Google Has Played the China Situation Brilliantly

Jan. 13, 2010 8:37 AM ETGOOG, BIDU28 Comments

Sergey Brin and Larry Page 1

A few years ago, when Google (GOOG) announced its decision to agree to censor its China site, it was savaged for selling out.

The company had violated its own "don't be evil" motto, critics yelled, and it was tacitly supporting the Chinese government's outrageous censorship policy.

The critics were wrong.

Google made the right decision to build a business in China a few years ago. And it's making the right decision now, by threatening to pull out of the country if China doesn't relax its censorship demands.

Google's decision to make a big public threat now, when it controls 15%-20% of China's search market and is known to most Chinese Internet users, will put far more pressure on the Chinese government to relax its policies than a boycott of the country five years ago would have.

Google matters in China now. The announcement that Google was threatening to pull out spawned public support for the company in China. It got Secretary of State Hillary Clinton into the act. It forced the Chinese government to respond with a statement. It has grabbed the attention of investors, as well as the hundreds of other companies that do business in China and are forced to play by Chinese rules. It will focus more public attention on the reality of China's censorship policies than any boycott ever could have.

In short, by playing ball with China until it had some real leverage, Google has a much better chance of actually forcing the government to change.

And don't forget the real goal here: If Google forces any change at all in China, it will have done more for China's 1+ billion citizens than it would have if it had boycotted the country from the beginning.

How will the situation resolve itself? The parties will likely bluster for a while, negotiate, and then reach a compromise. There is no way the Chinese government will completely drop its censorship of Google. And for Google to walk away from $600 million in revenue now, a $10+ billion opportunity long-term, and the ability to exert further pressure will be extraordinarily painful, so the company should be willing to compromise.

So expect both parties to hug and make up and quietly declare victory to their mutual constituencies--while reserving the right to take further action.

But Google has played the overall China situation maturely and brilliantly. It has not been evil. It has balanced the interests of its shareholders, employees, and, importantly, Chinese people. It has also done the most it can to address an appalling and ridiculous injustice in the world's most populous country.

Disclosure: No positions

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