The Google Shuffle and the Hong Kong Twist

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David Wolf submits:

As we all take in the latest wrinkle in the Google ( GOOG ) vs. China story, a few thoughts. (Full disclosure: I own something like 5 shares of Google, Inc.)

Let Them Have It Both Ways

First, Google's decision to redirect traffic to Hong Kong carries the faint scent of a company trying to have it both ways. On the one hand, Google would like to take the moral high ground with audiences worldwide, saying that it is no longer under the meaty thumb of Chinese government oversight. On the other, it wants to be able to tell advertisers and shareholders that the company is still doing business "in" China, albeit from a sort of offshore data haven, and if possible maintain its #2 market position against Baidu ( BIDU ). (Clearly, Google isn't excited about leaving the world's largest Internet market for a potential global competitor to dominate, or about creating a vacuum that would invite new competitors.) If they can pull this off, more power to them.

Success is not a given, however. In order to convince shareholders, they have to convince advertisers, and in order to convince advertisers, they need to maintain and build their user base. This means that the Hong Kong servers need to be as fast and easy to access as the Google.cn servers were. It also means that the government needs to resist the temptation to block access to the Hong Kong search engine from China.

Saving Face for Everyone

It is tempting to stop here and simply say "any bets on that one?" But this brings us to my second point. There will be some among China's policymakers who will be tempted to block the Hong Kong Google service completely. There are better choices that would allow Chinese users and businesses to enjoy Google's search and SEO capabilities while serving the purposes of the government.

This is an excellent opportunity to demonstrate strength by exercising restraint. I don't think unrestricted access to an offshore Chinese language search engine is in the cards. But it would be a simple matter for the central government to treat Google.com.hk the same way they treat Google's English services. Allow the site to remain accessible, but block searches that use terms the government finds objectionable. A nanny-moderated Chinese Google experience is better than none at all, and it gives China an opportunity to take a little high ground of its own. It would also serve to boost Google's effort to expand its Hong Kong operations, something Hong Kong would surely like to see, and potentially help position Google as China's Internet Entrepot. The SAR could sure use a boost, and seeing the central government take a stance that will benefit Hong Kong might help improve sentiment about Beijing on Jardine's Rock.

It is not a perfect solution, but it is one that would allow both Google and the government - and Hong Kong - to come out of this better off.

Unanswered Questions

Third, Sergei Brin's high visibility on this issue raises more questions than it answers. As a child of the Soviet Union, Mr. Brin's outspokenness on the China matter creates an unspoken (and not entirely accurate) parallel between China and the USSR that seems to bolster Google's moral position. But it also keeps in the pubic eye a disturbing question: where was Mr. Brin in 2006 when Google made the original decision to operate a local China search engine under the terms spelled out by Chinese regulators? After all, the Hong Kong option was as open to Google in 2006 as it is today. Why did Google come ashore in the first place?

Did Mr. Brin or others strenuously object to the compromise and were overridden? If that is the case, what provoked the sudden change of heart? (And please, do not bring up the gmail hacks issue: that is an issue unrelated to the continued operation of the search engine.) Or was the company naive enough to believe that the reality of operating in China was at odds with its professed beliefs?

These are not academic questions, nor are they relevant only to Google's China business: they speak directly to the matter of the company's corporate governance, and, of wider interest, to the way in which the company balances its moral stance with the temptation of business opportunities. As Google grows more influential and ubiquitous, it needs to make these matters clear to the public and, if necessary, rectify inconsistencies. Those of us who enjoy Google, its services, its software, and its share price want to know whether Google will truly be different as it grows, or whether it will simply become Microsoft-in-the-Cloud.

See also Wednesday's Worry: Worldwide Cash Crunch on seekingalpha.com



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks

Referenced Stocks: BIDU , GOOG

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