusts the giants and loathes paid ads in place of organic search results. The social web and operators like [e-commerce site] Taobao might well pick up the big dollars."
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