Apparently, there are always plenty of people who can’t help but engage in college dorm room quality philosophy when they don’t truly understand a current event. In this case, there is a mushroom farm of moral skeptics claiming Google (NASDAQ:GOOG) is truly challenging the Chinese government because they will never beat Baidu (NASDAQ:BIDU) and are simply trying to get some free PR as they shutter their Chinese division.
Really? Have American talking-heads become as short sighted as Wall Street?
Google is a very young company. In their short existence, they have become arguably the most powerful company in the world. In China, they definitely have less market share than Baidu. However, they have spent vaults of cash establishing an infrastructure in China.
Moreover, JPMorgan analyst Imran Khan estimates Google’s China revenue at around $600 million this year, with segment margins around 15% to 20%. That’s hardly a project worth purging.
This, my friends, is called planting a seed in fertile soil. At the moment, Google is most known for their search products. However, Google’s innovation and deal-making is relentless. Nobody can predict what Google will invent or sell in the future. Given Google’s intellectual capital, the odds are good that (like Microsoft (NASDAQ:MSFT)) Google will continue to play in many new business sectors (e.g., mobile). Why would Google leave now and have to start from scratch if they later decide to work in China? It doesn’t make basic business sense.
The moral skeptics are 100% wrong. I think Henry Blodget nailed the Google strategy:
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.
Sometimes I think writers like to vomit interesting ideas simply for the sake of trying to be unique. This is one of those times. If you disagree, go start a business in a new market, spend hundreds of millions of dollars, turn a profit, then pull out because you don’t have dominant market share in the first 4 years. When your shareholders tuck you into a strait-jacket, you’ll have plenty of time to reflect on why a longer term perspective would have been best.