Assessing Google's showdown with China: Does it make sense?

Assessing Google's showdown with China: Does it make sense?

Summary: On the surface, Google's threat to shut down its China operations after a cyberattack on its infrastructure looks like sheer business lunacy. How can the search giant give up on the world's biggest growth market? It's easier than you'd think.

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TOPICS: China, Google, Security
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On the surface, Google's threat to shut down its China operations after a cyberattack on its infrastructure looks like sheer business lunacy. How can the search giant give up on the world's biggest growth market? It's easier than you'd think.

First, the background. Google in a long blog post detailed how it suffered a cyberattack that changed the company's outlook on China. The key points (Techmeme):

  • The attack was coordinated and focused on 20 large companies and some appear to be confirming that they were also involved.
  • The aim of this attack was to get the Gmail accounts of Chinese human rights activists.
  • The attack also focused on U.S., China and Europe-based Gmail accounts that supported human rights in China.
  • Google is way public about this attack and its reaction to them.
  • Google says it won't continue to censor search results and may just shut down operations in China.

Reading all of this laid out in a blog post can be summed up in one word: Wow. Now let's look at how Google arrived at this big decision, which could result in a complete pullout. Why would the Chinese government give a hoot if Google leaves the country? If Google departed, the Chinese government's chosen champion---Baidu---will lock up all the search share. Baidu already has 63 percent of the Chinese market, according to comScore.

Also: Google threatens China pullout after cyberattack · Adobe confirms 'sophisticated, coordinated' breach · Bravo! Google takes a stand for human rights in China

So let's look at some of the calculus behind Google's big decision on China. Google's currency is user trust. As a global business that profits from tracking users and tailoring ads to them security matters a lot. If users don't trust Google to keep their data safe Google's business suffers. In that light, Google's showdown with China makes sense. Google can't let one country---even one that could be insanely profitable---erode the company's goodwill it has built up in its short history. What happens in China can hurt Google's other businesses. It's no coincidence that Google launched an blog about enterprise security to ride shotgun with its primary riff about China. A coordinated attack on Gmail is a blow to cloud computing.

Dave Girouard, president of Google Enterprise, wrote in a blog post:

While any company can be subject to such an attack, those who use our cloud services benefit from our data security capabilities. At Google, we invest massive amounts of time and money in security. Nothing is more important to us. Our response to this attack shows that we are dedicated to protecting the businesses and users who have entrusted us with their sensitive email and document information. We are telling you this because we are committed to transparency, accountability, and maintaining your trust.

Simply put, none of Google's new ventures---Nexus One, Google Apps, Google Checkout etc.---make sense if the users don't trust them.

Google doesn't have as much to lose in China--at least today. Simply put, China is one of Google's weakest markets. It sounds crazy, but if Google is going to close up shop China is one place where it could do so without a significant financial hit. Google is second fiddle to Baidu. Meanwhile, Google may be able to compete in China from outside the country. Here's comScore's data on the Asia Pacific search landscape:

There may be a regulatory payoff. Let's face it: Google needs a lot of government approval on many fronts. Google has to worry about antitrust regulators meddling in little purchases such as the search giant's acquisition of AdMob. European Union watchdogs are increasingly eyeing Google. Taking a hard line against China can win over a lot of fans in Washington D.C. It's hard not to like a company taking a stand against China---especially since the U.S. government can't right now (China is our banker).

Google's threat to leave China may be a bluff. Google made waves, but left a door open to discussion with the Chinese government. It's possible that both sides want some sort of agreement. After all, we're talking business and money here.

Topics: China, Google, Security

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198 comments
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  • They were loosing anyway

    Google has never been able to catch Baidu in China, and has had to face the reality that the ad market is still very immature in China.

    Yes there is a challenging regulatory environment and the Government has a tendency to have kneejerk reactions but it is a free-er market than it was 10 years ago and we need to keep pushing to help them mature.

    If Google leaves it does so because they see it as a graceful exit in a market they have not succeeded. Rather see them fight the good fight.
    bschuler
    • Baidu is a copycat

      Give me a break. Baidu is a heavily censored site, a proxy to commie.
      FADS_z
    • If it can happen in China ...

      then what is to stop it from happening elsewhere? If they get a similarly significant attack in the US, are they going to consider closing shop here? It seems to me that they were looking for a scapegoat to pin their departure on. This one is perfect
      JonWayn
  • Google will still be atacked as long as they are connected to the Internet

    How would pulling out of China prevent any future attacks? Anyone on the Internet can be attacked, right? Find a good time to exit China and become a good guy again at the same time? Is that why google tries to make the attack look like a political attack instead of a usual attack, even though the hacker(s) targeted both google source code and email accounts?
    "The cyberattacks last week came from Taiwanese Internet addresses, according to James Mulvenon, an expert on Chinese cyberwarfare capabilities. Mr. Mulvenon said the stolen documents were transmitted electronically to a server controlled by Rackspace, based in San Antonio."
    As far as I know, Taiwan is China's rival, therefore this does not implicate China more than any other country.
    cool_techie
    • The reason they are pulling out...

      They may pull out because they are no longer willing to censor their searches to please the oppresive Chinese government. Maybe somebody looked at their moto "Do no Evil"...
      prof123
    • Quid Pro Quo

      We'll censor your stuff as long as you leave us alone otherwise.

      People's Republic of China broke the deal with authorizing these fishing attacks on Google. And just because the attacks were coming from Taiwan; doesn't mean they ultimately originated there. Typical, and economical, of the PRC to try killing two birds with one stone. Grab the data on dissidents and implicate Taiwan at the same time.
      Dr_Zinj
      • Wasn't the original deal bad enough?

        Any and all companies that censor searches then alter the returned results need to stop doing so immediately. It's aiding and abetting crimes against humanity which just can't be tolerated from companies based in the free world.
        I have said this from the outset. Many backed Google's statement from Schmidt at the time which was simply "we must abide by the laws of countries we do business with" which to me said "we'll do anything for cash".
        But almost all of the Linux zealots here backed Google on that deal and now they are most likely giving them a Wayne and Garth.
        Google uses Linux, therefore they can do no wrong.
        What has to be wrong with your life to think that way? (Not you, I'm just wondering in general. )
        xuniL_z
    • Missing the point

      How will pulling out of China forestall any future attacks on Google you ask? First of all, Google may be many things, but stupid isn't one of them.

      If in fact Google suspects the attacks were for the benefit of the Chinese government then you can count on Google believing that for a good reason. Thats not to say that Google does honestly believe that for a fact, but the tone of Googles response to the situation appears to be that is what they are implying.

      And given the attacks were on Googles Chinese assets, if in fact the Chinese government was behind the attacks you can count on nothing more then a phantom investigation taking place by the Chinese authorities. That would clearly put Google in China operating in a less then secure environment where there would always be the omni present threat of having their resources attacked at any time with the knowledge that because the government is behind the attacks there is no real threat of government prosecution of the offender. That, in most respects is perhaps the most serious type of security risk imaginable.

      Think about it; operating in a country where there is an entity with massive resources posing a constant security threat to your infrastructure and the perpetrators will never be seriously investigated, never mind actually prosecuted within its own boarders. It would be an absolute affront to any business operation.

      Certainly Google can still be attacked even if its not in China, but it would at least eliminate the potential of being stuck in a country where the attacks are never able to be properly investigated because it is the countries government supporting the attacks.

      Now agreed, if this was an environment which otherwise was without issue Google might have been more willing to hang in and see if the situation could be resolved, but this is not an environment which is otherwise without issue.

      China is an uneasy environment to do business in from the get go for any western business because of ongoing human rights issues in China for starters. The potential for negative press due to operating in such an environment is always hanging over ones head when they do business with a country like China.

      Secondly, the Chinese government are control freaks and have exercised that control from the start with their demand for filtering of searches. This is not seen as an acceptable business practice in the western world and only brings down more scrutiny generally on Googles head from an international perspective on Googles reputation for honesty and fairness.

      Thirdly, from a financial point of view, as the article pointed out, its not like Google would be giving up the lions share of the market anyway. Trying to hang on to what little they have in China in the face of this kind of a security breach would look to many as if Googles greed was a far more significant component to their business model then security. Trying to hang on to every little bit of your market even in the face of egregious risks to your customers can only come across as greed.

      The scenario as a whole bodes poorly for a company like Google that has promoted themselves as a company that "does no evil". Pulling out of China may be even more then the smart thing for Google to do, it may be the dumb thing to do anything else in the circumstance.
      Cayble
      • Do u understand "Internet"?

        Technically, how does it make any difference if the targets of the attack are inside China or not? On the Internet, everything is accessed via it IP address regardless of where they are physically located.
        BTW, google said their corporate infrastructure in CA, not their Chinese assets, was attacked.
        cool_techie
        • Do you understand "subnet"

          If you are -NOT- doing business with a country it sure is easy just to block all their subnets and be done with it. :-P
          DebianDog
          • Do you understand "net"

            -- "If you are -NOT- doing business with a country it sure is easy just to block all their subnets and be done with it. :-P " --

            Sure.. but anyone with an elementary grade level knowledge can

            1. spoof an IP to disguise subnet.

            2. remote to a location on a trusted subnet.
            ]AR[*tREMor
          • dumb

            nt
            FADS_z
          • Spoofing an IP will not work for anything other than...

            UDP, any TCP connections will fail(requires a 3 way handshake).
            mrlinux
          • the attack came from servers located in Taiwan

            actually, in case you have not fully read the news.
            cool_techie
          • No one uses their own servers

            Yeah you think the people who do this, who are highly intelligent would use servers in their own country ? Give me a break and why would Taiwan target democracy campaigners with a sophisticated attack ( if you want to implicate china you would use something a bit blunter and not use Taiwans servers) . Hack someone elses server and use it.
            bklooste
    • It's more complicated than that

      Defending against Internet attacks, I believe Google can handle as well as anyone. But as long as Google has facilities within Chinese borders, they are open to physical security breach. I suspect that's what they're worried about.
      rcattell
      • Physical access... good point

        With access to a (physical) site there is no true security very true.

        And of course I'm sure the folks in China are well aware that both Canada and the US get other people to torture our prisoners for us...

        Oh.... and how about that prisoner's of war issue. I guess anyone grabbed and denied civil rights must of done something to deserve it. Free trip to Cuba anyone?

        but I digress...
        david_horsman
  • Google using the attack to make its exit look good politically

    "People familiar with the investigation into the attacks said they were aimed at source code repositories at high-tech companies."
    Why does google emphasize "Gmail accounts of Chinese human rights activists" while the targets are a lot more than those accounts and involves 20 other companies? It is certainly good to gain back political reputation instead of simply admitting defeat by Baidu in China. That's why they will make the impossible request to the Chinese government and then use the certain rejection for their graceful exit.
    cool_techie
  • Go to Indonesia instead!

    Good riddance they are going to leave China. Google always pride themselves for doing no evil.

    Instead they should just move to a country that is 4th in world population, have good proportion of Google users, have a thriving internet community and is a Free Country: Indonesia.

    Instead of doing good only for itself as a company in China, Google can have a very profitable time in Indonesia and at the same time doing a lot of good to boost IT in Indonesia.
    padangbond
    • Two questions...

      Why would you TRUST anything to do with the Chinese government when it is unashamedly violent with its own people who use peaceful protest?
      Why do you think Indonesia is a FREE country?
      SkaldedKat