Straight from the heart!

24 March, 2010

The Great Firewall of China

What started as a hacking bid four months ago, ended as the biggest brawl in internet history this week, when Google routed its 140 million Chinese visitors from Google.cn to their “Uncensored” Hong Kong site.

Google officially claimed to have uncensored its “Search services” – web search, news and images. Yet, the retreat is only partial, as Google shall retain most of its existing operations including its research and development team, local sales force and continue to operate the online maps and music services.

Knowing that  Technically, it’s still very easy for the Chinese government to continue blocking Google’s services, Google conveyed that they are closely monitoring such activity and that such actions will directly impact Google’s remaining local employment in Mainland China.

Google announced its decision with carefully chosen words, balancing the sentiments of Chinese netizens on grounds of Google’s mission to free speech and yet avoid a possible Chinese government’s backlash on their local officials.

Contrary to popular belief, “Censorship” is NOT the prime reason for Google’s exit. After all, while entering the Chinese market in 2006, Google had themselves agreed to such compromising conditions, in their race for capturing an exploding internet population. The systematic and targeted hacking of Gmail accounts, theft of their source codes , accusations of spying on behalf of CIA, lack of intent in the actions of the government against such crimes and most importantly – a clear inclination of the government towards homegrown  players, over a prolonged period of time culminated to such a major decision.

So, how does this impact Google Inc. ?

  • Revenue:- Google’s $ 250 – $ 600 million revenue in China, is a fraction of their $ 24 billion global revenue. Google would’ve spent a bomb setting & running local operations anyways.
  • Market share:- Google’s share in the Chinese search market is just one third, with the local player – Baidu still holding the lion’s share at 58%. i.e. 140 million of the 400 million Chinese internet subscribers. Baidu and Bing will definitely see an upside with this development.
  • Immediate Impact:- Already, in the last three months, Google’s stock price has fallen by 1.5% as against Baidu’s rise of 15%.

  • Opportunity loss:- Some analysts’ feel the opportunity loss for Google in the next 5 years is estimated to be about $ 400 million revenue income from China, which is quite insignificant   against their overall global plans. Their may be a blip in Google’s Android handset launch in one of   the fastest growing telecom markets in the world.
  • Chinese User behavior:- Unlike trends in many “Free” internet markets, the Chinese internet users are basically NOT searching for information but Lifestyle. Gaming, Social networking, shopping, music & entertainment are the real drivers that constitute China’s $ 11 billion annual internet revenue income (2009).

Thanks to Baidu‘s strength in China, they stand in the 3rd place in worldwide internet search with 7% share, only after Google (67%) and neck to neck with Yahoo (8%). Microsoft sites are at a distant 4th position with 3% share (which is now gaining traction with Bing).

Google’s decision to quit China understandably affect Google’s shareholder’s, as one can easily feel jittery leaving out the most populous country in the world. However, Google’s fundamentals are strong. The Google success story was never about China. With the recent global economic turmoil, Google has just about scratched the surface of the immense potential advertising revenue it can get when company’s migrate from traditional to digital means of advertising in rest of the world. Also, Google has only done a “Partial” retreat. Their plans for Android, etc. in China are yet unchanged.

The impact on China & their strategy?

  • Credibility & Sovereignty: China’s stance on the topic is very clear. To preserve their culture and control on public information, all media in China (by law) is censored by the government and Google is no exception. After all, how would the US react if one fine day Yahoo Corporation were to stand up and say they did’nt care about US cyber laws? The problem is that China goes to any extent in meeting such objectives, which includes but does not limit to the use of force, stealth & mercenary tactics even. They are also highly nationalistic while dealing with foreign players in their country (Especially US corporations).
  • Internet & mobile user base:- China has a 28.9% internet penetration with a whopping 400 million subscribers. A large quantum of these (140 million) are Google users. ‘China Mobile Ltd. – the world’s biggest phone company by subscribers, with 527 million accounts, also uses Google for mobile search and maps.
  • Local players & their impact:- Tencent (Instant messaging), Alibaba (B2B trade), Taobao (Ecommerce) & Baidu (local search) are already leading business players. With Google’s departure, Baidu will grow stronger in internet search. As Youtube exits, Youku and Tudou will gain advantage… But, without global competitors, they will never become World class.
  • Local Entrepreneurs:- Another significant impact of a Google departure could lie behind the scenes, where many small Chinese companies, & entrepreneurs, rely on its AdWords advertising service, Gmail e-mail and documents services.
  • Unemployment:- With an explosive population in Mainland China & growing unemployment, such steps will isolate the country from the Global economy and limit the country’s economic growth.
  • Curiosity amongst Chinese Netizens:- It may be easy for the government to allow Google to shut shop, but telling 140 million people to suddenly change their behavior because the government wants to hide information from them, will not be a cake walk.  China may have to deal with great tact to contain the growing curiosity amongst such a vast population. What if they were to find out? My belief is that China will not unplug Google- Hong Kong’s access, but continue censorship and deteriorate their speed & quality such that users gradually migrate to alternate options.
  • Rampant Piracy:- Interestingly, Google (in a Chinese JV) also runs Top100.cn – which provides free music downloads across many labels in an unlicensed manner. There are doubts on the company’s future operations too. Top100 has been instrumental in reducing the Piracy in China which could suffer a dent for the industry as “Piracy thrives on censorship”.

The numerous chocolates, flowers & parting notes left on the Google’s signboard in Beijing office expresses a popular sentiment. Google’s dramatic exit from Mainland China, is no longer a clash between two rivals, but a more symbolic moment in history, which is bound to have an economic, political, technical and fundamentalist impact in the world over in coming times. This could even become a turning point in China’s  communist policies, as well as a revision in defining “A Free World”… and each one of us will feel it.

4 Comments »

  1. Vix, point well thought of, well understood and very well written. In this age of Internet, it is very difficult to block net behaviour. I am sure chinese government would have all the means to achieve that, but I believe Google is way too ahead of anything. Right from mapping every square meter of the planet to earning billions by providing free services is not a kids play! They could have routed netizens to any place they wanted and yet stayed out of legal troubles. And if they have announced to leave – I am not sure what is in store. But I agree with your punchline – this could be a turning point! Lets wait and watch!

    Comment by Kapil Bamba — 24 March, 2010 @ 10:39 pm | Reply

  2. I think its a high time that someone spoke for humanity and human rights. Google has taken the right step. Let Chinese government stay in its own cocoon.

    Comment by Kapil — 25 March, 2010 @ 10:07 am | Reply

  3. Vikram,
    I like your post. My feelings though, are a bit different. Google’s exit while noteworthy and possibly noble does not guarantee that all world class IT companies are suddenly going to exit from China. I’m sure their affairs in China as equally ‘monitored’ by the government.

    Google has added some credibility to their slogan ‘do no evil’ but it still exists in other countries where internet access is censored. China was merely the most notable one.

    The Chinese government has learned the art of silencing the influential middle class by allowing them to thrive in a pseudo-capitalistic model while still maintaining firm control over the overall government power. If anybody thinks Google’s exit is going to have any impact in their policy then , in my opinion, that’s mistaken. The Chinese who live in China have a sense of pride about their standing in the world. After all they control the purse strings of the great capitalist – America. Democracy is chaotic, ugly and in the end its the closest thing to complete freedom. But what the Chinese want their people to see if the ugly part. The two biggest democracies – India and the US are not exactly the smoothest ones to run as current events will attest.

    If there is hope that China will ‘open up’ its government then it lies at the feet of its expat population. Those that have seen the ‘light’ and would never again accept government interference in their lives. When they go back to their country to visit or to resettle, they take back ideas and visions. Only they can effect positive change. It has to come from within. All external parties like Google are simply playing to their audience. But that’s my opinion.

    Comment by Shiv (Pattar) — 28 March, 2010 @ 6:31 pm | Reply

  4. Good Post

    Comment by Tarun Malik — 4 May, 2010 @ 1:23 pm | Reply


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