To be (evil) or not to be (evil) – Google vs China (March 2010)

Illegal flower tribute.

Image via Wikipedia

The situation read like the opening line of a 21st century Bond novel. “Google Gmail Accounts Hacked”, screamed one headline.

As news zipped through Twitter and Facebook (or enter the social media of your choice here), deeper investigation revealed that Google wasn’t the sole target. There were at least 20 other companies that had a figurative red target painted on them by hackers.

Google also indicated they had evidence to suggest that the cyber attacks were actually targeting a select group of Gmail users – Chinese human rights activists. As Google’s investigation uncovered more information, it was becoming clear that the scope of the cyber attack was far greater that initial assumptions made them out to be. The highly sophisticated and organized cyber attacks were discovered to have originated from China (which resulted in much finger pointing all round in the diplomatic circles). Throughout all this, the Chinese government kept silent on the issue and a full week passed before an official line came out denying any involvement in the cyber attacks on Google.

The occurrence of these cyber attacks, coupled with what Google saw as active attempts by the Chinese government to censor and limit free speech on the web, led to an announcement that they were seriously considering pulling out of China. In a company blog post, David Drummond, Google’s chief legal officer wrote, “These attacks and the surveillance they have uncovered–combined with the attempts over the past year to further limit free speech on the web–have led us to conclude that we should review the feasibility of our business operations in China.”

“We have decided we are no longer willing to continue censoring our results on, and so over the next few weeks we will be discussing with the Chinese government the basis on which we could operate an unfiltered search engine within the law, if at all,” Drummond added. “We recognize that this may well mean having to shut down, and potentially our offices in China.”

Pull out of China? The world’s biggest market for Internet users where the current user base is greater than the population of America? Would the shareholders even agree to such a response? In the words of Google CEO Eric Schmidt before Google entered China with a censored version of their service, “We concluded that although we weren’t wild about the restrictions, it was even worse to not try to serve those users at all.” He also said, “We actually did an evil scale and decided not to serve at all was worse evil” (The “evil scale” is an extension of Google’s informal company motto of, “Don’t be evil”).

That was back in 2006 when Google eventually entered China with a filtered version of their search engine. Four years on, Google has a 35% market share and is the No.2 search engine in China behind Baidu, a Chinese search engine. Whispers around the blogosphere hinted that Google was pulling out of China to cut their losses since they were apparently no closer to being the no.1 search engine in China. But, this seems to be based more on conjecture and speculation rather than on cold, hard facts.

Indeed, in a research study conducted by Journal Nature across 784 Chinese scientists, 80% of them relied on Google to track their academic needs. Only 17% indicated contentment with Baidu. Ecologist Xiong Zhenquin describes the relationship between Google and research quite succinctly, “Research without Google would be like life without electricity”. This goes to show that there is a real need for Google’s services in the Chinese market.

So what then? Are Google’s motives purely altruistic in nature? It certainly seems to help their business if others perceive it that way. The mechanics of their search rankings has long been one of the best kept secrets in the industry and Google maintains that to disclose it would result in others “gaming the system” and artificially jacking up their own search results. For Google’s search engine business to work, people need to trust that nobody can “buy” search rankings.

Things seem to have stabilized somewhat since Google’s announcement that they planned to stop censoring the Internet in China. Google China is apparently hiring engineers, managers, and sales staff and according to Steven Chang, CEO for ZenithOptimedia Group Ltd in China which buys advertising on Google’s site on behalf of companies, “Customers are considering Google for future ad campaigns again.”

At time of writing, talks between Google and the Chinese government are ongoing and things seems to be remaining status quo, at least for now, as Google weighs up the costs of exiting China. It does look like talks will continue for some time as Google shareholders may balk at the costs of exiting China which JP Morgan Chase & Co. said could cost Google around US$600 million in annual sales.

On top of that, there is an opportunity cost to pulling out of China. According to Internet World Stats as of September 2009, China has an internet penetration rate of 26.9% and they make up roughly half of the total internet users in Asia (48.8%). That’s a mountain of potential revenue that Google would be letting go and Google shareholders would have that pretty high in their list of considerations as discussions with the Chinese government continue.

Can Google stick to its principles or does it need to go a little further down their evil scale?

March 2010
By Johnathan Sia

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