Pragmatism versus idealism. The two are often at odds in the business world,
but rarely more so than in the technology industry. When a company can balance
its founders ideals with the practical needs of the market, it can lead to a
great success, as it did with Apple (NASDAQ: AAPL ). Much more often, a company
is forced to choose one or the other as Google (NASDAQ: GOOG ) had to do in
China. Two years ago, after a cyberattack on its corporate infrastructure that
originated from China, Googles chief legal officer declared that the company is
"no longer willing to continue censoring our results on Google.cn," and if
the Chinese government didnt allow the company to offer an unfiltered search
engine in China, Google would "shut down Google.cn, and potentially our
offices in China." Thats what happened, and for the rest of 2010, Googles
stock had one of its worst years since it went public in 2004. Over the next six
months, GOOG would lose 30% of its value. And by the end of 2010, it would still
be 4% down from its level before it challenged China, compared with a 17% rise
with the Nasdaq Composite. Ouch. That performance cant be blamed solely on
Googles decision to exit China. But the move did deprive the search giant of an
important area of overseas growth at a time when its domestic search revenue was
facing a new competitor in Facebook. Advertisers were growing enamored with the
viral potential of social-network ads. And Google had no clear answer to the
threat that Facebook posed. Even so, Google held to its ideals. The companys
"dont be evil" motto famously explained by current CEO Larry Page as
meaning whatever his co-founder, Sergey Brin, wanted it to mean didnt want to
be seen supporting state censorship, or hindering human-rights activists, or
working with the bureaucrats who directed hackers into Googles servers. Whether
shareholders liked it or not, idealism won the day. But now that two years has
passed, The Wall Street Journal is reporting that Google is quietly expanding in
China again , hiring more engineers, managers and sales staff, and introducing
products that dont depend on the governments ability to censor the Web. More
than search, Google wants its Android mobile operating software to establish the
strong foothold in China that its gained in many other growing economies. In the
Journal , Googles top executive in Asia described the initiative as
"pragmatic." Chinese advertisers want to move online, and few mobile
platforms can compete with the low-cost, open-source Android. In many countries
with large populations but with relatively scarce wired Internet connections,
the Web will primarily be accessed through smartphones. Even in the best-case
scenario, Googles reentry into China wont bring much material benefit to
shareholders this year. Its a long-term strategy, but the returns could grow
year after year should Google draw a significant ad-revenue stream from Chinas
Internet users. Google rose only 0.6% Thursday following the Journal s story.
But long-term investors in Google may see a much bigger return from China,
especially in mobile ads. China is to smartphone buyers what Android is to
mobile platforms: Both lead the world in terms of sheer population. In that
sense, they belong together. But the perennial clash of ideals has kept them
apart. So far, China hasnt presented any barriers it could easily erect to keep
Google out. Reading the Journal story, you get the sense both parties are trying
to find common ground, leaving room for differences in their respective ideals
without either endorsing or rejecting them. That kind of dance is the ultimate
pragmatism. If it works, Chinas 500 million Internet users could benefit from
Googles technology, while Google could enhance its revenue and profit by tapping
a vast and growing market. But for two giants that need each other, Google and
China remain far apart on many issues. And so this delicate detente could end
with both shunning each other and hurting each other. Just another reason for
investors to keep an eye on Googles Chinese efforts.
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