Earlier this month when Baidu (NASDAQ:BIDU) reported revenue and earnings that exceeded analysts' consensus estimates -- as well as the company's own forecast -- the company's stock fell nearly 8% on reports that Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG) was planning to reintroduce a censored version of its Google search engine for consumers in China, according to a report in The Intercept.
Google is said to have created a special version of its Android app that had already been reviewed by Chinese officials, which would comply with government regulations by censoring forbidden search terms related to human rights, democracy, and peaceful protest, according to the report.
This is just the latest in a series of moves by Alphabet that appears to be part of a broader strategy to reestablish a foothold in the country with the world's largest population.
A short history lesson
Google exited the Chinese market in 2010, after four years there, citing government censorship and cyberattacks on its servers that had targeted human-rights activists in China. Google then redirected its search engine to uncensored results from its service in Hong Kong, which was ultimately blocked by the Chinese government.
Google never completely left the market in China, however. The company still has an advertising outpost that distributes mobile and desktop ads, while its Android operating system is still in use on mobile devices there.
Rumors have surfaced over the years, hinting that Google was preparing to mount a meaningful comeback in the Middle Kingdom, but thus far none has materialized.
The idea of potentially reentering the Chinese market via a censored version of its search raised objections from a number of quarters. Google employees penned a letter -- signed by 1,400 Googlers -- saying that such a move would "raise urgent moral and ethical issues." In response to employee concerns at a subsequent staff meeting, CEO Sundar Pichai said, "We are not close to launching a search product in China" -- which is far different than not entering the market.
Robin Li, Baidu's founder and CEO, made no secret of his thoughts on the matter. In a post on social media platform WeChat, Li said, "If Google wants to come back, we can take them on with all our might and win again." Li's optimism may be misplaced. A poll conducted on China's micro-blogging site Weibo (NASDAQ:WB) asked users, "If Google returns to China, which will you choose between Google and Baidu?" A whopping 86% indicated they would choose Google.
With 1.3 billion potential consumers, Google probably has far greater aspirations than just search in China. There are several recent developments that help drive that point home.
Late last year, Google opened a center in Beijing for artificial intelligence (AI) research. At the time, the company said the unit would house a team of AI experts, including representatives from Google's cloud computing business.
Earlier this month, reports emerged that Google was searching for a partner in China to help jump-start its cloud computing business there, according to an article in Bloomberg. Chinese regulations ban foreign companies from owning or operating technology related to cloud services, while also requiring that digital information on its users be stored in the country. In order to comply with these provisions, it would be necessary for Google to collaborate with a Chinese company.
In a more recent move, Waymo, Alphabet's self-driving car unit, established a subsidiary and opened an office in Shanghai. The unit, Huimo Business Consulting, is listed as a business and logistics consultancy for the designing and testing of self-driving car systems and parts.
Taken separately, each of these moves seems like a nonevent. However, they do contribute to the growing body of evidence that Google is beginning to mount a meaningful push back into China. That isn't to say that every facet of its strategy will succeed, but it does show that the search giant is no longer taking the Middle Kingdom for granted.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Danny Vena owns shares of Alphabet (A shares), Baidu, and Weibo. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Baidu. The Motley Fool recommends Weibo. The Motley Fool has a disclosure policy.