Wednesday, December 4, 2013

What Real Strategy Looks Like: Google and China

After reading, Strategies That Fit Emerging Markets, I immediately recalled the strategic decision of Google to exit the Chinese internet search market, which was publically hailed in the West as a symbolic move reflecting Corporate America’s condemnation of censorship and corruption in China.  But, Google is a business, and businesses and business owners are not typically driven by public sentiments, they are driven by sales and profits.  So what could have been the real reason for Google to exit such a large and growing market?  And then I came across the article, The Real Reasons Google’s Leaving China, which re-affirmed my understanding of capitalism and my belief in the cunningness of corporate executives.

Suffice it to say, freedom and justice was not the impetus for their decision.  Rather, like Dell, they were changing their strategy.  Google was not making sufficient ground against Baidu in the search market and possibly they determined that maintaining a 13% market share was an unsustainable business proposition.  So what did they do?  They re-aligned their resources and concentrated them on their Android mobile market.  Leveraging their hardware and operating system to attract new Chinese users through the growing and unexploited mobile phone market.  This was a strategy that Baidu could not compete with.  In essence, Google ceded the Chinese personal computer search market in order to gain favor with the U.S. government and to outflank their competitors by concentrating their exploitation of the Chinese economy in the mobile search market.  By providing their operating system and mobile search service to an underserved 750 million new mobile phone users, Google could introduce it’s service and search capability to a much larger population that was not already committed to using the services of its competitors.

Google did not leave Chine, it merely changed its strategy.  In context, perhaps Google has fooled us all.  And in the end, the best strategy is the one that you do not see coming until it is too late. 

PR, Politics and Money: The Real Reasons Google’s Leaving China by Stuart Turton   

The Real Reasons Google’s Leaving China

Talking about censorship on the internet is a doomed endeavour. Contrary to popular belief, the internet isn’t a forum for discussion, it’s a bullfight. Online articles are taunted and teased, while crowds of anonymous faces spit vitriol. In most cases the importance of the topic is almost directly proportionate to the weakness of the comments posted, as people flock to defend their already entrenched opinion and strike out at imaginary sleights – rarely adding anything of worth to the debate.

Constructive debate requires expertise and open-mindedness. Online debate could almost be defined by a lack of both. We don’t visit online articles to praise them. We come to bury them. This is my belief and I want you to understand how deeply it’s held, because I’m about to talk about censorship on the internet, or the appearance of it, at least.

For the past two months, I’ve watched Google beat its drum and take a stand against Chinese censorship. Standing just behind it, beaming from ear-to-ear as public opinion and political expediency move into rare alignment has been the US Government, pushing Google forward as a poster child for net freedom. Now, Google and its cheerleader are using that drum to beat Microsoft over the head for not taking a stand against China. “I’m very disappointed for them in particular,” Google co-founder Sergey Brin said of Microsoft. “As I understand, it [Microsoft] has effectively no market share – so they [Ballmer and Gates] essentially spoke against freedom of speech and human rights simply in order to contradict Google.”

They (Microsoft) need to get with the program and join with the side of human rights, instead of being on the side of tyranny as they are today

Not tough enough for you? How about this from US Congressman Chris Smith? “They [Microsoft] need to get with the program and join with the side of human rights, instead of being on the side of tyranny as they are today.”

Three questions: if the roles had been reversed would Google have followed Microsoft out of China? Secondly, if Google hadn’t spotted the hack on its network, how many more years would it have continued to operate its censored search business? And finally, by leaving its R&D and sales teams in place, and continuing to launch new products in China – including Android and Chrome OS – is Google not continuing to “enable tyranny”?

I have no problem with Google pulling out of the Chinese market, but I’m wary of how that departure is being spun for political point scoring. Microsoft’s reason for staying in the country may ring hollow – change the system by working within it – but it was good enough for Google only three months ago. So, what’s changed?

Motivation and priorities

Much has been made of Google’s willingness to sacrifice the lucrative Chinese market, but just because the magician’s disappeared from the box, it doesn’t necessarily mean he’s left the stage. Analyst Youssef Squali at Jefferies & Co has estimated that Google earned between $250 million and $300 million from China last year, representing between 1% and 2% of its total revenues.

Before launching, the search giant had carved out a 13% share of the market, which lifted to around 20% when Google moved servers onshore. Experts suggest it will fall back to around 13% over the coming years. These figures aren’t great, but Google won’t be opening any arteries, because like any good magician, there’s still a rabbit to be pulled from the hat: Android.

Mobile search is a big business in China. Official government figures reveal the country has 384 million internet users, and 181 million of them access the web through their phones. Overall, it’s estimated that the middle kingdom has 750 million mobile subscribers and unlike the desktop search market, which is confined to China’s wealthy middle class and internet cafes, mobiles and browsing packages are heavily discounted. This is a vast market that’s only going to grow, and Google’s feeding it Android – a platform that offers a direct line to its online services, advertising and search.

Google’s presented its China stance as a brave gamble. Rubbish. It’s thrown down a pair of twos knowing it’s got three kings up its sleeve. In return, it gets a wave of public goodwill to shore up its crumbling “don’t be evil” fa├žade, and the gratitude of the US Government.

It’s the latter that’s the big win here. Google’s long-term plans are dependent on infrastructure – from laying fibre and setting up DNS servers, to buying and selling power – and this strategy requires the US Government’s goodwill. A friendly ear wouldn’t hurt when it comes to quelling those antitrust and privacy murmurs that are cropping up more and more frequently, either.

Don’t forget, Google’s proposed deal with Yahoo was killed stone dead by the US Government in November 2008, while rumours continue to swirl that the FTC will take a long hard look at its AdMob acquisition. If any further evidence was required that Google’s keen to cosy up to the Government, it’s worth noting that the search giant publicly asked the NSA to investigate the attacks on its network and shore up defences in the wake of the December hacks.

And this isn’t a one-sided relationship. Google’s a convenient lightning rod for the Obama administration, which looks likely to label China a “currency manipulator” in a Treasury Department report on 15 April, allowing it to slap additional tariffs on imports from the country. Such an action is likely to start a trade war between the two countries, driving up prices of goods in the US – an action that will prove deeply unpopular with most Americans, unless, of course, they’re already on side.

There’s the trick, and it’s the neatest piece of sleight of hand you’ll ever see. This is a debate about censorship that’s got absolutely nothing to do with censorship. It’s about money, PR, prestige and politics. If it was about censorship, I wouldn’t have tackled it in the first place, because, you see, talking about censorship on the internet really is a doomed endeavour – thank heavens Google isn’t actually trying it.

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