Google Takes A Huge Gamble In China
It what appears to be a very political and almost combative move, Google has removed all censorship from its search results in China. Google is now directing traffic from google.cn to google.com.hk, its Hong Kong based search engine, where the site offers the same Chinese search service to mainland China, minus the government imposed information filters. In a quote from their blog, Google stated that the move is “entirely legal and will meaningfully increase access to information for people in China. We very much hope that the Chinese government respects our decision, though we are well aware that it could at any time block access to our services.” Although it appears Google has found a loophole through China’s ‘one country, two systems’ relationship with Hong Kong, it is very likely that China will react strongly to this move.
Chinese officials have already offered criticism of Google’s actions, although no actions have been taken yet. According to The New York Times, and unnamed official with the State Council Information Office told state-controlled Xinhua news, “Google has violated its written promise it made when entering the Chinese market by stopping filtering its searching service and blaming China in insinuation for alleged hacker attacks.” Furthermore, the Chinese Foreign Ministry said on Tuesday that the government will handle the Google case “according to the law”. As evident from the aforementioned Google statement, they feel they are acting within the law. But they don’t sound too confident. In fact, they sound completely unsure. “We got reasonable indications that this was O.K……We can’t be completely confident,” said Sergey Brin, Google founder and chief of technology. It is fairly safe to say that China will react firmly to this move, most likely banning Google’s uncensored search service from Chinese users. The only question is how much of a grudge they will bestow on the internet giant.
The fact that Google is standing up for what it believes in and making good on its promise to no longer censor search results is definitely commendable. But that does not make it smart. By pulling out of China and facing a blockage of google.com.hk to all mainland China searchers, Google is giving up some fairly significant income. Google does not have the same stranglehold on the search market in China as it does the rest in the rest of the world, with a 33% share of the search market, second to Baidu with around 63%. But even still, the sheer size of the Chinese market means that 7.26% of Google’s non- US searches are provided by China, providing an estimated $260 million in quarterly revenue. This may not be the end of the world for a company that generated close to 7 billion in Q4 of 2009, but when you consider the rapid growth of the online economy in China (already the largest online user base in the world), as well as the broader stigmatisation Google could face from the Chinese government, some serious consequences are at hand.
Emily Parker, a senior fellow at the canter on U.S.-China Relations at the Asia Society, said that, “This has become a war of ideas between the American company moralizing about internet censorship and the Chinese government having its own views on the matter.” In turn Google has positioned itself to be in opposition to the Chinese government. Although it has pulled its search engine out of mainland China, it has left its sales team as well as its R & D operations. Furthermore, Google has been identified as a member of a consortium led by Disney, to buy a $100 million stake in Bus Online, a large Chinese advertising company. What needs to be highlighted here is that any foreign business requires the approval of the Chinese government. China could ban Google, or any company linked to Google, from conducting any business in China. In the largest internet user base in the world, nearly 400 million people use the internet, 235 million of which access the net via handheld devices, spending 70 percent of their leisure time online (in 60 largest cities). The fact that these figures are seeing huge incremental growth each quarter could prove to have momentous consequences for Google down the road.
Eric Schmidt and the Google founders hold the issue of internet censorship to great importance. They have put an inestimable price on upholding these freedoms, and that is without a doubt praiseworthy. From a business perspective they have taken a massive gamble, and it is never smart to bet with your heart.
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