17 March 2010

Is Google's new China strategy brilliant or suicidal?

Google's reputation for not doing evil has been greatly harmed around the world by its policy of censoring search results in China. In their defense, the Internet giant from Mountain View has argued that some Google is better than none at all for the Chinese -- ultimately, all Google has done is comply with Chinese law after all. Frankly, we couldn't dare expect more from the average corporation...Google's competitors are thrilled to roll over in what ever way they can to please the Chinese government. Google, though, has long tried to establish a reputation for NOT being the typical corporation. Their continued uneasiness with the censorship of their search results in China may, in fact, lead to Google's exit from the world's most populous nation.

From the perspective of someone opposed to censorship and fearful of its spread, I'm thrilled with Google's change of stance. Google already has a massive amount of "geek cred" for owning the best search engine around and lots of other cool online services, but the company has just picked up a whole lot of new social cred. Google's decision, though, could have lasting financial consequences. Baidu remains the top search engine in China, but Google has captured a decent share of Chinese search engine traffic. While other companies are clamoring for access to China's growing marketplace, Google appears to be heading for the exit door. Google is potentially giving up on a lot of searches that won't be conducted and a lot of ads that won't be bought or clicked on if no agreement can be reached with the Chinese government. On the flip side, people who view this move as essentially a positive, anti-censorship stance are only going to like and perhaps use Google more. I'm seriously contemplating purchasing Google stock in the future, and I'm someone who typically loathes stocks that don't pay dividends. It goes without saying that I also feel prouder to use Google services now. Can the good will of those in the world opposed to censorship really counterbalance the loss of all that Chinese traffic? Frankly, I don't think so, but Google will still thrive in many markets thanks to its superior services and this gain in international goodwill will provide it an additional boost.

Just how international the search engine business is going to be remains to be determined. Google might not do business in China in the future, but I find it highly unlikely that Baidu will successfully penetrate European or American markets in a significant way, either. The rest of the world is a very big place, and Google is a leading player in the search engine world in most other places. China is an important market, to be sure, and in the future may indeed be the most important market...but if you have the rest of the world in your pocket, even losing China may not be such a big deal. There's also the not impossible scenario of China changing its policies and becoming more closed off to the rest of the world. Some backlash against economic liberalization is inevitable; ever-rising real estate prices and spotty social services can hardly be pleasing to sincere Communists. It's conceivable, though unlikely, that a lot of foreign companies may find themselves kicked out of the country or regulated to death should China's embrace of capitalism turn chilly. In that case, Google can be said to have gotten out while the getting was good.

The best case scenario for Google would be for its disappearing act in China not to be permanent. A different attitude towards censorship by a future Chinese government could reopen the market to Google. I have no doubt they'd be hot on Baidu's (or whoever else fills the Chinese search void in the meanwhile) heels in no time, even if they're shut out for a few years. Google's credibility gain has after all been felt in China as well -- they're frankly about the most prominent and believable voice to speak out against censorship recently. I put much less stock in what governments say about China because they always have an axe or two to grind. It's easy for a government to publicly complain about censorship or human rights abuses when what it is really concerned about is China's currency peg...that's part of how governments bargain with one another. Google, in contrast, has much to lose by taking such a strong anti-censorship stance. I don't expect Google's gamble to pay off immediately, but I also wouldn't be shocked if the company's brave move earns it a place in a history book or two a few decades from now.