Google dead in China?

WSJ reports on the decision process at Google. There are still a number of open questions:

1. What were Google's prospects in China? Are they really hopelessly behind Baidu? I've seen market share estimates ranging from 15-30% (no agreement even on the sign of the derivative!), and also the claim that the most sophisticated users (i.e., the ones with the most disposable income in the long run) tended to use Google. Perhaps no reason to throw in the towel -- but then why did Kai Fu Lee resign in September? Was it just the opportunity to run his own investment fund? (Here is an earlier post on Baidu, with a talk given by founder Robin Li.)

2. How serious is the state-sponsored security threat to companies operating in China? Did this play a big role in Google's decision? Coordinated attacks by state-run intelligence are significantly harder to deal with than ordinary hackers or even corporate espionage. An intelligence agency only has to turn a few key employees to get at important source code that necessarily would have to be available to researchers and operations people at Google China. It would be difficult to justify the risks of operating in an environment that hostile. (Needless to say, it would be long-run detrimental for China to create an environment that hostile to foreign companies.) On the other hand, snooping around for information about a few email users is hardly a threat of the same proportions.

WSJ: Google Inc.'s startling threat to withdraw from China was an intensely personal decision, drawing its celebrated founders and other top executives into a debate over the right way to confront the issues of censorship and cyber security.

The blog post Tuesday that revealed Google's very public response to what it called a "highly sophisticated and targeted attack on our corporate infrastructure originating from China" was crafted over a period of weeks, with heavy involvement from Google's co-founders, Larry Page and Sergey Brin.

For the two men, China has always been a sensitive topic. Mr. Brin has long confided in friends and Google colleagues of his ambivalence in doing business in China, noting that his early childhood in Russia exacerbated the moral dilemma of cooperating with government censorship, people who have spoken to him said. Over the years, Mr. Brin has served as Google's unofficial corporate conscience, the protector of its motto "Don't be Evil."

The investigation into the cyber intrusion began weeks ago, although how Google detected it remains unclear. As Google employees gathered more evidence they believed linked the attack to China and Chinese authorities, Chief Executive Eric Schmidt, along with Messrs. Page and Brin, began discussing how they should respond, entering into an intense debate over whether it was better to stay in China and do what they can to change the regime from within, or whether to leave, according to people familiar with the discussions. A Google spokesman said Messrs. Page, Brin and Schmidt wouldn't comment.

Mr. Schmidt made the argument he long has, according to these people, namely that it is moral to do business in China in an effort to try to open up the regime. Mr. Brin strenuously argued the other side, namely that the company had done enough trying and that it could no longer justify censoring its search results.

How the debate ultimately resolved itself remains unclear. The three ultimately agreed they should disclose the attack publicly, trying to break with what they saw as a conspiratorial culture of companies keeping silent about attacks of this nature, according to one person familiar with the matter.

Soon, Google's vice president of public policy and communications, Rachel Whetstone, began crafting and revising a number of versions of a possible statement the company planned to release publicly, these people said, sharing it with the three.

The top three agreed that in addition to discussing the attack, the blog post should contain some language about human rights, the strongest statement of which is a clause in the penultimate paragraph of the post.

The section said they had reached the decision to re-evaluate their business in China after considering the attacks "combined with the attempts over the past year to further limit free speech on the web."

Concerned about potential retribution against Google employees in China, the founders and their advisors agreed to include a line saying that the move was "driven by our executives in the United States, without the knowledge or involvement of our employees in China."

... Veteran observers of trade between the countries suggest that Google, and the U.S. generally, has little leverage to press China to back down on Internet censorship or other issues.

Some expressions of support for Google's position flowed in from around the world, including from consumers in China as well as some U.S. companies—including rival Yahoo Inc.—and politicians. Secretary of State Hillary Clinton Tuesday issued a statement saying Google's allegations "raise very serious concerns and questions," and that "we look to the Chinese government for an explanation."

Odds are high Google could be left largely on its own in taking concrete steps to confront the Chinese government. Veteran observers of trade between the countries suggest that Google, and the U.S. generally, has very little leverage to press China to back down on Internet censorship or other issues.

Besides the Google.cn Web site, Google has a range of other business initiatives and partnerships in China that could be affected by its decision. By snubbing Chinese authorities so publicly, the company risks government retaliation against itself or its partners. The decision also affects local competitors who could benefit from any retreat. Shares of Google's biggest Chinese rival, Baidu Inc., surged following the news.

Google's blog post Tuesday said cyber-attacks on its infrastructure resulted in "the theft of intellectual property," stating that it found evidence to suggest that a primary goal of the attackers was accessing the Gmail accounts of Chinese human-rights activists.

Again, snooping on activists and stealing core IP are two very different activities. Which was more disturbing to Google? Previous discussion here.

“Don’t Be Evil” always did sound a bit to me like tikkun olam, or repairing the world (see this profile of Brin and Page). Not sure whether CEO Schmidt is down with that ;-)