Alphabet's Possible Return to China Takes 1 More Crucial Step

By Andrew

Source: Alphabet.

Long guided by the principle "Don't be evil," holding company Alphabet's Google search engine abandoned its Chinese operation in 2010.

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But the Chinese search market has evolved since Google's 2010 departure. And as Alphabet now operates under a different, though similar, set of guiding principles, could Google's presence in China be about to change?

Alphabet made headlines last month when it made its first investment in China since its 2010 withdrawal, a move that led to much speculation about Google's long-term strategy in the world's largest Internet market. However, for several reasons, this move alone remains far from a conclusive sign to investors that Alphabet intends on returning to China anytime soon.

Google goes back into ChinaAccording to a number of sources, Google recently acted as lead investor for the Series-C round of fundraising for Chinese voice search provider Mobvoi. Although the exact amount Google invested isn't immediately clear, media outlets have claimed Google now owns a 10%-15% stake in Mobvoi, which two former Google researchers founded in 2012. However, the relationship between Google and Mobvoi goes deeper than mere venture capital. Google also partners with Mobvoi's voice-recognition technology to power its Android Wear's voice search functionality in China.

Perhaps most important is the source of funding. Rather than flowing from one of Alphabet's autonomous investment arms, Google Capital or Google Ventures, the financing came from Alphabet's core Google search-engine business, creating the only direct link between Google search and mainland China in nearly five years and the primary driver of the speculation this deal triggered. However, even given this newfound proximity to China, I still don't see Google moving back into China anytime soon, and I don't see this deal as being the basis of such a move.

Close, but no cigarTo me, the core problem with a possible Google move back into China is the nature of its dispute with the business climate in the PRC. It's political, not commercial, in nature, and that would make reversing course a nearly unnavigable path.

Alphabet's Google shuttered its Chinese operations as a stand against conforming to the Chinese government's censorship policies. And barring a political overhaul, which is an unlikely event in the short term, how could Google reverse course while still maintaining the corporate ethos it has worked so hard to cultivate?

Now, if the nature of the dispute had been business-related, then migrating its services back into China would be an entirely different matter. Alphabet or Google would simply have to lay out the case that missing out on the massive growth opportunity in the Chinese search market is simply bad business. They'd be back in business, probably much to shareholders' delight.

Another question is whether Google could compete again now-dominant Chinese search provider Baidu, which holds a roughly 70% share there by most estimates.

Rather than re-enter the search market, Alphabet would do well to open the Android app store that's so widely been rumored to be in the works. One credible online publicationhas claimed that Google is near bringing a version of its Google Play app store to Android devices in China. That could go a long way toward helping Google gain greater control over Android in this increasingly important mobile market. However, even despite its increasingly close ties with the Chinese Internet market, the deck still seems stacked against Google's reopening its critical search business in China, barring some more substantive change to the country's censorship laws.

The article Alphabet's Possible Return to China Takes 1 More Crucial Step originally appeared on

Andrew Tonner owns shares of BIDU. The Motley Fool owns shares of and recommends GOOG, GOOGL, and BIDU. 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.

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