Google & China: An Operator’s View

Google’s announcement Tuesday that it was mad as hell and not going to take it anymore was its second bombshell in a new 2010.  (I count the first being the announcement of the Nexus One, which I think is very possibly a hugely important step for Google as a company.)

Instapundits leapt on the announcement.  Some–TechCrunch notably–stating that it was all about Google finding a graceful exit.  Others—Robert Scoble, SearchEngine Land Sullivan, and others, defending the move as a principled stand.  As someone who’s worked internationally on building businesses, I’m firmly in the Scoble camp.

The idea that this is some cynical move to enable Google to exit China gracefully is ridiculous.  Google is a massive public company, seeking a growth trajectory that goes for decades.  Aside from all the great points Scoble makes on his post on this–which I agree with entirely–the simple math states that Google can’t not be in China long-term.  Later this year, China will become the world’s largest economy that is not the United States, etc.  Huge potential market. 

The second piece to this equation is that its not as though Google’s pouring so much money down a hole with China that earnings are hurting.  Indeed, Google’s trajectory on cash flow, earnings, etc., all are moving in the right direction.  Earnings calls don’t lead Google’s CFO to fend off nervous investors, anxious at the out of control spend in China.  Huge potential market without materially impactful investment—sounds like something Google would want to do. 

So that cost/benefit analysis is straightforward.  The other element to this though that’s been missed is simply that international business is hard.  In Silicon Valley, we like the narrative of overnight success.   And to be sure, Google has achieved unprecedented things in its 11-12 year existence.  Still, Google has been in China for 4 years.  The time between Olympics; the length of most people’s undergraduate career.  That Google has not convincingly “won” in that timeframe is not at all a sign that the race is over.  At least it wouldn’t be to anyone who’s ever built or worked on a business overseas.  With international businesses, you have a whole set of issues around who to hire, how to implement a culture that retains the specific elements to the native culture while still being connected to the headquarters, there’s often differences in business models or price sensitivities of customers, etc., etc., etc.  4 years is the blink of an eye for this type of thing.  The idea that Google’s crying uncle at the end of 4 years because China is just too hard a market to win is quite naive and nonsense to anyone who’s been a manager in an international business. 

Given that view, I’ve found Google’s stance really extraordinary.  It will be fascinating to watch the dialogue between China and Google as this conversation progreses. 

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