Google’s Business Up by 250% After China Exit

March 2, 2014 Updated: March 2, 2014

Current business wisdom seems to dictate that any company seeking to do international business must target China. Industry analysts might stretch it a bit further to hint that the only way to make money doing business in China is to bow to the Chinese regime’s dictates and turn a blind eye to its human rights violations, the persecution of its people, and its rampant Internet censorship.

So why does Google Inc., whose revenues and income have grown almost 250 percent since it exited the majority of its Chinese business, stand out as a stark contrast to conventional wisdom?

Google left the Chinese search market in 2010 after a very public spat with the Chinese Communist Party (CCP) over its alleged hacking of Google’s servers. The company had previously offered self-censored results to mainland Chinese starting in 2006. Today, Google’s market capitalization stands at slightly over $400 billion as of Feb. 21, making it the second most valuable technology company by that measure after Apple Inc.

The company recently reported its fourth quarter 2013 and full-year 2013 revenues and income, and the company made just shy of $60 billion in total revenue and $14 billion in operating income for 2013.

We went back nine years to evaluate Google’s financial performance since 2005. Over a four-year period from 2006 to 2009 (during which Google self-censored in China), the company made a total of $72.6 billion in revenue and $18 billion in income. Over a similar four-year span from 2010 to 2013 (after Google left China), the company made $177.2 billion in revenue and $41.2 billion in income, a 243 percent and 228.8 percent increase in revenue and income respectively.

Chinese Hacking

In January 2006, two years after the company went public, the search engine announced a censored version of its search engine for mainland China. The move drew condemnation from human rights groups who said the self-censorship went against Google’s own motto of “Don’t Be Evil.” Google explained it as the cost of doing business. The censored version continued operating for four years, during which Google competed with Baidu for the Chinese search market.

But the company found itself under ever-increasing pressure from the Chinese regime. Upset that the California-based company would not completely comply with the regime’s dictates, the CCP’s top brass made life difficult for Google. The Epoch Times reported that Bo Xilai and Zhou Yongkang, who have now been purged from leadership positions in the Party, were exerting increasing pressure on Google in an attempt to drive it out of China or at least make it difficult for the company to do business there.

The last straw came in 2010 when Google uncovered a massive hacking scheme that targeted some of its most secure login and password systems, which could only be accessed by Google employees. The attack was apparently made by machines belonging to Google China employees. According to “In The Plex” by Wired magazine editor Steven Levy, Google co-founder Sergey Brin, who escaped from communist Russia with his family during his childhood, took China’s hacking attacks and targeting of dissidents especially hard. He made the call to pull out of China. Co-founder Larry Page was reported as initially neutral but eventually agreed, and Google’s then-CEO Eric Schmidt accepted the decision to exit China.

Business experts were ambivalent about Google’s fate after its China exit. Google stated that China only accounted for 5 percent of its entire revenue, but some experts wondered whether the company was leaving a potentially lucrative market, and predicted that with increasing competition from Apple, Facebook, and Microsoft, the company would have a hard time competing globally. Google’s stock had its share of ups and downs that year.

Breakthrough

But what has happened since then would take everyone by surprise. Instead of focusing on the Chinese search business, Google has spent its energies since then to develop Android and expand its digital marketing.

In 2010, Google’s fledging open-source Android operating system took the world by storm. It went from an also-ran in the mobile industry to becoming the most popular smartphone operating system. That year, Android went from a single-digit market share to achieving more than 50 percent of the global smartphone market. Looking at the company’s revenues and income, Google’s earnings haven’t missed a beat either, and have kept rising through the strength of its online advertising reach and other smaller income sources such as the Google Play store and its online cloud services. 

The company continues to compete in diverse areas such as operating systems (through Android and Chrome OS), Internet browsers (Chrome), social media offerings (Google+), enterprise platforms (Google Apps for end users and Google Cloud Platform for developers), and its core strength of search and online advertising.

While Google may be no angel—like many other online service providers, the company has always been under fire for its privacy policies—and reportedly continues to operate in China on a smaller scale, it goes on to prove that it is still possible for large international companies to operate without a large China presence and still grow its business successfully by focusing organically in other areas.

Perhaps the best proof that a company can still be admired in China despite standing up to the regime is the fact that within hours of announcing its China exit, hundreds of Beijing residents made their way to Google China’s headquarters and laid flowers and wreaths bemoaning the government’s censorship and Google’s exit.

It goes on to prove that even Chinese citizens support a company that can stand up to their government, and perhaps the best way for a company to actually do business is to follow moral standards and not the dictates of a regime intent on persecuting its own people.