What is going on with Google (2): consequences

Written by Julen Madariaga on January 13th, 2010

images_thumb[11]Following the previous post about Google and China, here are my reflections regarding the foreseeable consequences of all this. First of all, an important clarification: I don’t think fighting against censorship is bad. Censorship in China is very real, it is a disgrace not only for activists but for most honest Chinese, and it only serves the purpose of self-preservation of the CCP.

Having said this, in the previous post I criticized Google for this decision because I think the form is wrong, and the method chosen for this fight is wrong, and more importantly: the Leader of this fight should not be a corporation, much less a Western corporation going solo into politics.

On the other hand, if it was a pure business calculation I think it is wrong as well,  in the long term it does not make business sense, and the growing Chinese market is likely to live much longer than any goodwill earned for this.

The more I look at the message, the more it looks like a mistake, a young idealist Googler that has escaped the supervision of his boss. What authority does this blog really have to speak for the company? the message is legit, as commentators have proven below.

In any case, here are some consequences I foresee, again in fast bullet points:

  • The way the message has been drafted, chances for Google.cn to remain are slim. It will be very difficult for Google to step back from this, the whole tech World is going nuts about it. On the other hand, it is even more difficult for the Chinese authorities: even if they were willing to accept Google’s conditions (which they are not) they could never allow a Western company to publicly force their policies. Unless there is some kind of recanting, Google.cn is doomed.
  • The Chinese authorities can do more than forcing Google.cn out. If things go sour they are also very likely to GFW block* the whole Google.com, in which case the situation would be even worse than pre-Google.cn in 2006. Google could totally disappear from China and say goodbye to a fast growing 20% of the World’s internet users. This includes the phones and any other Google product.
  • I maintain that the decision is BAD in business because consumers have very bad memories, and the goodwill gained in one day, however massive, does not last. How many companies go bust for accusations of child labor? In a few months nobody will remember this move, and Google will find itself down 20% potential market and with nothing in exchange.
  • Baidu is going to go up even more, and some other Western opportunists as well.  The search service of Baidu is demonstrably worse than Google, and the Chinese internet users will be the first victims of an impoverished service. The already noted Divide between China and the West will be further increased, and this can only be bad for the Chinese, and bad for Human Rights, and bad for the World.
  • Regarding the bigger political picture, all this is unlikely to have any effect on American or Chinese policies unless there are many more Western companies that join Google. But no other company is going to join a crusade to bring goodwill to Google, and the move will just leave superficial scars in the CCPs internet reputation, which they will be able to heal in no time with some little doses of nationalist balm.
  • Regarding the stock market, the media has noted that Google is down 1.77%, but that is not significant in a day when the whole Nasdaq was down 1.35%. Note that Baidu fell 3.51% after my yesterday’s post, and probably the impact on Google will be seen today when the market opens. I am quite happy that I got rid of my Bs yesterday to buy some Gs, and today I am getting rid of the Gs again to get back the Bs. This has to be a winner move!

*Note: Servers outside of China (google.com) get blocked by the GFW, servers within China get bullied by the Nanny. Two completely different processes with a similar result. More here.

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Comments so far ↓

  1. Jan

    Really don’t think this is the work of some rouge Google worker/blogger. David Drummond, chief legal officer at Google, was on MSNBC saying the same thing the blog said. This is the real deal/company decision. One thing about Google’s reaction that vexes me is that it seems unrelated to the offense committed (a cyber attack on Gmail.) How does refusing to censor google.cn search results deal with the issue? Is this just the best (only?) way Google can strike back at the ‘unnamed party’ interested in hacking human rights worker’s email accounts?

    [Reply to this comment]

    Chris Reply:

    Still, I agree it was a decision poorly made, and the content of the blog was indeed juvenile. It also leaves China with no choice as the government cannot possibly let a US company force its decisions, especially now that the world is watching.

    [Reply to this comment]

    Uln Reply:

    Thanks for the info Tom. Haven’t had time to check it out yet, but that rules out the possibility of a mistake.

    So I have to admit that I don’t understand anything right now, I will eat some sardines and try to come up with a better explanation tonight :)

    [Reply to this comment]

  2. Jan

    I wouldn’t be so fast to judge their decision. Now the American government is supporting google: http://www.guardian.co.uk/technology/2010/jan/13/china-google-hacking-attack-us

    Could this be something bigger than it looks? Like, western (American) diplomacy shifting its view about China, may be after Copenhagen?

    [Reply to this comment]

    Uln Reply:

    Wow, I still haven’t had the time to see those news. Hope to catch up tonight when I’m out of the office, I have shiploads of things on the table now.

    However, I do not think the American government would use Google for that, and most importantly, I do not think Google would be so stupid as to let itself be taken in a game between 2 powers. Google has all to lose in that war, China and/or US governments are x1000 more powerful than that company.

    People need to realize that Google lies almost entirely on Search engine and internet Ads, and all those things are always vulnerable to politicians. All companies are anyway.

    [Reply to this comment]

  3. Jan

    Golly, it beggers belief that you would seriously believe Google haven’t thought about this pretty hard with at the board level.

    “The Chinese authorities can do more than forcing Google.cn out. If things go sour they are also very likely to GFW block* the whole Google.com”

    Well of course, that’s the point. The conspiring to censor thing didn’t sit well with Google anyway. The view was they’ll play ball with China, establish the brand while the market place demands more freedom and the government relaxes its grip. That clearly didn’t happen.

    You seem to dramatically overestimate the value of China to Google in business terms. China and its citizen’s access free media has just become a pretty big story worldwide. China will clearly retaliate hard and that too will be a big story worldwide but not only that, it’ll be a constant very powerful reminder after the dust has settled.

    You play down what effect that will have. You play up the business damage it will cause. I don’t see why either is the case. I’m kind of surprised really, it’s somewhat rare that a very large and powerful company comes out swinging. This will have a greater impact than 10,000 small human rights blogs out there.

    I’m reminded of the escalating pressure on South Africa until the regime flipped and thought it was better to engage. Maybe that’s a miscalculation in this instance, but that doesn’t mean they shouldn’t try.

    [Reply to this comment]

    Uln Reply:

    point 1: OK, fair enough, I just wasn’t sure who was in charge of that Google blog. Anyway that’s ruled out now.

    point 2: Yes, my first reaction was also positive, like Scoble’s and like many of us. But then I thought again.

    You say G didn’t establish the brand in China: that is not true. Google is a recognized brand here and it has been a success compared to most Western companies that try to get Chinese market. I certainly do not think the story of Google in China is one of failure, it is not number one but it has an important share of the market. Many Western companies would pay anything to get the good position of Google in China today. Losing China IS a big deal for G.

    Now, if there were chances that this is going to change the World, it would be justified. But it will not. If G manages to rally other Western companies in this, then perhaps it can have some impact, but I am very very skeptical that this can be done. Google is a very young company, and it is more vulnerable than people imagine. It is the king of the internet, but just another corporation in the offline world.

    In any case, movements like the one in South Africa were not started by one single company, but by a progressive, broad consensus were politicians and associations were involved.

    I am not against the principle of fighting the censorship, but I just think this attempt is:

    1- Bad business for G.
    2- Unlikely to succeed in its political objective.
    3- Likely to have negative effects, increasing the divide between China and the Western internets.

    I am not describing what I want to happen, but what I think is likely to happen. I sincerely hope I am wrong and this gesture is worth something. Then the G will be my most admired company and I will never sell Gs again :)

    [Reply to this comment]

  4. Jan
  5. Jan

    When I spoke of Google’s brand, I’m talking about why Google launched in China in 2006 and put up with some severely distasteful conditions as part of that. I wasn’t talking about Google’s need for brand in China now. I never said they didn’t have a brand, in fact they have about $200m a year in revenue.

    Rather than argue around the finer points, I think we sit either side of a divide. You think this will do more harm than good. On my side I would say that whatever the terms of engagement have been with China concerning the Internet, it hasn’t been working.

    In the last year it’s blocked YouTube, Facebook, Twitter, FlickR and god only knows what else. There’s also some discussion about changing the way the GFW works to being white list based which makes the current GFW look like paper bag in comparison. The situation is bad today, it’s looking like it might be catastrophic tomorrow.

    There comes a point where enough is enough. Not morally, not business wise, but where morals and business align because often they’re linked. Where it’s not good enough to sit back and just say oh let’s not provoke China, anything you do will have a negative effect etc. That argument only works if doing nothing ends up with a net win. Eg if the situation is getting better all by itself. It’s not.

    I do not find a future scenario palettable where the Chinese government thinks that the Internet is cesspool of bad ideas to be locked away from it’s citizens and yet for its own uses it’s also a weapon to be used against political dissent. I find that upsetting actually, I really don’t understand why the current regime is digging into this position.

    “Google is a very young company, and it is more vulnerable than people imagine.”

    I don’t find Google being young to be relevant in the slightest. It’s all about the health of the industry in which it operates. Ford is quite an old company, how’s that going now then?

    As a company with a market capitalisation of 200 billion dollars (I mention this because you still undersell it for some reason…) the 190 million odd revenue revenue in China is small potatoes. (about half a percent of worldwide revenue off the top of my head)

    The company would be far more concerned about the well being of the market place, such is if there are significant risks on the horizon that would make them think twice about expanding investment in the region to grow that revenue.

    Google, apparently, has made the call that the market risk in the future is too uncertain and even without their formidable research and strategic planning capacity, that doesn’t look to be an idiot call from where I’m sitting.

    [Reply to this comment]

    Uln Reply:

    Mat, again you are under the same impression as most of the Geeks and tech people out there. We spend too manyhours on te internet and we tend to see Google as a Giant.

    It is NOT, it doesn’t even make it into the 100 biggest companies in the World by revenue! You are looking is at the market value: ie. what the crazy guys trading every day on Nasdaq consider that Google MIGHT be worth in the future. That is by definition extemely vulnerable. Suffice to say that just today it went down 10 of the 200B dollars.

    But Google is vulnerable in a different way, in that basically ALL its revenue comes from a single source: ads on search and Google Ads. Evey other app and gimmick that they have developed has been done on the cash provided by the magic initial formula of L Page. Very few of the other sites of Google are even profitable. G has shown that it is patient and it ready to invest until little by little the revenue streams will be diversified. That is precisely why the departure from China is surprising for me from a pure business strategy point of view.

    Anyway, my main point in the message is that I don’t understand the real motives of Google, and I am trying to explore all possibities. I do think what G has done is quite amazing and I regret I didn’t add some praise in the post, because the Gs deserve it if only for their guts.

    I don’t think we stand across a big divide, I am just prudent and I want to understand rather to jump to the wagon of the blind praise for G. I like and support G, but my first concern is for the millions of Chinese rather than for a bunch of super intelligent and rich engineers that are going to be well off anyway.

    Kudos for Google anyway, and I hope everything works according to plan *supposing they really have a plan* !

    But if it is just a silly hot headed reaction destined to get PR gold in the West and fuck the Chinese, then damn it, damn G and its righteousness, because in that case I think this might have BAD consequences for China and the World.

    But let’s wait and see, time might prove you right.

    [Reply to this comment]

  6. Jan

    Hola Uln. Good analysis on some points, I do specially agree that this is not just a “pure” business decission, as some are saying out there, cause, as you point out, long term it doesn’t make sense; however, I am quite sure it’s been totally calculated and there’s a lot of PR impact involved.

    Adding to the speculation (as this is all we can do now), I think that G is very, very upset with the hardships of making business in China’s Internet caused by Party policies, growing and growing by the day.

    When G first went to China, Internet in China was more open than it is now and it seemed to follow an slow trend to ‘openness’ rather than censorship, so the prospects were good in the mid-term. Now, however, it looks the other way around. So they might think “Ok, you Party are making business harder and harder for me, I always tried to comply, getting (so far) very little ROI and on top of that you still try to hack my systems? (as it implies in the blog). Had enough of this”.

    What can then be the consequences of this tough statement?

    1. Worse case scenario:

    a) Party: The Party has not much to loose internally by telling G to walk away - Ok, it will look very, very bad outside of China, but inside (and that’s what they care more about) it’s easy to justify that they cannot accept such a pressure from a foreign company, that they guarantee Internet security and that everyone has to comply with Chinese laws: if G is not happy, they can just go home. So they issue a harsh statement, G walks away, end of the story.

    b) Google: If that’s the case, since Google is currently at the downside in the cycle of media coverage, facing mostly bad PR everywhere, specially Europe, this will be a boost for good PR in a critical moment of new bets (phone, etc) in Western markets, the (by far) main source of income for the company for many years to come. They could eventually go back to China in a better moment in a (very) long future when conditions improve and profitability is easier achieved.

    2) Not-so-harsh scenario:

    - The Party ignores or downplays the threat, they engage in talks, Google is re-assured about controls on hacking issues and business hardships ease; G issues a new statement saying that they’ve been granted security for their operations, so they can continue operating in China, and at the same time, they have already scored great PR points.

    However, although I would hope for scenario 2, given the current political climate in China and how tough it would be for G to step back from the straigh forward statement of “we are not going to censor our search-results” (which, as we all know, we’ll never be allowed by the Party), I think some sort of scenario 1 is unfortunately more likely.

    [Reply to this comment]

  7. Jan

    Btw, I just mean that these ‘might’ have been the PR/business implications considered when issuing that statement, but not that these are the only reasons why G might be considering to pull out of China.

    Quite agree with Mat too on “There comes a point where enough is enough. Not morally, not business wise, but where morals and business align because often they’re linked” and “Google, apparently, has made the call that the market risk in the future is too uncertain”.

    [Reply to this comment]

    Uln Reply:

    @kaplanpop: I see your non-harsh scenario. It could happen, but it would involve Google recanting, since the CPP is not going to do it. And it would prove the point that G didn’t have a good plan and this was an impulsive decision by someone. It is an interesting possibility though.

    Regarding “moral and business aligned”: Well, I don’t know about that, could be. I hope it is that.

    But the problem again, is not whether Googlers are evil or not. Of course they are not. The problem is that intelligent people like G have to see this in the long term and see where the whole thing is going.

    Let’s dream, what would we get if all the companies left China suddenly now?: well a massive crisis, millions going back to misery, probably a rise of nationalism and of the protectionist policies that many are fearing already…

    It is the form that clashes in my opinion. I just CAN’t understand why G did the anouncement like this. It would have been MUCH better from the political POV if it just stoofoo and directly stop frigginn manipulating their results like they have done for Years already. And THEN let the Chinese throw them out see what happens.

    But all this talk about other companies getting emails hacked, blah blah. Come on G, they were not born yesterday, they know perfectly those things where going on already. Read the blog of Nart Villeneuve that they link themselves and you will see that those things are old. He even mentioned similar things in the comment he did in this blog last year.

    Gs are very very intelligent overachievers in Uni and all that. But not sure they are so clever in politics, lets wait and see.

    [Reply to this comment]

  8. Jan

    As a Chinese, most of us think google quitting China is good because no company in China can survive fromthe GOV.

    GFW is screwing our lives. But we can do nothing.

    [Reply to this comment]

  9. Jan

    Well, to me the non-harsh scenario is more a (probably) naive wish than anything.

    I quite agree with you, and definitely having rows of companies leaving the country would be a total disaster.

    I cannot imagine, though, that G wouldn’t know this is an awful way to achieve anything in China. So the only reason I can think of why they might have done it this way is that they are already determined (for whatever the real reason, ethical, business or other) to leave the country, they deem China a lost cause for them, so the intended audience for this message is not really China but the West.

    What worries me is that at the end of the day, the losers could be Chinese netizens and Google employees. Cause, hopefully I’m wrong, but there’s a chance that Internet controls get even tighter in China after this.

    Although the last 2 lines in the only Xinhua article (in English) about this issue may provide some hope: “However, the Google case was a reminder to the government that Internet supervision could be more moderate and smarter, Guo said.” -Full article here: http://bit.ly/5JKcKK

    But yes, let’s wait and see.

    [Reply to this comment]

  10. Jan

    Problem is, China hacking activist accounts was well known before this.
    But China hacking Google’s servers and stealing IP? And Google linking both stories= China as a government is stealing Google’s IP? That’s amazing. And of course justifies pulling out.

    [Reply to this comment]

  11. Jan

    Yeah, but what I understand from the message on the G blog is that the hacks were not on Google servers. They were just hacks on the computers of the users, which happened to run email on gmail but it could have been just as well hotmail or other.

    G has no data centers in China, and I am not sure hacking someones email is stealing G’s IP. I mean, suppose I find the gmail password of some guy and I enter his inbox to check out what he is saying: I am stealing IP from Google or from this guy? I am not a lawyer, but I would say it is from that guy, no?

    [Reply to this comment]

  12. Jan

    Their phrasing is that their corporate infrastructure (and other companies) has been attacked resulting on theft of their IP. And then it links it with activists email spying.
    Meaning that hackers accessed encryption information on google’s servers, which were used then to enter the activists accounts.
    I’m no engineer so I don’t understand a bit, but it did sound as if the government had stolen Google technology purposefully. And that’s huge.

    [Reply to this comment]

    Uln Reply:

    Well, I don’t think it is about being engineer or not. I just think the post at G blog is not very clear. And when you send out accusations like that against a government your first duty is to make sure you are clear with the info you are sending out.

    One idea: does anyone think that G might have clear proof that the hacks were actually done by government offices or the CCP? I mean, for me it is OBVIOUS that they were, but one thing is what we think, and a very different problem is to convince the Chinese that this is so… it would be so much more helpful if G could PROVE to the world that the Chinese authorities have stolen information. This would be a clever move,… still wouldn’t change the world, but at least it would make the asshole hardliner censors in the CCP lose massive face, and perhaps their own bosses would fire them or tell them to finally STFU.

    [Reply to this comment]

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