Google In China:

Dont Be Evil But What About the Profits?

Sayantan Ghosh Dostidar Siddarth Chawla Snehil Krishna Verman Sourav Kakrania 112 116 117 118 Stuti Dwivedi 119 Sushmit Mukerjee 121 126 Vignesh Venkataraman Tapas Kolte 134

Executive Summary
Form the year 2002 onwards, Internet giant Google went many hardships in China due to governments censorship over internet. Apart from that Googles China rival Baidu.com was behind the scene as they intended to grab the market share which hold by the Google.com The purpose of this case study is to study and understand how such a multinational company went wrong unable to understand the culture in a country. The study highlights the impact that Google had to undergo during 2002-2010 period of time in China. As a result of the pressure that Google faced in China, ultimate decision was to pull out and established companys search engine in Hong Kong as Google.com.hk. For not maintaining a good relationship with Chinese government let Google in a terrible position as they had to pull out from a well growing Chinese internet market, which was a huge blow in Googles financial perspectives. The analysis of Google in China have shown how inter personal relationships in businesses, especially in terms of China, affects the companys profit, image and success. Understanding each countrys culture is a must and it immensely helps to provide a sound service towards its customers.

Case Background
Google launched the Google.com in China in the beginning of 21st century, but that was operated from outside of China, California-USA. As from financial point of view, Google saw China as a dynamic and fast growing market despite of increasing competition. Chinas internet market was about 105 million in 2006 which represented only 8% of the Chinese population. According to Googles 2006 projections Chinese internet market was expected to grow from 105 million users to 250 million users by 2010. Chinese government functions under the leadership of Communist Party, who are more keen on protecting the countrys government and political situation by out-coming threats. Chinese Government takes any action at any cost to prevent those situations. One of the governments main concerns was the Internet. Chinese censorship was effective, though not total - information was available on a limited scale. Chinese Ministry of Public Security was using a system call Great Fire Wall to block their citizens from seeing some overseas news reports and searching various words and pornography in search engines.

The Great Fire Wall

The Great fire wall or The Golden Shield program was initiated in 1998 and began operations in 2003. It has been nicknamed the Great Firewall of China in reference to its role as a network firewall and to the ancient Great Wall of China. A major part of the project includes the ability to block content by preventing IP addresses from being routed through and consists of standard firewalls and proxy servers at the Internet gateways. The system also selectively engages in DNS cache poisoning when particular sites are requested. In Chinese internet market Googles major competitors Yahoo and MSN each had entered Chinese market as Internet Services Providers (ISP) earlier. In addition, Chinese search engine Baidu.com was the major competitor that Google.com faced in China.

History: TIMELINE
China blocks access to Google for the first time. Although there is no official announcement, Internet users in the country report they are unable to access the company's main search page for two weeks. From this point until the launch of google.cn in 2006, Chinese web users access Google through its main, uncensored google.com address.

Google is founded. One of its corporate mantras is: Dont Be Evil.

Google buys a minority stake in "Baidu," the leading Chinese-language Internet search company, indicating its interest in the world's second largest internet market. It will sell its stake in Baidu in June 2006 to concentrate on growing its own business.

1999

2000

Sep 02

Nov 03
Kai-Fu Lee, a former Microsoft executive, joins Google as a global vicepresident in charge of China, and announces a plan to establish a research centre in China

Jun 04

Sep 04

Google begins offering a Chinese-language version of Google.com. But the website, which cannot be accessed about 10 per cent of the time, is slow and unreliable, apparently because of the extensive filtering performed by Chinas licensed internet service providers

Google excises anti-government material from its Chinese search results for the first time. A "handful" of government-banned sites fail to show up on a Google News search from inside the country. Google says the sites were left off for technical reasons, but critics say the company is kowtowing to pressure from Beijing

History: TIMELINE
Google sets up Google.cn, a Chinese language version of its search website. The company comes under fire for censoring web searches for political content, in accordance with the Chinese authorities' wishes. Protestors wave placards outside its headquarters, and commentators compare them to "Nazi collaborators." One year after launching a Chinese site, Google has failed to take a hold on the market like it has in the West. It has a 19% share of the market, second to Baidu's commanding 63% share. The company invests in Xunlei.com, a small start-up, and teams with China Mobile, the government-owned telecoms firm, to offer mobile content.

Access to YouTube, the video-sharing site owned by Google, is blocked by the Chinese authorities after a video of Chinese police officers beating Tibetan protesters appears on it. The block is lifted four days later.

Jan 06

Feb 06

Jan 07

Jan 09

Mar 09

June 09

Google is criticized at a Congressional hearing for giving in to pressure from China to censor web content. Yahoo, Microsoft and Cisco are also named. Tom Lantos of the House International Relations subcommittee tells the four companies: "Your abhorrent actions in China are a disgrace."

Google is one of 19 companies criticized by the Chinese Govt. for failing to do enough to block pornography.

Chinese authorities disable some search functions on Google.cn, reasoning that it links to pornographic and offensive content. Gmail is inaccessible for more than an hour

History: TIMELINE
Google China's share of the internet search market rises above 30% for the first time in the first quarter of 2009, but is still second to Baidu, which retains around 60% of the home market Li Yizhong, the minister of industry and information technology, says Google would be "unfriendly and irresponsible" not to comply with China's censorship laws.

Three weeks after Google's announcement, the company admits it has made "zero changes" to its Chinese search engine and that discussions with Beijing remain positive.

July 09

Jan 10

Feb 10

10 Mar 10
Breaking the company's silence, Eric Schmidt, the chief executive officer of Google, says that "something will happen soon" in the standoff over internet censorship in China.

12 Mar 10

15 Mar 10

Google announces it has been the victim of a "highly sophisticated and targeted" cyber attack originating in China, designed to access the e-mail accounts of Chinese human rights activists. It announces a "review" of its business operations in the country, and says it is "no longer willing to continue censoring" its results on Google.cn. It acknowleges this may mean the end of its business in the country

After two months of talks between the two parties, the Chinese authorities let it be known that Google.cn is likely to close. Sources within Google confirm this.

History: TIMELINE
Media reports suggest Google has stopped censoring its Chinese site, with previously banned images such as the Tianamen Square protests now seen on the site. But the company denies it has ended censorship Google says it is making a final attempt to maintain a presence in China, after the government threatens to shut it down by the end of June. The internet group will place a voluntary link to its Hong Kong site on the Google.cn home page, rather than automatically redirecting users, in a bid to appease the authorities ahead of a licence renewal due at the end of the month Google announces that Gmail accounts belonging to US government officials, Chinese political activists, military personnel and journalists have been the target of a spear phishing attack which it has traced back to Jinan, China.

16 Mar 10

22 Mar 10

June 10

Jul 10

May 11

June 12

In what is seen as an "attempt at a compromise," Google shifts its operations from mainland China to Hong-Kong, where the country's censorship rules do not apply. Google.cn now has a message saying "Welcome to Google Search in China's new home."

The Chinese government renews Googles licence to operate in the worlds largest internet market, appearing to accept a compromise offered by the US search engine over internet censorship Google initially redirected all its traffic from China to a Hong Kong based site outside the reach of censors. It then stopped the automatic redirect and created a static landing page giving Chinese users the option of clicking on a link to the uncensored Hong Kong site.

Google has begun warning users in China of certain search words that may trigger the country's Internet censors, and has rolled out a new warning for accounts it believes are the targets of "state-sponsored" attacks, with many Chinese activists receiving notifications.

Dont Be Evil
Dont be evil. We believe strongly that in the long term, we will be better servedas shareholders and in all other waysby a company that does good things for the world even if we forgo some short term gains. This is an important aspect of our culture and is broadly shared within the company.
Sergey Brin and Larry Page, 2004 Founders Letter

Part of Popular Culture

Chinese Market
Population of 1.3 billion
111 million internet users Growing at 18% per year 2nd largest internet market in world

Competitors
Baidu.com
Chinese company with 48% of market share

Yahoo.com/Alibabba MSN

Google Today
Managed as a triumvirate
Committee of Schmidt, Page, and Brin

5th most popular website

380 million visitors per month 50% of users are international

Growth based entirely on word of mouth

No advertising Reputation of reliability, unobtrusive advertising, company success

Department of Justice
Subpoena in December, 2005
Requested 1 million random search records Investigation to support Child Online Protection Act

Google refused to comply

Cited importance of user privacy MSN and Yahoo provided records Trial pending for late February, 2006

Censorship
Previous Google presence in China on Google.com
Censored by government Search filtering caused significant slowing of results

New site Google.cn

Google provides censoring of all officially objectionable subjects
Dalai Lama Tibet

No Blogs or GMail service

Google.cn
Google share price rose 3.6% in just one day with announcement of Google.cn on January 20, 2006

Protest
Reporters Without Borders
Press release issued January 25 2005 survey of press freedom
China ranked 159 out of 167 Censorship increases isolation

Human Rights Watch

Testimony before Congressional Human Rights Caucus February 1
Governments unable to repress information without the help of U.S. search engines Proposed collaboration

U.S. Competitors
Yahoo MSN
Conviction of Chinese journalists
Encouraged government to regulate

Forced to close blogs

Policy for blocked sites Claimed the ability to withhold information no longer exists

Cisco Systems

Helped develop the network upgrade that enables censorship

Dont be Evil
While removing search results is inconsistent with Googles mission, providing no information or a heavily degraded user experience that amounts to no information is more inconsistent with our mission.
- Andrew McLaughlin, Senior Policy Council

Should the Firms Take a Stand?

Congressional Human Rights Caucus
Google, Yahoo, and Microsoft not in attendance Google released a statement to the Caucus
Not offering email, blogging, or chat rooms Chinese users notified of censorship Continuing to offer U.S site

Legal Action
Congressional Hearing
Representative Chris Smith, chairman of House Subcommittee for Global Human Rights Examine operating procedures of U.S. companies in China
Microsoft, Yahoo, Google, Cisco State department officials NGOs including Reporter Without Borders and Human Rights Watch

Criticism
I believe their (U.S. search engines) performance at the hearing was worse than dismal. They were unprepared to admit to any mistake, to any shame, to any responsibilities for what their behavior had brought.
Representative Tom Lantos, Chair, House International Relations Subcommittee

Potential New Regulations

Global Internet Freedom Act
Creation of global Internet freedom policy Task force to fight international Internet jamming

Global Online Freedom Act

Forbids U.S Internet companies from cooperating with, or locating servers inside counties that abuse human rights

Shareholder Reaction
Volatile share price
High price of $471.63 in mid-January Dropped 7.5% in response to controversy with U.S. Justice Department Increased 3.6% the day after the announcement to enter the Chinese market Dropped steadily in light of censorship controversy low of $342.38 on hearing date Increased since then - $377.40 February 24

Under Investigation in China

License issues Pressure to provide email, blogging services and to remove access to U.S. site Problems more political than legal

Looking Forward
Google faces many challenges
Repair tarnished image Convince public that their presence in China is not contradictory to their principles Balance interest of American and Chinese users Protect the privacy of Chinese users from Chinese government

Discussion Questions
As Google continues to grow is it possible to maintain the same corporate structure and philosophy the company was founded upon? Can Google remain competitive in the Chinese market without offering blogging and GMail services? If not, how can they protect themselves and their users privacy? Do businesses have a responsibility to uphold human rights when entering international markets? What long-term implications will this decision have on Googles reputation? Has Googles decision compromised their business principles, or is providing some information better for the Chinese people than none at all? Is Googles refusal to comply with the Department of Justice investigation contradictory with cooperation with Chinese censorship policies?

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