Why Google (Really) Wants to Cut Ties With China

Hacking, Human Rights, Censorship, Politics and a Bad Business Environment: What's Not to Like?

By Published on .

Kevin Ryan
Kevin Ryan
The business world is moving against China. All the press about Google's departure isn't helping. The Chinese government may or may not be hacking into our so-called private lives. Google is providing a politically correct way for anyone that desires a way out of China and a potential way in for opportunists.

Is it the perfect public relations spin or a legitimate way out?

Google's biggest competitor in China, Baidu, is charging ahead at the mere idea of Google's potential absence, as witnessed by stock spikes since Google announced it may pull out of China. Microsoft and other competitors see opportunity in a Google-free China.

So what of Google potentially losing 2% or less of its revenue? What of the upside for transactional search advertising in China? What's the deal with doing business in China? China went from being the next great digital frontier with an estimated 360 million users to technical pariah overnight. Now how did that happen?

Boycotting the boycotted
Google isn't exactly making a killing in China. Well, to be fair, quite a few companies aren't, but I'll come back to that. UBS analysts say Google could lose $500 million in revenue (roughly 2.3% of 2009 revenue) if it departs China.

A "highly sophisticated" attack successfully penetrated the account info of two Gmail accounts. According to Google's January blog post on the attack, no e-mail content was accessed, only subject lines and account info. The conclusion of potential Chinese government involvement seems logical, right? After all, Chinese human rights activists were targeted, according to Google's evidence.

The media took that ball and ran with it. Shortly thereafter, The New York Times reported "that e-mail accounts of several Chinese human rights activists had been compromised." Lately, Wall Street Journal headlines read like a soap opera: "China Warns Google to Observe Censorship Rules," "Google Exit Would Open a Door for Microsoft," and most recently, "Business Sours on China."

Companies like General Motors have invested heavily to gain a foothold in China and only recently started to see profits. China now has plans to increase domestic vehicle market share. The road to Chinese revenue is paved with lots of dollars spent in vain as government restrictions and favoring domestic goods and services increase.

American foreign policy with China is strained as well. President Obama recently came under fire for suggesting that China boost its currency value to help reduce a $380 billion trade deficit.

Misguided enthusiasm
I was the guy standing outside Google's New York headquarters when protesters lined up to complain about Google agreeing to Beijing's directive that it censor search results in China. I wasn't protesting Google's censorship mind you; I was trying to help the protesters head over to the Chinese Embassy where they belonged.

Pictures of the censored results removing the Tienanmen Square protests were everywhere. People seemed to take little notice that Microsoft and Yahoo had already caved on the censorship issue, but for some reason people were only sore at Google.

For anyone in the practice of search advertising, account hacks and attacks are not uncommon. From malware trying generate affiliate revenue with bogus ads to invalid click attacks, search ads are not crime-proof by any stretch of the imagination. Google is on top so they get most of the attention, but cybercrime has a consistent presence throughout the connected digital world.

The attacks on Google appeared to have some computer code of a Chinese origin, according to several reports. The evidence does not mean the attacks came from the Chinese government or even China for that matter. Attacks like the one perpetrated against Google occur every day throughout the world.

Opportunity balks
I remember an O'Reilly Media un-conference I attended in Beijing a few years back. One of the more memorable quotes from an audience member left me with a profound impression of business in China. He noted that western companies coming to China should take note their patents are meaningless. While that may not be the Chinese government's official policy, Baidu's search-marketing interface and ad technology sure bear a striking resemblance to an American one I know.

The Chinese method of negotiation is fascinating and complex. This is a country in which the price of everyday items is negotiated. Haggling is a way of life for these folks. Many a foolish western tourist has fallen prey to paying an outlandish sticker price, but that's only the beginning.

It's hard to get your hands on good research anywhere, but in China it's a downright challenge. Cash is still king in China. Internet purchases have ramped up slowly. People have less disposable income so the dominant portion of purchases occurs for household items. Surfing, e-mailing, listening to music and instant messaging are all ahead of search activity. That's a stark contrast to North America, where search is tied with e-mail in popularity.

Most agree that online purchasing is increasing, but reports of online purchase behavior conflict tremendously. I've seen estimates in the 300 million RMB (about $44 million) range, but it's hard to get a true picture for a lot of reasons.

Fill the blanks
Add all of these facts and figures up and you come to a few harsh but immutable conclusions. Search engines require people to click on their ads for primary revenue sources. People click on ads when they want to buy things. If you can't accurately estimate how much people will click or buy in any given market and the local government makes it nearly impossible to do business there, why on earth would you want to stay?

Sure, there's the "gain a foothold" argument spawned by policy engineered to bring foreign money into China. Ask General Motors how that strategy is looking for them down the road. Moreover, it's tough to say what's going to be popular on the web in a few years.

No one but Google knows the exact cost of operating Google China. It's hard to add bribes and other miscellaneous cash transactions to a balance sheet. I am in no way suggesting that Google is engaging in these business practices nor do I have any evidence to indicate they would, as Google does no evil. However, it is common knowledge that "greasing the wheels" helps in many business environments, including China.

Does the timing represent an interesting turn of events considering the state of Chinese and American politics and business relations? Have Google's CEO and other employees been involved in the current administration? Well, if you call an employee being short-listed to a cabinet-level position, stumping for Mr. Obama and appearing in one of his pre-election spots "involved," then yes.

Is Google's departure from China really based entirely on human rights? Or is it a really convenient way to cut loose from a lackluster revenue-generating environment? Maybe it's both. In either case, would you blame them?

ABOUT THE AUTHOR
Kevin M. Ryan is CEO of the strategic consulting and project management firm Motivity Marketing. He tweets at @KevinMRyan.
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