Google Nears Re-entry to Mainland China

In addition, the company is preparing to announce as soon as this month that it will support a version of its Android mobile operating system for wearable devices like smartwatches in China, according to one of these people. A Google spokesman didn’t immediately have comment.

The moves reflect Google’s desire to reassert control over how the Android operating system is proliferating in China. Android has become severely fragmented there, with many flavors of the operating system in use across many types of devices. That poses a challenge now that Android aims to power all manner of devices, from virtual reality goggles to tiny Web-connected sensors. Having more control over the the platform within China is viewed as important to the success of Android overall, and it could help the company profit financially from the software, which has been a challenge.

As part of its broader China push, Google is expected to offer new incentives to phone makers to upgrade Android phones to the latest versions of the operating system, says one person briefed on its plans. The company wants more phones to run the advanced version of Android so that the software platform and experience can be more consistent for app developers and consumers.

As more Chinese app developers look to extend their apps beyond China’s borders and more non-Chinese app makers try to tap the Chinese market, Google wants to ensure all the apps work well across Android devices globally. Thus, hardware partners that will distribute Android Wear or Google Play in China will need to adhere to certain global compatibility standards, says the person familiar with the plan.

Follow the Censors

For its app store, Google has promised authorities that it will follow local laws and block apps that the government deems objectionable, say the people familiar with Google’s plans. In some parts of the world and among Internet policy wonks, this move will be viewed as a back-tracking from Google’s posture following its departure from China in 2010. At that time Google ended its engineering operations in China and moved its Chinese-language Web-search engine to a Hong Kong-based Web domain, out of reach of mainland China officials, after being breached from a cyber attack that it linked to the Chinese government.

Authorities denied involvement in the attack, which successfully breached many American companies and is known as Operation Aurora. At the time, though, Google co-founder Sergey Brin publicly compared China to the totalitarian Soviet Union in which he grew up. (Mr. Brin is now part of Alphabet, Google’s soon-to-be parent company, and isn’t involved in Google’s day-to-day affairs.)

Some forces within Google always believed that the company’s and Mr. Brin’s response was rash. It should have viewed the China-based hacking, which occurred in late 2009, as a natural consequence of being a major tech company in an age of increasing cyber attacks by all governments.

Almost immediately after withdrawing, Google began negotiating with the Chinese government on ways it could bring back certain Web services, like an Android app store, for Chinese consumers. Google’s app store and its other mobile apps have never been officially released in China because of concerns about government restrictions on certain Web content and whether the apps would work properly. A small segment of Android phone owners has found ways to download and use the app store. (The Information last fall was first to report on Google’s intentions to re-enter China through Google Play.)

The Google search service is still accessible from mainland China but certain results pages are blocked by the government and, overall, service has been spotty. A few other services like Google Translate and Google Maps are still available but may also face disruptions.

At China’s Mercy

It’s not lost on Google that its top rival, Facebook, has been exploring its own paths to China, though Facebook.com has long been blocked. Facebook has the benefit of never having upset powerful interests there.

There is still concern within Google that by returning to China, the company is opening itself up to abuse from government authorities, which could use the future threat of blocking the app store as leverage against the company, says one person briefed on the dynamics.

Google’s more-immediate plan in China is to introduce “Android Wear,” as the wearable-device version of Android is called, to China. Android Wear is more tightly controlled by Google compared to the broader Android OS that powers smartphones and is partly available in an open source format. Only half a dozen manufacturers, including China-based Huawei Technologies and Korea’s Samsung Electronics, have been permitted to use the Google-certified version of Android Wear while relatively few have used the open-source version so far.

Google has promised authorities that it will follow local laws and block apps that the government deems objectionable, say the people familiar with Google’s plans

In contrast, on the smartphone side, numerous Chinese manufacturers have been using the open source version of Android in China without officially partnering with Google, a problem the company has tried to combat over the past year, particularly outside of China. Within China, hundreds of millions of smartphones run a non-Google-certified version of Android, and Google Web services aren’t widely used by the population, in part because they are blocked or frequently disrupted.

Google plans to make apps from certain Chinese developers available right away through Android Wear in the country, but not its own services like search or YouTube. It’s unclear which Chinese apps Google will offer, although one of them may be a Chinese-made “virtual assistant” that responds to commands in Mandarin, says one person familiar with the plan. Android Wear devices are compatible with both Android devices and iPhones.

Small Potato

Google Play faces long odds of success in China. Incumbents like Qihoo 360, Tencent Holdings and Baidu dominate app distribution in the country, though Google is expected to get hardware partners like Huawei to preload the store on new devices. Another key Chinese phone maker, Xiaomi, is a less likely partner, barring some serious financial incentives from Google; after all, Xiaomi’s long term viability, unlike Huawei’s, depends on its ability to generate revenue through Web services like its own app store. (For more on the special relationship between Google and Huawei, see this article.)

Google must also win over developers, which it will try to entice by letting them keep 70 percent of in-app revenue they generate, identical to the revenue split in the rest of the world. China’s home-grown app stores, by contrast, take the majority of such revenue from app developers. It is also promising that it will protect developers from IP infringement by “copycat” apps. (For more on the challenges and opportunities that Google Play will have China, see this article.) 

Google is partnering with ChinaPay, a leading third-party payment service provider in China that is owned by UnionPay, to handle in-app billing for the Play Store, says one of the people familiar with the plan. Apple also partnered with UnionPay for its mobile app store.

Google will try to differentiate its app store by working with big Western app developers that aren’t currently distributed in China. It’s also talking to some companies about making exclusive content or games just for Google Play. It’s unclear which ones will do that. Google also has said it may work with Chinese firms like WeChat-maker Tencent, drone maker DJI and video apps like Youku on launching apps through the Chinese Google Play. Those Chinese developers and thousands of others already have apps on Google Play outside of China.

Some more details about coming Google Play app store in China:

It will only work on devices running the “M” version of Android that was recently unveiled, and only on devices that comply with requirements of China’s Ministry of Industry and Information Technology. That is, only devices that are approved for sale inside mainland China. The services available to app developers, such as the ability to use sensors on the device, will be similar to what they can do elsewhere in the world, but there will be restrictions related to location and social-network sharing options.

The store won’t sell digital media like books or movies. People will have to create new accounts to access the app store. And Google is managing Web-server infrastructure within the country in order to operate the app store and store data about its users there.

Google’s ultimate desire, of course, is to generate revenue from the world’s No. 1 Internet market. Besides sharing in-app revenue with developers, Google could begin charging developers for ads on the new app store or for app-install ads, something it’s doing in the rest of the world. Ironically, Google’s China app store is coming just as the company is taking steps to blunt the importance of app stores altogether, because they hurt Google Search.

Despite the fact that its search engine isn’t easily accessed from mainland China, Google generated about $800 million in revenue from search ads last year, or 10 percent of the search-ad market, according to estimates from several analysts in China. That’s less than 2 percent of Google’s overall revenue.

But new revenue growth in China won’t come from search. Even if Google ever did decide to start self-censoring Google search results in China (which it did before 2010) and host the service there, that won’t make a difference. Back then, Google was already losing to local search firm Baidu, and Googlers say the government viewed search as too strategically important to let a foreign firm own it.