Politics Will Affect Google’s Revenue (GOOG)

By: Joshua Caucutt, dated July 2nd, 2010

Google (GOOG)
Politics Will Affect Google’s Revenue

Is Google (GOOG: Charts, News, Offers) its own country? Probably not in any literal sense of the word, but the internet search company is finding itself increasingly tied up in negotiations with heads of state and legislative bodies all over the world.

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The Google dance with China has been particularly remarkable as huge numbers of Chinese consumers demand access to the search engine on one side while the Chinese government seeks to assert its censorship controls over the medium on the other. The freedom to shop for or research anything the heart desires is Google’s commitment to the consumer, but this commitment poses a threat to governments such as the secretive, authoritarian regime currently in power in China. The principles that power Google naturally resist the heavy-handed censorship imposed upon by the Chinese government, yet it also needs that government to allow access to one of the largest consumer groups on the planet.

It is not an easy line to walk. Google has made a commitment with the consumer to not censor search results, but that is exactly what it was doing in order to comply with Chinese government regulations until January 12, 2010 when the company announced that it was no longer willing to self-censor search results in China. In March, the company began to automatically route Chinese searches through a Hong Kong, where the Chinese censorship rules do not exist. Obviously, this has affected Google’s relationship with the Chinese government who is now considering whether or not to renew Google’s license to provide internet service in the country. This week, Google submitted an application to renew its Internet Content Provider license and stated on the application that the company “will provide no law-breaking contents as stated in the 57th statement in China’s regulations concerning telecommunications.” The 57th statement reads that “any organization or individual is prohibited from using the Internet to spread any content that attempts to subvert state power, undermine national security, infringe on national reputation and interests, or that incites ethnic hatred and secession, transmits pornography and violence”.

This story does not seem to be going away anytime soon as Google seeks to maintain the company commitment to unfettered internet search while also preserving access to a large group of internet users. If the Chinese government decides against Google license renewal, Google earnings could take a hit.

However, China is not the only government with whom Google is having problems. Governments all across Europe, Australian, Canada and the U.S. are looking into Google data collection methods, particularly the company’s “Street View” product that posts photographs of streets, homes and buildings online. There is some concern about the photographs themselves, but the investigations center around Google’s apparent collection of Wi-Fi and other wireless data from unsecured networks as Street View cars drove past. The total amount of data that Google collected is unclear, but email and other personal data could certainly have been obtained. Also, Google may have broken laws against wire-tapping, monitoring electronic communications or accessing a wireless network without permission.

In other Google government news, the search engine was recently ruled a monopoly in France. Ironically, the monopoly judgment came as a result of Google’s refusal to sell advertising to a company that helps French drivers avoid French police radar when exceeding the speed limit. Google found the company’s product to be “distasteful” and banned the product from search results. The French government has now ordered Google to resume an advertising relationship with Navx.

Google is an agent for freedom on the internet, but also poses a threat to freedom at the same time. It is also a major revenue stream worldwide. As a result, more and more governments are starting to pay attention to the California-based company and typically the more those governments become involved with a product, the more the revenue stream shrinks.

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