Why now Google?

UPDATE: A Google Spokesperson just emailed me this: “This is not about market share. While our revenues from China are really immaterial, we did just have our best ever quarter [in China].”

Techcrunch’s Japan writer, Serkan Toto, tweeted at me tonight: “Astonished about how some people, i.e. @scobleizer, idolize Google now. What did G do in the past 4 years in CH besides playing along?”

Randy Holloway, who works at Microsoft, tweets: “You are a good guy, but you have lost your mind today. Ever think that Google is pulling out of China because they are *losing*?”

UPDATE: While I was writing this post, TechCrunch ran a post that said it was about business (and made the point that Google did this because it was losing again).

I think both questions are legitimate (albeit misguided) and they aren’t the only ones asking.

First, let’s take on the question of Google losing in China. I think this is an overly-cynical take (I stole that line from Danny Sullivan, search expert, who said the same thing).

Why is it too cynical? Because, well, if that was how business decisions got done than Microsoft would have pulled out of the search business long ago. But, seriously, to answer that you need to go and visit China, as I have. China is a HUGE market. In 20 years it’ll be much bigger than our own in the United States. Their people are getting online in HUGE numbers. So, to give up on this market now just doesn’t make sense.

Also, Google, and most other tech companies, have many employees there who develop features for the US market. I saw this first hand when I worked at Microsoft. Many of the coolest features inside Windows and Office were developed in China. So, to pull out of the Chinese market, even if you are a losing business concern there (Google was not, even though it was coming in #2 behind Baidu) doesn’t make sense at all because you’d have to give up these employees, many of which are smarter and work far cheaper than engineers in USA (when I visited China last year a HIGH END engineer was paid about $25,000 US per year, compare to a high end engineer in Redmond who usually gets paid $200,000 or more).

Pulling this move in China actually strengthens Google’s competitors (Microsoft, Yahoo, Apple, et al). Why? Because over in China EVERYTHING is done with government support. Every factory I visited was assisted by the government and approved. If Google falls out of favor with the government, it won’t get the best employees, won’t get approvals for offices, will get blocked even more frequently than it is today (how do you think Baidu got so big, anyway? You think they are actually more innovative? Yeah, right. More on that in a future post).

Not to mention that the best supply chains in the world are in China. Translated to English: that’s where the Google Nexus One phone was made (and the hard drives that Google uses, etc etc).

Google has EVERY INCENTIVE to kiss Chinese ass. That’s why this move today impressed me so much.

Now, onto the other point, that Google hasn’t done much up to now to fight Chinese censors and other human rights issues. Um, I’m sorry, but when I visited China I heard from many people that of the American companies Google didn’t play the game as well as, say, Yahoo or Microsoft. Remember Yahoo? Remember what they turned over to the Chinese government? When I worked at Microsoft I saw them play footsie with the Chinese government too. Heck, the Chinese president visited Microsoft’s campus when I worked there and got a red-carpet welcome. Why? Because China is a HUGE market and a HUGE supplier of labor that builds Microsoft’s products.

It doesn’t matter to me that Google played footsie up until today, either. They were the first to stop playing footsie and THAT deserves a HUGE round of applause.

UPDATE: VodPod’s CEO, Mark Hall made quite a few good points in his post about Google and China.

About Robert Scoble

As Startup Liaison for Rackspace, the Open Cloud Computing Company, I travel the world with Rocky Barbanica looking for what's happening on the bleeding edge of technology and report that here.

77 thoughts on “Why now Google?

  1. The Chinese government fear critism and they do openly restrict the flow of all kinds of information. And this is exactly one of the issues that i worry about as China progresses. To the west, the internet stands for the free flow of ideas and knowledge. To the Chinese Government, the internet can be succesfully controlled and regulated, and they will continue to do so, and without compromise. You see, it is a western view that 'open' societies are good, and 'closed' ones bad. If you come to China, you will realise that the Chinese values today are deeply anchored in the Chinese people's hearts, stemming from a monumentally long history, and they're way of seeing things is entirely different. Now the significance of this, is that whiles China does not represent the world's view of things, and fair enough, if you discount my view that China will start influencing other nations, we can't ignore the fact that China happens to have 20% of the entire world's population, and have a very good chance at becoming the world's largest economy within the next 50 years. They are presently the third.

    Now we have not even considered the implications of having such a large economy. We all know the territory that comes with being a large economy (i.e japan), and now we are talking about what could be the largest (i.e united states, at present). They're films will start being more widely viewed, they're television programmes aired overseas, they're food more widely eaten, they will host the olympics (already done in fact) etc .. and through all of this, their culture and views will have many outlets for distribution. And one of their views is that the internet should be policed, information controlled, sites prohibited etc ..

    What has happened with Google and China in essense is this. Google's model of a free and open internet that spans the globe, can never work, because China will continue to police their internet, and they are 20 percent of the world. Whats worse is that China also happens to be the worlds largest internet market at the moment.

    With regards to the ways in which China is progressing, well, the cheap consumer goods are not the only thing they have going for them. Shanghai and Beijing are chock full of venture capitalist, investors etc … With a billion people, in a developing country, people are becoming millionaires overnight, and this in turn draws more money to be pumped in. All people have to do is see what has worked for the world, and introduce it to China. The Chinese market itself is big enough to create demand for any product or service, they do not even have to worry about exporting in many cases. Once was the case where American firms were acquiring Chinese start-ups etc .. but now the Chinese are going out there and buying things up. (please read a post i wrote in reply to someone on this site, with regards to the situation in China at present)

    What i'm trying to say is that the free flow of information, acces to information, how closed or open a society is etc … these are all irrelevant because China has succesfully kept a lid on the information flow and continued to improve economically, not showing any sign of falling behind (in any respect). And in a world where economics very much affect global influence, China can possibly change the way things work. i am concerned about a strong 20 percent of the world (all sharing the same view, having the same values and culture), and its impact on the other 80 percent (fragmented into many many smaller seperate and invdividual nations, who often do not share the same views, and definately with diff. cultures).

    This dialog is possible, I am currently in Shanghai.

    previous reply :

    U are deluded if you don't think China will have the worlds largest economy within the next 50 years, or at least have a good shot. Its track record has followed a path that has never been seen before. China has a billion people, how many does russia have. The sheer number of people, organised and unified through communism, all now working in the right direction since the shift to a market economy, is more than enough to justify how big they will be.

    China's economy is now the worlds 3rd largest is it not ? It has grown tenfold in the past 30 years, its predicted everywhere u look that it will overtake Japan. Overtaking the US is a more difficult matter, but they will be very strong competitiors. China is nothing like Russia. Just take a look at the financial crisis. China achieved 8.9 percent for the year, when the consesus was 0 to 5 percent. China has come out of the crisis unscathed.

    Its my view that it will be largest developed country in the near future (within 50 yrs or less) but its always hard to make a forecast. One thing that is for certain is that they will major players on a global scale. Much larger than most people, especially those not involved in anyway in the chinese market, expect. Just a trip down to shanghai or beijing, will skew people's worlds. Its bustling with activity, swarming with VC's, things being built everywhere. Feels like a mini new york. The cashflow is so fast n so great, u dont need to be particularly innovative or smart, just finding a way to be involved is very rewarding. Take the growth capital space for example. It's saturated ! The terms of trade have worsened as a result. In the past u get a 60% discount to ipo, with additional warrants n personal guarantees. Today its 40% discount, no warrants, no personal guarantees. Everyone is pumping money in n there arent enough deals to pump into.

  2. The Chinese government fear critism and they do openly restrict the flow of all kinds of information. And this is exactly one of the issues that i worry about as China progresses. To the west, the internet stands for the free flow of ideas and knowledge. To the Chinese Government, the internet can be succesfully controlled and regulated, and they will continue to do so, and without compromise. You see, it is a western view that 'open' societies are good, and 'closed' ones bad. If you come to China, you will realise that the Chinese values today are deeply anchored in the Chinese people's hearts, stemming from a monumentally long history, and they're way of seeing things is entirely different. Now the significance of this, is that whiles China does not represent the world's view of things, and fair enough, if you discount my view that China will start influencing other nations, we can't ignore the fact that China happens to have 20% of the entire world's population, and have a very good chance at becoming the world's largest economy within the next 50 years. They are presently the third.

    Now we have not even considered the implications of having such a large economy. We all know the territory that comes with being a large economy (i.e japan), and now we are talking about what could be the largest (i.e united states, at present). They're films will start being more widely viewed, they're television programmes aired overseas, they're food more widely eaten, they will host the olympics (already done in fact) etc .. and through all of this, their culture and views will have many outlets for distribution. And one of their views is that the internet should be policed, information controlled, sites prohibited etc ..

    What has happened with Google and China in essense is this. Google's model of a free and open internet that spans the globe, can never work, because China will continue to police their internet, and they are 20 percent of the world. Whats worse is that China also happens to be the worlds largest internet market at the moment.

    With regards to the ways in which China is progressing, well, the cheap consumer goods are not the only thing they have going for them. Shanghai and Beijing are chock full of venture capitalist, investors etc … With a billion people, in a developing country, people are becoming millionaires overnight, and this in turn draws more money to be pumped in. All people have to do is see what has worked for the world, and introduce it to China. The Chinese market itself is big enough to create demand for any product or service, they do not even have to worry about exporting in many cases. Once was the case where American firms were acquiring Chinese start-ups etc .. but now the Chinese are going out there and buying things up. (please read a post i wrote in reply to someone on this site, with regards to the situation in China at present)

    What i'm trying to say is that the free flow of information, acces to information, how closed or open a society is etc … these are all irrelevant because China has succesfully kept a lid on the information flow and continued to improve economically, not showing any sign of falling behind (in any respect). And in a world where economics very much affect global influence, China can possibly change the way things work. i am concerned about a strong 20 percent of the world (all sharing the same view, having the same values and culture), and its impact on the other 80 percent (fragmented into many many smaller seperate and invdividual nations, who often do not share the same views, and definately with diff. cultures).

    This dialog is possible, I am currently in Shanghai.

    previous reply :

    U are deluded if you don't think China will have the worlds largest economy within the next 50 years, or at least have a good shot. Its track record has followed a path that has never been seen before. China has a billion people, how many does russia have. The sheer number of people, organised and unified through communism, all now working in the right direction since the shift to a market economy, is more than enough to justify how big they will be.

    China's economy is now the worlds 3rd largest is it not ? It has grown tenfold in the past 30 years, its predicted everywhere u look that it will overtake Japan. Overtaking the US is a more difficult matter, but they will be very strong competitiors. China is nothing like Russia. Just take a look at the financial crisis. China achieved 8.9 percent for the year, when the consesus was 0 to 5 percent. China has come out of the crisis unscathed.

    Its my view that it will be largest developed country in the near future (within 50 yrs or less) but its always hard to make a forecast. One thing that is for certain is that they will major players on a global scale. Much larger than most people, especially those not involved in anyway in the chinese market, expect. Just a trip down to shanghai or beijing, will skew people's worlds. Its bustling with activity, swarming with VC's, things being built everywhere. Feels like a mini new york. The cashflow is so fast n so great, u dont need to be particularly innovative or smart, just finding a way to be involved is very rewarding. Take the growth capital space for example. It's saturated ! The terms of trade have worsened as a result. In the past u get a 60% discount to ipo, with additional warrants n personal guarantees. Today its 40% discount, no warrants, no personal guarantees. Everyone is pumping money in n there arent enough deals to pump into.

  3. I think “new world order” is a bit strong. The Chinese are progressing in one way and one way only: economically and it's based mostly on cheap consumer goods. Can they progress beyond the production for export of quality more advanced products? Probably not without the intellectual stimulation that development requires. What happens when the rest of the world builds Google's “Scholar” compendium that becomes inaccessible to Chinese students?

    China plays games with the Internet. Why relax restrictions during the Olympic games merely to reimpose even stricter restrictions now? We are not talking about censoring child pornography, the issue is the censoring of broad swaths of knowledge. My bet is that “open” societies will go forth to prosper while “closed” societies find themselves falling behind.

    The fact is that the Chinese government fears criticism and in order to hide that criticism they severely restrict access to all kinds of information. And to make matters worse, this dialog that we are having here wouldn't even be possible in China.

  4. I disagree Maurice, with your view that the Chinese Governement are idiots. Google is the loser in this fiasco. Google is now obliged to either accept the restrictions China imposes, or leave what will be the worlds largest economy within the next 50 years. China has a billion people, all clarmouring, at an increasing rate to log on to the internet.

    The 'Western' View that the Chinese are idiots and not sure of what they are doing is an opinion. And even if this opinion is the right one, it is irrelevant. The fact is that China, with a billion people, is becoming more and more imporant as a market player, and what events that unfold (in this case regarding internet censorship), will have have huge ramifications for the future, on a global scale. We can only hope that they are not as bad as some people view them, because either way, we will be affected by their choices.

    Google is leaving China, and China is not going anywhere. There economic clout will keep increasing and we all know, that money can have some serious weightage when it comes to global influence. Whiles many see Google as the ” spark that will set off a demand for human rights to flourish in China”, I see it more as a show of the problems to come in a world where even Google cannot beat “the party”. Against all odds, the Chinese government has succesfully censored and controlled the flow of information through the internet in the past years, and show not a single sign of slowing down. The google fiasco is not a spark, Google, being the worlds largest search engine, should have been the flame. And the flame has not burned down the wall that China has already built around it.

    We are on the verge of a new world order.

  5. U are deluded if you don't think China will have the worlds largest economy within the next 50 years, or at least have a good shot. Its track record has followed a path that has never been seen before. China has a billion people, how many does russia have. The sheer number of people, organised and unified through communism, all now working in the right direction since the shift to a market economy, is more than enough to justify how big they will be.

    China's economy is now the worlds 3rd largest is it not ? It has grown tenfold in the past 30 years, its predicted everywhere u look that it will overtake Japan. Overtaking the US is a more difficult matter, but they will be very strong competitiors. China is nothing like Russia. Just take a look at the financial crisis. China achieved 8.9 percent for the year, when the consesus was 0 to 5 percent. China has come out of the crisis unscathed.

    Its my view that it will be largest developed country in the near future (within 50 yrs or less) but its always hard to make a forecast. One thing that is for certain is that they will major players on a global scale. Much larger than most people, especially those not involved in anyway in the chinese market, expect. Just a trip down to shanghai or beijing, will skew people's worlds. Its bustling with activity, swarming with VC's, things being built everywhere. Feels like a mini new york. The cashflow is so fast n so great, u dont need to be particularly innovative or smart, just finding a way to be involved is very rewarding. Take the growth capital space for example. It's saturated ! The terms of trade have worsened as a result. In the past u get a 60% discount to ipo, with additional warrants n personal guarantees. Today its 40% discount, no warrants, no personal guarantees. Everyone is pumping money in n there arent enough deals to pump into.

  6. That might be so, but HTC remains a Taiwanese company. If they manufacture in China, that's fairly normal, but design and ownership remains in Taiwan. If China became a problem for Google, there's no indication it would take it out on HTC. If China did take it out on HTC, HTC could move manufacturing to any of the other low cost countries like India, Singapore, Taiwan, Indonesia, Phillipines, etc, etc. Does scaring off manufacturing opportunities sound like a trend China wants to start?

  7. To repeat what Derek said, The Nexus One and all HTC phones that I have looked at are made in Taiwan, not China.

  8. “Indian workers in the US work like slaves and are pissed upon”.

    Vow! Being very fact-based and non-judgemental, are we? I am sure you do not mean it in a demeaning way and you are just about to petition your congressman for the emanicipation of Indian software slaves.

    When you do, Indian software slaves will be profoundly grateful to you for liberating them from their current misery of stock options, super high salaries (in INR and after adjusting for PPP) and other symptoms of disgustingly bourgeoise success.

    When, oh when, will that dawn of liberation come?

  9. I'm confused — I wasn't making any claim about the moral culpability of Google's action (or any sort of claim about ethics whatsoever). My original comment was simply a response to Serkan simply pointing out that his searching for “Tiananmen” or “天安门广场” on Google.cn is a poor way of assessing whether or not Google is still actively censoring.

    As for the the Tiananmen Wikipedia link showing up — I doubt that's new. Google.com has been showing that page as the top search result for “Tiananmen” for years. Google.cn, on the other hand, still doesn't display it (not surprising, since it's in English).

  10. As of right now the second return on Google.cn for “Tiananmen” is the following Wikipedia page: http://en.wikipedia.org/wiki/Tiananmen_Square

    From that page there is a link with the anchor text Tiananmen Square Protests of 1989 to http://en.wikipedia.org/wiki/Tiananmen_Square_p

    This is new.

    I think that Google's announcement yesterday and their subsequent actions are indicative of the conditions that Google operated under in China. Government imposed censorship and control.

    I applaud Google's bold action and sincerely hope that other world media organizations follow them, quickly. I also hope that Google's action will be a lightening rod that will awaken the world and force the regime in Beijing to loosen it's totalitarian grip on Chinese societal thought. China is too big and unruly and the Chinese people will ultimately demand their freedoms.

    Google's usership in China is also noteworthy. Google.cn users tend to be the intelligentsia. It will be interesting to see their response to whatever draconian steps the Government will now take.

    Is this the event that will be a spark that will set off a demand for human rights to flourish in China? Let us hope so.

    To your point: yes, Google sold their soul to the devil in 2006 for the right to do business in China. Their acquiescence to government imposed procedure is their responsibility. But the ultimate responsibility belongs to the greater power that imposes the rules.

    Accordingly, I believe that the Chinese government is responsible on both counts.

  11. Yes, I should have mentioned that. It also proves my point.

    Tiananmen is a bad test query if the average Chinese person under 30 has no knowledge of the 1989 event. If no picture of the tank man shows up when you look up things related to Tiananmen on Google.cn, that could mean one of two things: Google is censoring, or the average Chinese person simply isn't linking to anything involving the 1989 crackdown.

    You can hold the Chinese government responsible under both scenarios, but you can only hold Google responsible for the first

  12. Adding to what you say about Microsoft….. indeed, how well did they play the game. They sold the source code of Windows to the Chinese government? I have no idea how it was possible, but it was done. And now, where are the worst hack attacks originating from?

  13. What you fail to mention is that the Chinese education system has purged any knowledge of what happened on June 4, 1989 in Tiananmen. Most Chinese, certainly those under 30 have any knowledge whatsoever of what occurred there.

    I'm really sick of hearing repetition of official Chinese government “party line”. It seems that the Chinese government and its supporters think that the rest of us are idiots. They are the idiots if they think that they can build a wall around China. As one blogger put it “Google isn't leaving China, China is leaving the world”.

  14. Robert,

    China is a Huge market .The question that one should look at is “what is the cost of running an Internet business” in China to become /stay profitable? It depends on the business model, If an Internet business' primary model is based on the foundations of democracy,free speech and respecting human rights and if such a business wants to tap the opportunities available in china ,then there are challenges and limitations to what such a business can expect in china. Its is often learnt in a hard way and I think Google's situation seems to be the one limited by such bottlenecks….

  15. AFAIK, Google does not keep user data in countries that don't have very strong legal
    protections for user privacy. This means that such data can not be subpoenaed.
    This makes it “difficult to work with”, but still within the law.

    There was a high profile case recently in Brazil where courts requested access to
    Orkut user accounts, and even tried going after high ranked Google Brazil employees,
    but Google did not give them the data. The data was inside US, and it would
    have been accessible only with a US court order, and that one is hard to get
    if you are on a fishing expedition.

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