Is Google Stepping Back from China…Again?

China has posed a challenge to Google (NASDAQ:GOOG) recently; in the face of increasing competition and a changing Internet market, the search company released a statement Friday announcing the end of its Google Music Service in that country on October 19.

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On Google’s China blog, Senior Engineering Director Dr. Boon-Lock Yeo said the service would be shut down because of its poor performance. “This product never became as influential as we expected, so we decided to redirect the resources to other products,” he said. No particular details of the service’s poor performance were given.

The service was launched in 2009 with great celebration; Taiwanese pop star Jolin Tsai performed at the roll-out event. While at the time, Western media companies saw the Chinese market as dangerous because of the widespread availability of pirated movies, music, and television shows, Google took a gamble. With agreements from media labels, including Warner Music Group and EMI, the company bet that Chinese consumers would prefer free, licensed digital downloads over poor-quality, pirated copies.

Google hoped its free downloads could be competitive with China’s domestic search giant Baidu (NASDAQ:BIDU). The company, in which Google once had a stake, was host of its own pirated-music business that boosted Internet traffic and advertising revenue.

But Google’s strategy for China has shifted. The year following the launch of its Google Music Service, the company said it would no longer act in accordance with the Chinese law that required censoring web searches. Its subsequent move to Hong Kong, which operates under its own laws, resulted in service glitches caused by China’s web censoring.

The Internet market in China has shifted as well. Major companies have removed pirated content from their sites. Baidu made its own music licensing agreements with labels last year and now offers free downloads on its service, Ting.

According to the research firm Analysys International, Baidu controls approximately 80 percent of China’s Internet search market. Google, in comparison, has seen its share drop from one-third to 15 percent of the market. However, the company still has a significant presence in China with its Android mobile operating software.

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