What's going on with Google and China?

Is Google doing the bidding of the U.S. government by threatening to leave China, ostensibly in a dispute over Beijing's efforts to censor content on the Internet? It might as well be, since last week's surprise announcement by the Internet search giant suggests many of the responsibilities the United States expects China to voluntarily accept as a world superpower. Of course, the most important among them is to stop jailing political opponents and otherwise mistreating its citizenry. Good luck with that, right? But it does demonstrate to China the urgency and complexity of good world citizenship. Google's threat -- so far not implemented -- already has affected relations between China and the United States, and not in a good way, according to the Reuters international news service. Top officials in the Obama administration called Google's announcement "a big deal," Reuters said. China has not commented officially on Google's threat, which the company said was in reaction to censorship of its Web sites from Beijing and to a series of cyber attacks emanating from China. But Google and other U.S. companies have done Beijing's bidding for years, even allowing the Chinese government to use their servers to track down dissidents. And the U.S. government has seemingly gone along with it. But now, U.S. Commerce Secretary Gary Locke called Google's concerns about Internet security in China "troubling." "The administration encourages the government of China to work with Google and other U.S. companies to ensure a climate for secure commercial operations in the Chinese market," Locke said. Of course, the new U.S. focus could be due to the change of administrations in Washington, even though Obama government officials spent last year trying to make Beijing comfortable with lending $800 billion to Washington. Lately, however, the United States has angered China by agreeing to sell sophisticated weaponry to Taiwan, agreeing to meet with the Dalai Lama and putting tariffs on some of China's exports. Reporters Without Borders, a press freedom group that had criticized Google in the past for complying with Beijing's demands, applauded the Silicon Valley company for what it called "standing up to the Chinese authorities."

Nothing from nothing leaves $100 million

Rich people still are different from the rest of us. Perhaps that's the best explanation yet for why venture capitalists ponied up an additional $100 million on Thursday for a bit of Twitter, the wildly popular Internet microblogging service. Twitter, a Web startup that lets people express themselves in 140 words or less, has attracted millions of users in its three and a half-year existence but no known revenue. The new cash infusion is expected to raise the value of the company to $1 billion, even though it only has 60 employees and does not plan to begin accepting advertising revenue until next year, according to the New York Times. Twitter's valuation is apparently based in large part on the numerous takeover offers it has received, notably from its chief rival, Facebook, and as well from Google and Microsoft. “Twitter is so likely to be successful at this point, it is almost impossible to envision a way in which Facebook can truly monopolize online content-sharing,” Keith Rabois, the vice president of strategy at Web social entertainment firm Slide, told the Times. Facebook has more than 300 million users but its continued domination of Web social networking appears to face a serious challenge from Twitter. “There have probably been less than five examples of companies that have grown like Twitter has,” John Borthwick of Betaworks told the Times. Betaworks created the link-shortening service Bit.ly. Twitter is "a new layer of innovation on the Internet," Borthwick said. “This investment is happening because it represents a shift.” And just who are the new investors? They include Insight Venture Partners, a New York company, mutual fund giant T. Rowe Price and current backers Spark Capital and Institutional Venture Partners, the Times said.

Negative market reaction to Yahoo-Microsoft deal probably reflects reality

That Google shares fell today after the long-awaited deal between Microsoft and Yahoo was finally announced was a given -- it can't be good for Google that two of its largest competitors for the Internet search market have joined forces. But the fact that Yahoo's share price also dropped does not bode well for the future of this arrangement. The 10-year deal, under which Microsoft's new Bing search engine will power searches on Yahoo sites in exchange for a share of revenue, still must be approved by regulators in the United States and Europe, according to the Reuters international news service. Yahoo and Microsoft were motivated to reach a deal in their effort to challenge Google's dominance in the search market. Google has 65 percent of the U.S. search market versus Yahoo's 19.6 percent and Microsoft's 8.4 percent, Reuters said. Yahoo turned down Microsoft's $47.5 billion takeover offer last year. Analysts quoted by Reuters said the market was not energized by the deal because Yahoo did not receive any upfront payment as expected. "Those that were looking forward to a take-out, the deal today was rather disappointing -- it's not as good as what investors expected," said Marc Pado of Cantor Fitzerald & Co. "Overall, it's a big positive for two companies that have been struggling to keep up with Google. This consolidates their resources and allows them to make a more concerted push as the No. 2 entity," said Ross Sandler of RBC Capital Markets. Yahoo CEO Carol Bartz applauded the deal and said the lack of an upfront payment was not a deterrent because the agreement would be lucrative for her company.
While Yahoo CEO Carol Bartz had previously said that any deal would require a partner with "boatloads of money," she said on Wednesday that the revenue share agreement in the Microsoft deal was more valuable to Yahoo than a one-time payment. "Having a big up-front cash payment doesn't really help us from an operating standpoint," she said in a conference call with Microsoft CEO Steve Ballmer, Reuters said. Microsoft is expected to pay Yahoo 88 percent of search revenue from Yahoo sites for the first five years, while the companies continue to keep their advertising businesses separate. Yahoo said the deal will boost its annual operating income by $500 million and to increase cash flow by $275 million. The companies said they were hopeful the deal would close early next year, Reuters said.