More on Google’s Chinese buh-bye

I should say upfront that I have a generally favorable view of Google and am a heavy user of its services. Indeed, this blog is hosted on a subdomain owned and operated by Google via its acquisition of Pyra Labs in 2003. I regularly use the company’s news reader, document applications, the now-unsupported Notebook feature (which is the best free application of its kind), and Gmail, to name a few. Having said that, since posting yesterday, I am a little perplexed regarding much of the reaction to Google’s decision to (possibly) exit China, particularly those who see this move as an unalloyed, unqualified victory for business ethics and human rights over profits.

There are some things here for ethicists and human-rights advocates to be happy about, and I am certainly pleased that Google took the opportunity to slap China’s government on the wrist in the way it chose to publicize its decision, but when you break down the decision and submit it to analysis, you discover that the business case outweighs any other consideration. That, coupled with Google’s past acceptance of China’s censorship policies, should lead one to a more restrained take on the event.

Much of the praise thrown Google’s way has centered on the enormous market that the company is exiting. It has been cited that Google is China’s #2 search engine with a steadily increasing market share. As I discussed yesterday, user adoption of the internet in China is set to rise dramatically over the next four years, from an estimated 300 million today to nearly 800 million in 2013. Pundits see these figures and reason that Google’s decision to leave China must be premised on virtue, for who would leave such a goldmine opportunity?

But dig a little deeper and Google’s China story isn’t all that. Despite the #2 ranking in a market that already sports 300 million users, China accounts for less than two percent of Google’s $21.8 billion in annual revenue, according to data from Jeffries & Co. published by BusinessWeek. Combine that with the costs of complying with Chinese government policy – policies which in effect nullify Google’s competitive advantage in search technology – and leaving China isn’t such a big deal. In fact, given the nature of the cyberattacks launched against it, Google’s exposure to risk, reputational and otherwise, in China might be greater than its upside potential.

A cynic might argue that, so long as Google thought the upside in China was enormous, it was willing to suffer any degree of nefarious interference from Chinese authorities. It might not have liked it, but why do we care what a company professes to like? Actions speak louder than words. After all, no one bothers to ask executives at General Electric whether they liked dumping polychlorinated biphenyls into the upper Hudson River. Rather than exemplifying its motto of “Don’t Be Evil,” Google for years adhered to a different motto in China – “See No Evil.”

To be fair, Google execs might have thought that the best way to change China was to engage it, rather than ignore it. This is the general approach the United States has adopted at large. The problem with this approach is that it so often and tidily overlaps with making money that the nature of the engagement never rises to the level of a provocation. Indeed, it could be argued that our engagement with China more often changes us rather than it. Google’s announcement seems to confirm this for me on a certain level.

Companies like Google – that is, companies operating in areas that the Chinese government deems “strategic” or “sensitive” – might do well to compare its experience in China with that of the Roman Catholic Church, another international organization that operates in a “sensitive” area. The Church’s experience in the People’s Republic has been riddled by duplicity, obstinacy, and alternating waves of conciliation and provocation. This almost bipolar behavior from China’s ruling party is probably the result of two competing desires. On the one hand, China seeks partners to help it maintain quiet inside the country. These could include corporations that provide jobs or religious organizations that provide spiritual succor. At the same time, the Chinese government is filled with paranoid bureaucrats who cut their teeth in a very sophisticated school for despots. This leads to an inability to trust others or share power, thus the constant vacillation which follows a fairly regular pattern: escalating displays of power that culminate in China’s authorities overplaying their hand, which is then followed by a period of conciliation, and then whole pattern starts over again. Writing for the Financial Times, David Pilling yesterday published a fine article detailing how we may be in the throes of the “overplaying” phase of the cycle on several accounts.

The cyberattacks launched by elements inside China – and perhaps elements inside the Chinese government – against Google and a score of other companies might be the proverbial last straw, at least for Google, but let’s not ascribe more to Google’s decision than need be. It’s a fine first step. Let’s see where it goes from here.