As the company tangles with the Chinese government, it puts in jeopardy its tentative grip on the cellphone market in a nation where staggering growth in mobile search is expected
By David Pierson
Reporting from Beijing - In its public wrangling with the Chinese government, Google Inc. not only risks losing access to millions of personal computers in China but also its toehold in the world's largest cellphone market.
The American Internet giant has been providing handset manufacturers its Android operating system for free in hopes of penetrating a country where, soon, more people are expected to access the Internet on mobile phones than on desktop computers.
Although it is a distant second on computer searches, Google is nearly tied for first with Baidu Inc. for market share in China's nascent mobile-search sector.
But the company's ambitions are in jeopardy now that Google has raised the ire of Beijing by redirecting Internet users in China on Tuesday to an uncensored search engine in Hong Kong.
Analysts say the Chinese government could pressure partners to sever ties with the company. And Google has acknowledged the possibility that its products could be blocked any day by censors.
"My concern is that lots of Google's mobile services are based on search," said Kevin Wang, director of China Research for iSuppli Corp. "Now we don't know if we'll still have their search engine in China".
As long as access to the search engine remains, Google will be positioned to capture a growing share of mobile advertising.
Analysts say the company's strategy is to get as many Web-enabled phones as possible into the hands of consumers to use their search engine.
That requires driving costs down for such devices -- known as smart phones because they combine the features of a regular phone and a computer.
Google offers its platform for free to pass savings on to developers and trump competitors such as Microsoft, which charges a licensing fee to adopt its cellphone software.
The company also made Android an open-source system to allow manufacturers and mobile providers to modify the platform as they saw fit.
China's leading telecommunications company, China Mobile Ltd., already has done so to outfit a line of third-generation, or 3G, signal devices named OPhones.
China's two other state-run telecommunications companies - China Unicom and China Telecom -- also have included Android-based phones in their strategies to attract users of smart phones, though to a lesser extent.
In theory, Android devices would use Google products as its default service. But that's not always the case.
Motorola already has partnered with Baidu to provide search for its Android-based handsets. China Mobile has replaced Gmail with its own e-mail features. And China Unicom's latest Android-powered phone won't be installed with Google search because of the company's row with the government, the Wall Street Journal reported Wednesday.
Though mobile only represents 1% of China's search-engine advertising, Google is one of many companies preparing for staggering growth in the coming years.
China has around 800-million cellphone subscribers, and many are expected to upgrade to smart phones as the nation's 3G network expands. The share of the high-end devices is expected to double by 2013 to 36%, or 122.3-million units, according to technology research firm BDA China Ltd.
Also driving demand is the relative affordability of smart phones over personal computers. Though there are 384-million Internet users in China, there are only an estimated 100 million to 150 million PCs.
According to the government's China Internet Network Information Center, 76-million people used their handsets exclusively to access the Internet last year.
The percentage of Chinese who used desktops to go online fell from 89% in 2008 to 73% in 2009. In the same period, those using cellphones grew from 40% to 61%.
"The handset is on track to overtake desktop PCs as the most popular device in China to access the Internet by 2010," said CK Cheng, an analyst for CLSA Asia-Pacific Markets.
Ma Jia, a commuter in Beijing headed to work Wednesday morning, said she preferred surfing with her Nokia E71 than firing up her desktop at home.
"I use mobile to browse all kinds of news to know what is going on," said Ma, 33. "As a working mother, I don't have too much time for myself, so I just use my cellphone when I'm on the bus and before I go to bed because it's not very convenient to start the computer for just a 10-minute search".
The publishing-house employee said she was, until recently, a Google user. But her husband downloaded a new browser for her phone that linked to Baidu.
David Wolf, president of Wolf Group Asia, a Beijing tech and media advisory company, said Google was well aware of mobile's potential to deliver finely targeted ads. Cellphones, he said, can tell who you are, where you are, what time it is and what you're doing.
"It brings advertising like no other system," Wolf said. "Right now, the door remains open for Google in China and that's incredibly valuable".
Nicole Liu and Tommy Yang in The Times' Beijing bureau contributed to this report
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