Google's China decision ignores conventional wisdom

The likely effects of Google's move to stop censoring are debatable, but there will undoubtedly be ripples

Google's decision to stop censoring search engine results in China, announced in a blog posting Monday, flies in the face of common wisdom when it comes to doing business in the country.

China is supposed to be too important to ignore, the promise of a market with more than 1 billion people too lucrative to pass up. Common business wisdom holds that no company can afford to ignore, let alone walk away from, China. But Google has taken the first step, redirecting search, news and image results from Google.cn to servers in Hong Kong, "where we are offering uncensored search in simplified Chinese, specifically designed for users in mainland China," the blog said.

Other aspects of Google's business, such as its Android mobile OS, will continue to be available in China, but Google isn't in the mobile phone business. Android was created to increase mobile Internet usage, and therefore drive up mobile demand for Google services and create new opportunities for advertisers. But Google's search engine can be easily replaced, as Motorola recently proved when it announced that its Android handsets sold in China would come with Microsoft's Bing set as the default search engine.

Despite the promise of talks between Google and the Chinese government over censorship rules and the public nature of Google's announcement, with its declaration that the company was willing to close its Chinese operations, if necessary, the outcome was predictable. China was never likely to change it's censorship policies, which have increased in scope and sophistication in recent years, over demands from a foreign company.

In the official blog post on Monday, Google Chief Legal Officer David Drummond said that "the Chinese government has been crystal clear throughout our discussions that self-censorship is a non-negotiable legal requirement." Although Google claims its maneuver is "entirely legal" and "sensible," the company is well aware that China's response could be to block all Google services in the country, according to Drummond. For now, Google intends to continue research and development work in China, and to keep a sales team there.

Google China was always in a tough spot. The Chinese government warily guards the flow of information within the country and has long been seen backing Google's principle rival, Baidu.com, over others in the search market.

Google first fell afoul of Chinese censors in September 2002, three years before it set up its first office in the country. At that time, Chinese access to the site was blocked for 10 days over government concerns about user access to information. A few days later, Chinese authorities made changes to DNS (Domain Name System) servers in China that redirected traffic to local search engines, with the majority of users redirected to Baidu.com.

Up until that point, Google was the most popular search engine in China. Afterward, the company fell behind Baidu and never caught up.

The immediate financial impact of Google's decision to stop censoring results for Google.cn users will be slight. Although Google's revenue from China hit a record high during the final quarter of 2009, it was "immaterial" in the context of its overall revenue, the company said in January, without offering a specific number.

Moreover, most of Google's fourth-quarter revenue from China came from advertising on its main site, Google.com, instead of Google.cn, the company said.

Even so, the effect won't just be felt by Google. The Chinese government has gone to unusual lengths to prepare public opinion ahead of Google's announcement, reportedly pulling in Chinese media for a briefing last Friday on how to handle the news.

That same day, Li Yizhong, China's minister of industry and information technology, warned Google not to stop censoring search results on Google.cn. "If you don't respect Chinese laws, you are unfriendly and irresponsible, and you will bear the consequences," Li said, according to a report carried by the official China Daily newspaper.

Juan Carlos Perez in Miami contributed to this report.

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