The Deipnosophist

Where the science of investing becomes an art of living

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Location: Summerlin, Nevada, United States

A private investor for 20+ years, I manage private portfolios and write about investing. You can read my market musings on three different sites: 1) The Deipnosophist, dedicated to teaching the market's processes and mechanics; 2) Investment Poetry, a subscription site dedicated to real time investment recommendations; and 3) Seeking Alpha, a combination of the other two sites with a mix of reprints from this site and all-original content. See you here, there, or the other site!

31 January 2006

Google vs China, DoJ... and earnings

Google/GOOG releases later today (1:30pm pst) its Q4 2005 earnings report and conference call webcast (here); the stock chart betrays the likelihood of another large price move post-report. This seems as good a moment as any, then, to compile a selection of articles that discuss the company's recent decisions re both China and the DoJ. I do this -- read, and share, the plenitude of articles and essays -- not solely to compute an impact on the stock price and direction, but also to understand the zeitgeist for Google as a continuing social force; its manifestation as apotheosis. I encourage you to share a similar perspective. As always, I [will] add my comments when appropriate...

1) Google Hits Glitches Over Video Site, China
"Google is arguably more vulnerable to public opinion than conventional product companies, because its power -- and its money -- comes from its ability to capture something fleeting: the attention of consumers as they surf on the Internet, which is filled with free alternatives."
An okay, satellite's-eye perspective (far, far removed) re the brouhaha.

2) If It Isn't Red, You Can't Read It on Google
"By bowing to Beijing, the biggest names in technology also may be holding back China's economic development. Will Google's move help China suppress embarrassing economic or corporate news investors need? Won't it put entrepreneurs who need unfettered access to information and ideas at a disadvantage? A key priority for China is improving the efficiency of its economy, and that means stamping out corruption at all levels of government and business. How much pressure will there be on the Communist Party to clean itself up if most of China's 1.3 billion people don't know what it's up to? China's dilemma is clear enough: deciding between controlling information and the need to be wired to the global marketplace to be a full party in it. So far, Beijing has chosen the former. That doesn't mean Google shouldn't challenge China. It's not good enough for the mighty Google to claim it's merely joining others in accommodating China."
When has a lack of facts ever stopped anyone from expressing an opinion? This journalist hinges his many arguments on several fallacies; I will leave it to you to find the many examples. However, the author's editorial does offer a nice segue to...

3) What Does China Want?
"The next Chinese drama will probably unfold not in foreign relations but at home: A middle-class push for property rights, rural discontent, the Internet, 150 million unemployed wandering between village and city, and a suddenly aging population bringing financial and social strains will dramatize some of the contradictions of “market Leninism.” Traveling one road in economics and another in politics makes it difficult to arrive at a stipulated destination. How China resolves the contradictions between its politics and its economics will determine how strong a role it is to play in the world."
This essay is astoundingly good, even if it does not broach directly on the topic of Google in China. Very worthy of your attention.

4) Google Is Destined To Fail In China
"For those armchair Sinologists uncomfortable with Google censoring content, rest assured that the company is not really welcome in China and thousands of years of history show that it can't last long here either."
An op/ed essay with a rather simplistic perspective: Google will fail in China. The author states why he believes that will be; I disagree with several of his reasons and his outcome.

5) Google and My Red Flag
"Google's answer to the China dilemma is better, and more subtle, than that of other Internet firms. It does not simply assert that engagement with China is always good. It recognizes the arms race between China's repressive state power and China's liberating economic growth, and it accepts the conclusion that follows: Some forms of engagement hasten liberal trends; others empower jailers. This is not a distinction acknowledged by all investors in China, nor indeed in the China debate more generally. Policy types argue the merits of engagement vs. containment as though there were nothing in between; either you're for tough talk and sanctions, or you embrace the dragon unequivocally."
Another excellent essay that gathers the facts before spouting personal opinion. It touches on a core theme of mine (as quoted above): view neither life nor investing monolithically. This essay, too, is well worth your time to read. (And this one is briefer than the other! ;-)

6) Google - Searching for integrity
7) Search Engines - Here be dragons
"As predictably as searching for “Paris” turns up the heiress to a hotel fortune, so critics pounced on Google's craven concessions to China and on the justice department's heavy-handedness. In their different ways, both governments were toying with the very ideals of free speech and transparency that the internet, according to its early myths, holds most dear. Perhaps. But the past few weeks hold another lesson, too: that, by and large, search engines look after their users—and for the best of reasons, their own self-interest. Google has not entirely capitulated in China. It has pared back the services it offers—no e-mail accounts, for example—so that it doesn't put itself in the position where it might have to violate users' privacy. It has also arranged to tell users when search results have been withheld—though the Chinese authorities could always reconsider the arrangement. At the same time, in America, Google has taken a healthy stand against the DoJ, refusing to give the government what it seeks. Google's rivals have been more accommodating."

"The company is making a concerted effort to do just that. It has reached an agreement with the Chinese authorities that allows it to disclose to users, at the bottom of a list of search results, whether information has been withheld. This is similar to what the company does in other countries where it faces content restrictions, such as France and Germany (where Nazi sites are banned), and America (where it removes material that is suspected of copyright infringement). Although the disclosure is more prominent on these western sites, putting such a message on its Chinese site is an important step towards transparency and, furthermore, is something its rivals do not do. Moreover, Google is tiptoeing into the country with only a handful of services. It is not offering e-mail, blogging or social-networking services, because it worries that it will not be able to ensure users' privacy. It wishes to avoid the situation in which MSN and Yahoo! find themselves, whereby they are forced to obey the Chinese government's orders in censoring content and revealing users' identities. Rather than be placed in a position where it may have to compromise its values, Google instead is narrowing what it offers (although its news service will contain only government-approved media sources). Google believes that entering China, even with restraints on content, lets it offer more information than if it remained outside. Yet the decision comes as American internet firms such as Yahoo! and MSN duck criticism that they are complicit with the Chinese authorities. For Google, taking the higher road happens to also be a way to differentiate its service."
(Each article is excellent, as each reveals critical information and understanding. Please email me your request if you would like to read each but are unable to view at the subscription-required ECONOMIST site.)

Which brings us, more or less, up to speed -- at least on this topic. I hope you have come to the understanding that, for Google, these decisions (in no specific order, what would be best for the company, its shareholders, the users of its technology, etc) were not easy, nor easily made, and that the company executives worried over them for a long time. What do you think...?

-- David M Gordon / The Deipnosophist

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