Should Google leave China? Sadly and defiantly, yes

In the wake of Google’s threat to forgo the China market, the question we ought to ask is: Should Google go home?

In the flurry of Internet commentary, hopeful stock analysts have focused on language in the company’s announcement regarding pending discussions with the government about operating an unfiltered search engine inside China. At worst this reflects naivete regarding the Party’s determination to control the internet. At best this is sop to Wall Street – a feeble attempt to demonstrate that management tried to maximize shareholder value. Don’t be misled – Beijing will no more negotiate with an American Internet company about free speech than Tel Aviv would negotiate with hostage takers about ransom. Google is most likely going home.

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Other commentators have tripped over the issue of cyber attacks – the suggestion by Google that their decision to abandon the booming China market was motivated by hackers trying to access the Gmail accounts of Chinese human rights activists. Recall, however, that Google does not maintain on Chinese soil any services that involve personal or confidential information. In other words, the Gmail servers are not located inside China and pulling out of the country will have zero impact on future cyber attacks. More bluntly – the hacker story, while certainly true, is a public relations cover.

Still other pundits fall into the tempting cynical trap. Google, they say, would bring in a mere one percent of its 2010 profits from China, and thus the apparent principled stance is really a commercial retreat from a market dominated by domestic rival Baidu. But Google’s search market share has climbed from 13 percent in 2006 to 36 percent in the fourth quarter of 2009. Given the number of Internet users in China, the remaining vast expansion potential and a distinguished list of foreign failures that includes Yahoo! and eBay, Google’s adventure in the Middle Kingdom is not a commercial defeat.

That leads us back to our initial question: Should Google go home?

To find an answer we must first establish an objective. Google’s goal, as stated during Congressional hearings in February 2006 regarding the collaboration of American technology companies with China’s efforts to control the Internet, is to make the world’s information accessible to everyone, everywhere, all the time. During those same hearings, representatives of Google argued that it could provide more access to more information for more Chinese citizens more reliably by offering a censored search service inside China than by staying away.

What has changed since those Congressional hearings? Not a thing, except Google’s mind.

The core question, however, remains: Was Google right four years ago when it decided to provide censored search inside China, or is it right now in deciding to go home?

The next step toward an answer is to ask what will happen when Google is gone. The competition in China is Baidu, which commands a 58 percent share of the search market. If we assume that Baidu will grab at least that much of Google’s current market share, it would enjoy a 79 percent slice of China’s search market pie. What might this domestic Chinese company do with that kind of market muscle?

Although Baidu’s corporate mantra isn’t “be evil,” their policy with respect to paid search contrasts rather sharply with our friends from Mountain View. Google decided long ago that their search results would be as good as they could make them, unbiased and objective, clearly labeling paid search results as advertising. Baidu, on the other hand, offers paid search results, as alluded to in its most recent annual report. The vast majority of Baidu’s revenues come from their pay for placement service that literally auctions off to the highest bidder priority placement of links in key word search results.

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An example might help to drive home the point. Let’s take the Chinese word for beer – the first local term learned by many expatriates in the Middle Kingdom. On Google China the top five results include news articles, a Baidu encyclopedia entry, general pages that list many beer companies and Google maps with the location for bars and restaurants. Baidu? The right side results, which look like advertisements, provide company names, a tagline and a link. The left side, which look like pure search results, have four beer companies and the Baidu encyclopedia entry.

With or without Google, search inside the Great Firewall will be the world according to Chinese law. Without Google, search also becomes the world according to Baidu.

During China’s tainted milk scandal that followed the 2008 Beijing Olympics, it was alleged that Sanlu, the Chinese company that put more melamine industrial chemical into their infant formula than any other, attempted to pay Baidu three million renminbi (US$440,000) to censor out negative search results. Baidu denied the allegation.

Eight months later, however, an Internet post suggested that the wealthy family of a hit and run driver who killed a university student in Hangzhou also attempted to pay Baidu to filter out the bad news. The vast majority of people commenting on the post believed that Baidu took the money. Although the cynics were apparently wrong this time, the risk of Baidu auctioning off not only priority placement services, but also censorship services, is more than a theoretical possibility.

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And so we return to our original question: Should Google go home? On behalf of the company’s shareholders and its China-based users, I say bye bye Google – we are sad to see you go.

Nathan Green is a long time China hand and author of The Great Firewall, a forthcoming novel on China’s internet adventure.