Three Years of Trying: What Would It Actually Take for Google to Move Its App Store Into China?

If Google Play comes back, an app store isn't all that has to come back with it.

"Xiaomi Technology announced this week that it will sell its smartphone business to Google in a deal ultimately worth more than $20 billion.

Xiaomi CEO Lei Jun said the sale is a key part of Xiaomi's strategic shift this year, and that Xiaomi will now focus on retail built around Mi Home. Google CEO Sundar Pichai announced at the same time that before the end of the year Google will launch Xiaomi phones running a China-specific version of Android One, formally bringing the Google Play store into China."

Roadside News Agency, September 8

This is, of course, fake news. Unbelievably fake news.

But it is no more absurd than the recent reports that Google Play is about to return to China.

Last week people found that the Google Play Store opened normally in parts of mainland China. Developers also noticed that the Google Play Console had added China, Cuba and other regions to the list of places an app can be released.

And so, once again, word went around that Google's app store is coming back — that Google will sign agreements with phone makers to preinstall both the maker's own store and Google's on phones straight from the factory.

Reports like this have been circulating since three years ago, when rumor had it that Google would release a "special edition Google Play" in China.

Google has every reason to bring its app store back to China, which doesn't mean anything is actually moving

China has more than 700 million mobile internet users, and nearly 80% of them use Android phones — 550 million people.

Those 550 million phones run Google's Android, but they do not come with Google's store or Google's other services.

Android itself doesn't make money. The most direct profit it brings Google is the Google Play Store, which carries app advertising and takes 30% of paid apps and games. Play ads and revenue share are the main source of the "other revenue" line in Google's earnings reports: $3.09 billion in the second quarter of this year, up nearly a third from a year earlier, and Google's biggest source of revenue outside advertising.

At its developer conference this year Google said Android has 2 billion monthly active users, a count that leaves out mainland China. Entering China would add nearly 30% more Android users.

With Facebook attacking Google's core advertising business, the Play Store matters more to Google every year.

Google really is thinking seriously about moving the store back. From information confirmed earlier, Google has already built a marketing team in China to prepare for Google Play's arrival.

By February this year, the Silicon Valley scoop publication The Information reported that Google Play would hand operating rights for China to NetEase, which had never been in app distribution, and that the two might even set up a joint venture. Given how accurate The Information has been in the past, Google and NetEase very likely did discuss the plan.

But exploring a plan to bring the Play Store into China and actually carrying it out are two different things. And getting the Play Store into China is different again from keeping it there and earning Google steady revenue.

Moving Google Play into China means moving in more than a store

Wandoujia, Baidu Mobile Assistant and Coolapk are all independent Android app stores.

Install one of those stores and you can download apps from inside it.

But Google Play is not just a store.

A simple example: install the restaurant guide OpenRice on a phone without GMS and you get a message saying "OpenRice requires Google Play Services to run, and your device doesn't support it."

During his years at Google, Android's creator Andy Rubin pushed to build a large and complicated system of apps and services called GMS, short for Google Mobile Services.

GMS bundles the Play Store, Google Maps, Gmail and more, and it is installed on nearly every Android phone outside China.

That is why adding a "release in China" option in the store's back end does not mean an app will work in China.

OpenRice's problem is mapping. Ride-hailing, food delivery, Dianping — when a phone has several mapping services installed, an app usually asks which one to call. Apps that default to Baidu Maps or Amap are fine, but overseas developers default to Google Maps, which simply doesn't work here.

Then there are push notifications. In the years without Google, Android in China has split into a scattered ecosystem: Xiaomi, Huawei, Meizu and the other phone makers each have their own push mechanism, and developers have to adapt their apps to every major manufacturer.

Google Play's push mechanism is the standard everywhere else. In China it would become one more fringe option.

And don't forget accounts. If Google Play enters the Chinese market, it has to let users register, doesn't it?

Google's account system today sits on top of Gmail — YouTube, Google+ and the rest all use the same login. None of them work in China.

To bring accounts in, Google would have to build a new China-version Google account from scratch: let Chinese users register with a phone number, say, or tie accounts to a partner's app store.

That new Google account would let you use Google Play and nothing else, with no connection to Gmail or anything like it. For Google, that means developing a whole new account system.

The same goes for the game center, which records your progress in the games you've played, launches them quickly and manages various points. It too requires a Google account.

Maps, push, the game center, payments, user accounts. These are the things the Play Store would have to bring into China with it.

Amazon once built a version of Android without Google services — Fire OS — for its tablets and its short-lived phone. Amazon developed its own replacement for each of these five services, one by one. In the end, Android developers still had to adjust their apps to run on Fire OS.

If the Play Store enters China, one of its important ways to make money will surely be helping overseas developers bring in apps and games, then selling ads and taking a cut. That means Google has to provide all of these services.

Google would either move maps, payments and accounts in wholesale, or plug Android apps into Chinese companies' services — maps into Amap or Baidu, push into the phone makers.

The first path is extremely hard. The second would force Google, or its Chinese partner, to rebuild the logic from scratch and give up the advantage of owning its ecosystem, which would badly weaken its hold over phone makers.

There is a third option, of course: Google really does move only the Play Store over and ignores everything else. That happens only if Google has already rotted into a bureaucracy whose leadership is out of touch with reality and whose staff simply humor the CEO's fantasies, caring nothing for the result.

Payments are another big problem

Like Apple, Google takes a 30% cut of app store revenue, including paid apps, in-app purchases and other virtual transactions — arguably the whole reason an app store exists.

In theory Google could simply use Alipay and WeChat as payment methods, but a big company runs its own payments in order to control the transaction data.

That requires a license. Under the central bank's Administrative Measures for the Payment Services of Non-Financial Institutions, third-party payment covers online payment, the issuance and acceptance of prepaid cards, bank card acquiring, and other payment services designated by the People's Bank of China.

Foreign companies cannot buy a third-party payment license directly. For Google, the only route is partnering with a Chinese company that already holds one.

Apple's App Store settles yuan payments in China through PayEase Technology (Beijing) Co., Ltd., which won its license in 2011.

According to its website, PayEase has government backing: the platform it runs was launched jointly by the Beijing municipal government, the People's Bank of China, the Ministry of Information Industry, the State Administration of Internal Trade and other central ministries.

Google would need a partner like that. And the partner would have to be sure that working with a company like Google, which has a history in China, would not cost it its payment license.

And data regulation is everywhere

Under the Cybersecurity Law, data on Chinese citizens has to sit on servers inside China and be managed by a Chinese company.

The Play Store's user system falls under that rule.

It is the same reason Apple this year invested directly in building its first data center in Guizhou, to hold Chinese iCloud data.

Amazon, Microsoft and other multinational internet companies have built data centers in China too.

But once a data center is built, a Chinese company has to run it. Apple went with a government-backed company in Guizhou, Microsoft with 21Vianet, Amazon with ChinaNetCenter.

If the Play Store is coming back, it has to do the same.

First Google would need to build a data center in China and hand its operation to a Chinese company.

Policy aside, that alone is technically awkward, because over the past few years Google has filled its data centers with hardware it designs itself rather than buying from HP, Cisco and the like. Moving into China means either bringing its own hardware in or renting server rooms from the likes of China Telecom.

When Amazon's AWS did the same thing, with all its experience running data centers, it still took years of grinding before the service went live.

The grind doesn't end there. Say Google builds the data center and finds a Chinese company to run it. Before Google Play could launch, it would still have to register with the authorities.

Early this year the Cyberspace Administration of China issued a notice saying every app store operating in China must complete a filing. The point of the filing, the document said, is that "when an app or app store is found to be involved in illegal content, it can be used to establish exactly whose responsibility it is."

In other words, Google Play would have to share information with the Cyberspace Administration and submit to review and supervision.

Apple's China App Store has already been through several rounds of app removals. Late last year the English and Chinese news apps of The New York Times were taken down, with the Cyberspace Administration saying they "violated regulations."

In April this year Xinhua reported that the Cyberspace Administration and public security authorities had summoned Apple and told it to "strengthen its review of software applications in the Apple App Store."

In July, a number of VPN apps disappeared from Apple's app store; Apple said it was complying with "a new regulation requiring the submission of a license from the regulatory authority."

The censorship problem Google talked about openly seven years ago is now at another level entirely.

After all these constraints, the only choice left in front of Google is to partner with a Chinese app store.

You don't even need something as sensitive as the Play Store to see it. When Ke Jie played Google's AlphaGo in Wuzhen this year, the live media broadcast was stopped before the match began and portal coverage was confined to sports channels.

In January 2010, when Google moved its main services to Hong Kong, it posted a statement on its site saying "Gmail had come under a highly sophisticated and targeted attack originating from China that resulted in the theft of its intellectual property."

A conflict that public was unheard of among big companies.

Look at how hard Mark Zuckerberg has worked to get into this market — a man with no quarrel with the government who can even speak some Chinese. He has met officials, gone jogging in the smog, built a censorship tool over his own employees' protests, and at a White House dinner asked President Xi to name his unborn child.

Even so, Facebook has not entered the Chinese market.

Solving this problem probably takes more than signing up NetEase.

For Google to come in, it would have to set up a Communist Party branch at the very least. The China arms of multinationals like Intel's Asia-Pacific R&D Center, Microsoft and McKinsey already have Party branches, run by an outside agency that organizes Party activities on a schedule.

How would Google persuade users to accept a new app market?

Suppose Google Play survives all eighty-one trials and finally enters China legally.

There is still one big problem: the users.

In the years Google has been away, China's Android ecosystem has sealed itself off from the outside. Xiaomi, Huawei, Meizu, OPPO, vivo — every phone maker has its own operating-system team and preinstalls its own app market.

Besides the three independent app stores, Tencent's Yingyongbao, Baidu Mobile Assistant and 360 Mobile Assistant, the more serious competitors are the stores run by Xiaomi, OPPO, Huawei and vivo themselves.

QuestMobile's data shows the top three phone makers' stores closing in on the top three independent stores.

Users have grown used to the makers' stores, too. A survey by Penguin Intelligence found that 56.2% of Android users most often use the store that came with their phone.

Lei Jun keeps saying Xiaomi wants internet services to become a new source of growth. The MIUI app market is the most direct example: it sells developers ads and featured slots and takes a cut of app revenue. Anyone who has used an Android phone knows that downloading one app often brings a flood of recommendations for others.

By Xiaomi's own disclosed figures, it paid app developers 1.1 billion yuan in revenue share in 2015 and 2.2 billion yuan in 2016.

So an official Google Play in China would meet nothing but hostility from the phone makers. Any way you look at it, getting them to agree to preinstall it will be hard.

Yet Google has to find a way through to the manufacturers. Without them, China's scattered Android market means nothing to Google Play.

Seen this way, unless Google partners with a big Chinese store or buys one outright, building a China version of Google Play on its own looks like an impossible task.

The next question is who to partner with. A marginal third-party market is pointless; against this competition, Google Play needs to gather traffic, users and engagement fast.

A big acquisition is probably a necessary, though not sufficient, condition for the Play Store to enter China

Google has money. Its second-quarter earnings report this year put its cash, cash equivalents and marketable securities at $94.713 billion.

Google does spring major surprises. Buying Motorola and reorganizing into Alphabet were both announced almost overnight, with no visible warning. In 2011 Google bought Motorola for $12.5 billion, a third of the cash it held at the time.

If Google really wants to move the store in and have people use it, the list of acquisition targets is short.

Baidu Mobile Assistant would fit. Since Lu Qi took over, Baidu has been shedding businesses; in July it sold Baidu Games for 1.2 billion yuan. Is Baidu Mobile Assistant next?

Or Google could set up a joint store with Tencent's Yingyongbao and lean on WeChat to give it the kind of unified app-service system the Play Store has overseas.

Or it could buy a phone maker outright. Taking a large stake in Xiaomi, or even buying its phone business, sounds crazy — and it may be exactly what building a real Play Store in China requires.

Nothing suggests Baidu, Tencent or Xiaomi has any interest in such a wild idea. But anything more cautious than these bold moves probably can't get into China or win over enough consumers.

All of which assumes Google has settled every license and every regulator, and has severely stripped down the services around Play.

Eight years ago, Google's search and email still worked normally in China. Now moving in one app store has become an impossible task.