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Google's peers mulling their options in China

Internet companies operating in China are reviewing their strategies following Google's blockbuster news that it might exit the market. But no one seems ready to make a move.

In the immortal words of Mick Jones, "If I go there will be trouble, if I stay it will be double."

Executives at U.S. Internet companies are humming The Clash today, now that Google has forced a discussion about China. However, they aren't ready to put the situation in such stark terms as the gentlemen from London (should they stay or should they go?) by following the lead of Google, which declared on Tuesday that it would exit the Chinese market, unless it was allowed to offer an uncensored search engine following cyberattacks on Google and other U.S. businesses.

Still, that move could mark a turning point for the way U.S. media companies justify doing business inside China. Public pressure on Internet companies operating in China is likely to build (especially in an election year), now that Google has picked a fight with the Chinese government over free-speech principles. Shareholders are more agnostic, however, and likely won't want their businesses to miss out on the huge Internet market that awaits them as China continues to develop.

The stakes have changed. As William Moss, a public-relations executive working in China (and former contributor to CNET Asia) put it on his Imagethief blog on Tuesday, "Google has taken the China corporate-communications playbook, wrapped it in oily rags, doused it in gasoline, and dropped a lit match on it."

For years, media companies have been able to strike a balance between respecting free speech and respecting their stock price by claiming they are in China to "engage" with the country in hopes of improving the overall access to information in China. Google said those same things in 2006, and The Wall Street Journal reported on Wednesday that CEO Eric Schmidt argued for staying the course in the weeks between Google's discovery of the attack and its announcement on Tuesday. However, the arguments of co-founder Sergey Brin prevailed, according to the report, and U.S. Internet companies are now in a tricky spot while they wait for Google's next move.

For now, there's nothing they can do but wait and see if Google follows through on its threat, said Erica Iacono, executive editor of PR Week, an industry trade magazine for public-relations professionals. "In situations like this, companies don't respond until they are almost forced to by consumer outrage or something that builds up over time," she said.

Indeed, representatives from Yahoo and Microsoft offered only cursory statements on their plans regarding China, following Google's bombshell. Microsoft would not comment beyond saying it was not a victim of the attacks, and Yahoo refused to confirm or deny whether it been compromised. Yahoo did say it thought the cyberattacks were "deeply disturbing," which for an Internet company is sort of like having Mothers Against Drunk Driving condemn on-dashboard beer taps.

Behind the scenes, however, discussions are taking place at the highest levels of companies that do business in China as to their next steps. It's a tough call: they can't come out and attack Google after it has been largely seen as making a principled stand, nor can they be perceived as exploiting the situation by rushing to fill the vacuum that would be created by Google's departure from China.

They can't announce similar plans to pull out of China without knowing if Google will go down that road first, and they can't reaffirm their commitment to China without looking like tools of the party. In short, they are trapped while Google gets to bask in the glow of the international community for standing up to China, even if that was the result of a cyberattack as much as a reversal of its position on censorship.

So while there's little that they can do right now to clarify their position on China, their first move should be to encourage the U.S. government to finally do something about the operating environment in China.

"We need governments to lead the charge against countries and other governments that are doing things we don't like," said Ed Black, president and CEO of the Computer and Communications Industry Association, a trade group made up of technology companies. "Governments have to create a global climate for business to operate."

Up until this point, Internet companies have had to figure out on their own how to do business with governments that aren't as open as the United States. When major disputes arise, corporations aren't on the same playing field with sovereign governments, which generally answer only to other governments.

It sounds like the U.S. Department of State is getting ready to take Internet shenanigans in China more seriously. Secretary of State Hillary Clinton is expected to give a speech next week on Internet freedom, and she issued a statement Tuesday condemning the attacks and saying "we look to the Chinese government for an explanation. The ability to operate with confidence in cyberspace is critical in a modern society and economy."

That may provide some cover for companies trying to figure out what to do next in China. But either way, Google's reaction to the cyberattacks perpetrated on dozens of companies serves as a wake-up call to the rest of the Internet industry regarding motives and justifications for doing business in China.

Difficult decisions will need to be made over the next several months by the Internet industry, and only Google may get to dictate its path through the groundbreaking developments of the past two days.