China Moves to Block Another Tech Giant

By Markets Fool.com

China is perplexing. On one hand, the country boasts of nearly 1.4 billion people and a GDP of $13.6 trillion, pointing to tremendous opportunity for potential companies. On the other, the country is under communistic rule with merely some capitalistic facets. Unfortunately, one thing the country is known for is harsh censorship of the Internet and data in general.

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One can see how the country's stance on data puts it in direct conflict with many tech companies. As a matter of fact, Facebook and Twitter are currently blocked by Beijing. Google's host of services are also blocked in the Middle Kingdom, but its phone operating system -- Android -- is the most popular OS, and until recently, citizens could access Gmail via third-party apps thanks to a censor loophole.

On Dec. 25, the People's Republic of China closed that loophole, effectively shutting down Gmail in China. At some point, these companies have to wonder if playing nice with China is worth it.

China's opportunity has been a mirage for many firms
From both Facebook's and Twitter's perspective, China's huge potential has been a mirage. For Facebook, the PRC Government blocked access in 2009 after alleging rioters were using Facebook to communicate. Earlier this year, CEO Mark Zuckerberg went on a charm offensive that included meeting with China's top Internet regulator, members of the Politburo, and speaking Mandarin at a Beijing university. To date, Facebook is still banned from the country.

Twitter has followed suit after its 2009 ban. Although CEO Dick Costolo hasn't learned China's native tongue, the company is looking to open an office in Hong Kong next year to work with Chinese companies looking to reach a non-Chinese audience-- although it should be noted that Hong Kong is an administrative region of China with low censorship.

Each time, the Chinese government has eventually pushed users to China's platforms rather than the U.S. counterparts. For Facebook, the Chinese version is Renren, and for Twitter, that service is Weibo. Right now, however, Google is in a better position than either of the social media networks and should use that in negotiations.

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Does China need Google as much as Google needs China?
Google has an opportunity here that neither Facebook nor Twitter possesses: China is dependent upon its smartphone operating system. According to Kantar Worldpanel, as of Oct. 2014, Google's Android had a 83% smartphone marketing share, with Apple reporting only 16%. With China's two largest smartphone manufacturers -- Samsung and Xiaomi-- sporting the OS (or a forked version of the OS), China is somewhat dependent on Google's platform in the short term.

Of course, China knows this as well. China is developing its own operating system, COS, to compete with Android and iOS. In the short term, this will probably not put a huge dent in Android's dominance, but if past is prologue, look for China to wean itself off of Android as soon as the service becomes operational on a wide scale.

In the end, it has become commonplace with many U.S. businesses -- even outside of tech -- to make nice with China's government (many speak nicer about China's government than its own) in order to get a foothold in the country. In technology, the end result for many companies has been a quick exit. Considering Google's YouTube, search engine, and now Gmail are banned in the country, you have to wonder how long Android will survive.

And while it is hard to know which way the political winds will blow, it is entirely possible that very few technology companies will find that results in China will come anywhere close to its supposed potential.

The article China Moves to Block Another Tech Giant originally appeared on Fool.com.

Jamal Carnette has no position in any stocks mentioned. The Motley Fool recommends Facebook, Google (A shares), Google (C shares), and Twitter. The Motley Fool owns shares of Facebook, Google (A shares), Google (C shares), and Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.