Google leaving China: Better late than never

Molly Wood refuses to believe that Google pulling its major operations out of China is a cold-hearted business decision. After all, it's not even a particularly good business decision.

Amid a sea of praise for Google's recent decision to stop censoring search results in China, Paul Thurrott wrote a piece on how we shouldn't celebrate Google's China decisions at all, calling its move "a cold-hearted business decision, like so many other decisions made by this faceless, mathematically minded behemoth." Ouch. I respectfully disagree.

Pardon me for repeating myself (you can hear a similar version of this post in Thursday's Buzz Out Loud, starting around 29:30), but I think Thurrott is placing an unfair expectation of perfection on Google, and I don't believe Google's departure from China is cynical or, frankly, even a very good business decision.

The fact that Google previously made a "cold-hearted" decision to do business in China (from what we know, despite the objections of Sergey Brin and others in the company) shouldn't mean the company can never reclaim a moral high ground, and doesn't mean every following action will be equally cold-hearted or purely business-minded.

That's assuming Google's original move was merely calculating in the first place. At the time it entered the Chinese market, Google officials were clear that they hoped bringing any light into the country, in the form of access to the incredible trove of information that is the Internet, would lead to an infectious spreading of that light, and they were also clear that they weren't sure the whole experiment was going to work out.

Did Google make a devil's bargain? Sure. I think in the end it found out that dancing with the devil isn't, in fact, all it's cracked up to be, what with the constant stepping-on-your-feet and the overpowering scent of brimstone that you just can't shake. Now it wants out. But if Google made a mistake four years ago by entering the Chinese market in the first place, do its motives have to be forever besmirched? I don't think so.

So, then, let's talk about business. Thurrott says Google did business in China for four years, "reaping the benefits" of running amok in the world's largest potential marketplace. In truth, Google was hardly making a dent in Baidu's market share--not that it couldn't have over time, but it wasn't yet--China revenues have been $250 million to $300 million, according to estimates, or about 1 to 2 percent of Google's global revenues. Did Google just walk away from a failing venture?

Not likely.

Those revenues were only headed northward--a recent JP Morgan estimate spotted the company $600 million in Chinese revenue for 2010, and persistence is, after all, a key indicator of success. Google's leaving money on the table and it knows it. So do its shareholders. So, yes, the calculating part of Google's action has been trying to walk a razor-thin line by leaving some operations up and running in China. Still, the company had to know that was an unlikely route to success, and sure enough, the costs of its search-related actions continue to mount, and the likelihood of any serious Google business happening there is pretty low.

Most of China's telecoms are reconsidering search deals with Google, under pressure from the Chinese government, and the government is reportedly also pushing to ban Android handsets from the country. China Unicom already announced it won't use Google's search engine on any of its phones, even if they're Android phones. Google stands to be cut out of a mobile Internet market that numbers 230 million users.

And Google's stock, although not suffering big losses in the immediate wake of this week's drama, started slipping around January, when the company first started making noises about leaving China. In fact, the company has lost about $10 billion in value since January 12, when it first accused China of hacking and cyberwarfare, not including future revenues it's given up in China. There have even been suggestions that, as relations deteriorate, Google's China employees may actually face arrest, as has happened when other business negotiations with China soured. The cost of not doing business in China is, as I put it in this week's Buzz Report , nontrivial.

Is leaving the Chinese market a smart, cold-hearted business decision, part of a calculated determination that Google can live without the largest population of Internet users in the world? I don't think so. It's also not purely a matter of standing up for human rights and basic freedom; let's not kid ourselves, if that were the business of business, this world would be a very different place.

But Google has been trying to tiptoe carefully through a field of explosive moral issues on the way to unfettered, shareholder-pleasing growth, and it's one of the few companies making any noise at all about taking those moral issues seriously. Now, it's cutting itself, possibly permanently, out of the largest potential market in the world. And if you want to see some cold-hearted, ruthless bastards at work, watch Wall Street go to town on GOOG if it can't deliver come earnings report time. Then we'll find out the real cost of turning your back on China.

 

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