20100124 Google’s irrevocable China play

Google’s irrevocable China play

By Esther Dyson
Sunday, Jan 24, 2010, Page 8

Usually, disclosure statements go at the end of an article, but let me start with mine.

I sit on the board of Yandex, a Russian search company with a roughly 60 percent market share in Russia, compared with Google’s 20 percent or so. I am an investor in and adviser to AnchorFree, the company that offers Hotspot Shield, a publicly accessible virtual private network (VPN) that allows users to keep their browsing private — whether they are concerned about thieves stealing their banking details or about governments monitoring where they surf. We have about 1 million users monthly in China (out of 7 million worldwide).

I also sit on the board of 23andMe, a company co-founded by the wife of Sergey Brin, the co-founder of Google. So I have a variety of interests in the topic of Google’s recent moves in China.

In the beginning, I supported Google’s presence in China. My fundamental belief is that every time a user gets information, it reinforces a little part of the brain that says: “It’s good to know things. It’s my right to have information, whether it’s about train schedules, movie stars, or the activities of the politicians who make decisions that affect my life.”

If you can ask questions about some things but not about others, eventually you start to wonder about that fact itself. Google’s (and my) hopes that it could help liberate China look a little naive now.

Of course, censorship is not a big secret in China. China employs approximately 30,000 people as censors. They have names and faces, and they may negotiate with a publisher about a particularly sensitive topic. They are less likely to negotiate with bloggers, because there are so many bloggers, but the government reportedly does train bloggers to post in support of government policy, and if you are lucky you can get a job (reportedly at US$0.50 per post) doing the government’s bidding.

So why has Google made a fuss and threatened to walk out of China? The answer probably stems from a combination of — or rather, a changing calculus around — business interests and values.

The censorship issue has long grated at Google (Brin, with his Russian background, is reported to be especially hostile to censorship), but the company could argue that transparency about censorship was better than not serving China at all.

The censorship, however, has been getting worse. Perhaps the initial argument was wrong: Exposing Chinese censorship has done little to reduce it.

Many Chinese support government censorship: They see it as a way to maintain civility and order. They know that their government is fragile, and they consider criticism harmful rather than cleansing. They trust their government to deal with problems over time.

At the same time, while China represents a huge market in the ever-receding future, it has not been an especially lucrative market for Google so far. Baidu, the indigenous rival to Google, benefits in many ways both from government support and from home-team nationalism among users.

More generally, China probably looks less appealing to investors now than it did a few years ago, not so much because of the Chinese economy as a whole, but because of constraints on the ability of any foreign entity to make serious long-term profits.

This growing disillusionment was already present when a wave of cyber-attacks on Google (and other companies) forced the company to re-assess its entire China strategy. There are certainly other ways that Google could have handled the issue — for example, by capitulating to the Chinese government’s various requests. That would certainly not have comported with Google’s public values, and it would probably have been a bad business decision as well.

When you go into a situation like this — whether joining a board or entering a market — you always have one option left, which is to walk away. If you cannot do that, you have no negotiating power. But if you do have that option, you must be ready to exercise it.

That is what Google has done in China — where its move is irrevocable. The company can’t go back to the old situation. Nor is China likely to say, “We weren’t hacking you … and we promise never to do it again.”

So, while Google is unlikely to re-enter China for the foreseeable future, the company has improved its negotiating position in whatever other disputes it might have in the future. (And it has won support from the US government.)

What can Google do now? My friends at AnchorFree want Google to support Hotspot Shield in some form or other, although Google’s exit from China might be support enough. Hotspot Shield is one of the best ways of “scaling the wall” to peer outside the locked-down Chinese Internet and use sites such as Twitter, Facebook and, of course, Google.com (as opposed to Google.cn).

Like Google in the past, AnchorFree may operate more effectively by being discreet, without loud support from Google or other “foreign interests.” Its Web site is often blocked in countries such as China (and many in the Middle East), but there are usually other ways to obtain the software. Google, too, may be blocked, but there are ways to get to it for those who are determined. The next steps are up to the Chinese users themselves.

In the end, China knows that it can’t make the Internet airtight. So someone in the Chinese government is probably having regrets.

It’s tempting to predict how this will end. But I think it won’t end. As within Google, so within China: Decisions are made, but not everyone agrees with them. There’s a conflict between business interests and moral values. The tug-of-war will continue for the foreseeable future. But in this little battle of a long war, transparency has won a victory.

Esther Dyson, chairman of EDventure Holdings, is an active investor in a variety of start-ups around the world.