• by Laurie Sullivan , Staff Writer @lauriesullivan, July 9, 2010

Google updated a June 28 blog post Friday to say the Chinese government renewed its Internet Contact Provider (ICP) license, which gives the search engine the ability to operate with a "cn" domain name, but it does not give approval to operate an uncensored search engine in China.

People searching on Google.cn get served up a page with a link to google.com.hk where they can search unfiltered queries. Searches through the "hk" (Hong Kong) engine also translate into English. The landing page strategy, however, could add another complication to the experience for people searching the engine in China, according to Piper Jaffray Analyst Gene Munster. The added step in the process could force some people to bail.

For Google, losing market share translates into fewer dollars spent by advertisers trying to reach Chinese consumers. "It is difficult to determine how many users might not be willing to click on a landing page image before beginning a search," Muster writes in a research note published Friday. "We continue to believe Google will have a presence in China, but expect intermittent turbulence in Google's relationship with the Chinese government."

Analysts believe Google will continue to have a presence in China, but relations will remain strained and carefully watched. Muster notes reasons the Chinese government might block services. Aside from some Google services, the Chinese government blocked Facebook and Twitter, two tools for socializing that people could use to gather groups for protests, which would promote instability and unrest.

J.P. Morgan Analyst Dick Wei, based in China, calls Google's ICP agreement a "non-event" and still believes the Mountain View, Calif., search engine will "gradually" lose market share in China. "We expect Baidu to maintain leading market share in China, with an increase in monetization driven by Phoenix Nest monetization system and an increased customer base through large-scale marketing campaigns," he wrote in a research note published Friday.

U.S.-based clients buy paid search ads on engines supporting the Chinese market. San Diego-based Covario supports U.S. clients that buy ads running on Phoenix Nest, which search experts say operates and performs similar to Google's paid search platform. That similarity has attracted search marketers to Baidu from Google as the U.S. search engine began to make changes in its operating structure in China.

"Sometimes the Baidu platform gets higher performance rates in China," says Gary Ware, director of media operations at Covario, a search agency managing millions of dollars for advertisers. "CPCs on Baidu have jumped up slightly, but not much. That 15-cent CPC might be 20 cents now. Overall our clients are happy with the results."