Google (NASDAQ:GOOG) announced late Tuesday that it's considering leaving China for good. The search engine powerhouse revealed that it fell victim to a "sophisticated and targeted" cyberattack. Apparently, Google believes that the hackers were trying to find information on Chinese human rights activists.
The news bulletin is spreading like wildfire, not just within business circles and industry groups, but in the upper echelons of our own government. U.S. Secretary of State Hilary Clinton has said that Google's allegations "raise very serious concerns and questions. The ability to operate with confidence in cyberspace is critical in a modern society and economy."
So how severe are the accusations? My Foolish colleague Eric Bleeker believes that Google's assertions are a "high-stakes bluff." I'm not so sure.
Big trouble in regular-sized China
Unlike domestic rival Baidu (NASDAQ:BIDU), Google has always been reluctant to abide by the rules of the Chinese government, especially when it comes to censorship and search compliance. And Google wouldn't be the first company to decide that jumping through the bureaucratic hoops just isn't worth it. Yahoo! (NASDAQ:YHOO), eBay (NASDAQ:EBAY), and Amazon.com (NASDAQ:AMZN) have all but disappeared from the fastest-growing nation in the world.
In addition, Google trails Baidu substantially when it comes to market share. Baidu boasts about 300 million users and 66% of the market. While 33% isn't exactly chump change, Google has had difficulty increasing this number, most likely because of its unwillingness to comply with every regulation thrust upon it. So it seems that in order to increase its market penetration, Google would have to put its morals aside and focus on making amends with the Chinese government. However, removing items from its search engine that conflict with Chinese rhetoric doesn't exactly coincide with Google's long-standing mantra: "Don't be evil."
Nevertheless, will Google really exit a country with 1.34 billion people, an emerging middle class, and an estimated 400 million Internet users? The question's not just about google.cn -- it's about the technology sector as a whole. Google partners with Sina (NASDAQ:SINA), a Chinese search-engine company; with Warner Music Group and others in order to offer streaming music in China; and with China Mobile (NYSE:CHL), a state-owned mobile carrier that utilizes Google's search services on its handsets. A Google departure, according to the Wall Street Journal, "would throw the future of its investments and partnerships throughout the Chinese Internet and telecommunications sectors into question – while also potentially creating opportunities for Chinese rivals." It's one thing to stand firm on moral grounds, but quite another thing to commit corporate suicide by leaving one of the world's most potentially profitable regions.
Searching for a better solution
It seems as though Google has put itself in a commercial straitjacket. If it doesn't exit the market, and the Chinese government makes no concessions, the company's stand looks like an ethical ploy gone bad. If it does leave China, there's really no estimating how badly Google's bottom line could suffer in the future.
While I applaud the company's effort to continually raise awareness about censorship and vocally denounce its recent violation of privacy, I wonder whether Google couldn't have handled this ordeal more productively. If it's truly going to leave China, Big Goo they should proceed accordingly -- threats and vague warnings don't seem sufficient to sway the Chinese media autocracy. And if Google never had plans to leave China in the first place, well, then this seems like a great way to bring attention to the company's focus on social responsibility and commitment to privacy.
What do Fools think -- is Google genuine in its threats to leave the biggest online market in the world, or is this one big bluff?
Sound off in the comments below!
