What if Yahoo abandoned China?

If you grew up in the US reading Marvel Comics, like Imagethief, you may remember the old What If? series. In What If? the fates of Marvel superheroes were projected into alternate realities. It made for some pretty good stories as the conventions attached to characters you knew and loved were overturned. I had one issue where Conan the Barbarian was stranded in the 20th century, became leader of a street gang, kicked Captain America’s ass and was ultimately invited to join the Avengers. The classic What if the Hulk had Bruce Banner’s brain? made it into the Best of Marvel Comics anthology. It’s fun to play those kind of conjecture games, knowing that at the end of the day you’ll snap back to reality (or your regular monthly subscription) and everything will be just how you left it.

I thought it might be fun to play this game with Yahoo, which has paid the worst price in terms of PR and brand damage for its association with China. Yahoo has been repeatedly vilified for its conduct in China, taking it on the chin from New York Times columnistNicholas Kristof (via Peking Duck), power-blogger and Global Voices supremo Rebecca MacKinnon in one of her angriest posts ever, and others. Much of Yahoo’s trouble has stemmed from their implication not only in filtering and censoring their China results, but also in turning over information from e-mail accounts belong to Chinese journalists to the Chinese authorities.

Like all the major Internet companies who have been caught in this scandal –Google and Microsoft included– Yahoo’s response has been wholly inadequate to the challenge. All of the American companies involved have concentrated on legal defenses and studiously ignored the question of values. That is a mistake that their critics, such as Reporters Sans Frontiers (RSF), are not making. Just last week, RSF administered another slapping with the following announcement (proxy link), based upon a modest research project:

Yahoo! clear worst offender in censorship tests on search engines

Reporters Without Borders said it found Yahoo! to be the clear worst offender in censorship tests the organisation carried out on Chinese versions of Internet search engines Yahoo!, Google, MSN as well as their local competitor Baidu.

The testing threw up significant variations in the level of filtering. While yahoo.cn censors results as strictly as baidu.cn, search engines google.cn and the beta version of msn.cn let through more information from sources that are not authorized by the authorities.


The press freedom organisation is particularly shocked by the scale of censorship on yahoo.cn. first because the search results on “subversive” key words are 97% pro-Beijing. It is therefore censoring more than its Chinese competitor Baidu.

The accompanying spreadsheet can be downloaded from RSF here.

As a PR practitioner, Imagethief is well acquainted with the PR research study, and RSF is nothing if not masterful at PR. Media love a good study, especially if it smacks of statistical authenticity and touches nicely on a controversial topic. In fact, last week’s issue of the PR industry weekly “The Holmes Report” devoted itself to a condemnation of PR studies, due to the alarming number of shoddy studies and the ease with which statistical illiteracy can be taken advantage of. Naturally, RSF’s study, cursory though it was, has been widely reported upon in the mainstream media, along with RSF’s sharp messages. Wired News carried the following money quotes from Julien Pain, RSF’s “Internet Freedom desk chief”:

“We simply found out that Yahoo was even worse than its local competitors,” [said Pain]. “Google.cn is censored, but it’s far less than what Yahoo does.”


“Yahoo has absolutely no respect for freedom of information,” Pain said.

Ouch. In fact, that’s probably not true. The guys at Yahoo probably have a lot of respect for freedom of information, and they’re probably wondering how they, a bunch of well-meaning California nerds and one ex-Hollywood mogul, got themselves into this situation and how they can get themselves out of it with minimal damage . However they’re not communicating any of that doubt to the media, who have been resolutely stonewalled in their attempts to secure comment on this report from Yahoo. A scan of Yahoo’s press releases and media information shows no acknowledgment that this report exists at all. For a company that is all about new media, they seem pretty blind to the consequences that not engaging with their plugged-in audience about this issue may have on them. Have a look at the 1300 link cloud for Yahoo+China on Yahoo-owned Delicious.

Just because the study is cursory and shallow doesn’t necessarily mean it is wrong. Rebecca MacKinnon has done a long and interesting post examining RSF’s results and attempting, with some success, to replicate them. She supports RSF’s overall conclusions, and makes an important point which strikes at the justification that the US Internet companies and even I have wielded in support of their continued presence in China:

This issue of who is responsible for the loss of service problem, however, does not detract from RSF’s clear and in my view correct point, which is that the Chinese user is probably no better off with Yahoo! being in China than if it ceased operating there.

If Yahoo! is going to keep on like this, they might as well just change the name of their Chinese service to that of their Chinese partner Alibaba,which now runs Yahoo! China anyway. Then at least they’d be a bit more honest with Chinese users about what they really are.

More seriously though, the biggest concern is that according to my sources in the industry, Google and MSN are feeling a lot of pressure from Chinese authorities to be just like Yahoo! China. Employees of certain competitors do not hesitate to tattle on Google and MSN in order to gain competitive advantage. So the point is this: Unless companies band together and push back against Chinese government censorship pressure, it’s going to become a very rapid race to the bottom.

The emphasis above is mine. As compelling as Rebecca’s point is, there is a weakness in suggesting that the main competitive benefit that overseas search engines offer Chinese users is access to controversial information censored by the Chinese government. That is counter to how the vast majority of Chinese surfers will use these services. It also assumes that the search engines are equal in all other respects which, as any user of search engines knows, is simply not the case. A Chinese user who is researching a completely mundane topic may still find that Google’s Chinese service or Yahoo China provides more relevant results than Baidu or Sohu or another Chinese search engine. So far, US Internet companies have been scrupulous in not suggesting that their prime benefit to Chinese users is access to controversial material, a move that would likely be poorly received by the Chinese government. But nor have they done a good job of articulating what benefits theydo bring to Chinese users. Combined with their failure to adequately address the moral conundrum of operating in China –as opposed to the legal conundrum, which has been beaten to death– they have left a nifty vacuum for for their detractors to fill. They do not, nor have they ever, controlled this debate.

That aside, Rebecca is bang-on in suggesting that Yahoo China might be more honest if they changed their name to Alibaba Search. This cuts to the heart of Yahoo’s problem in China: it doesn’t actually own or control Yahoo China. Rather, it owns 40% of Chinese Internet company Alibaba, which it bought as part of a deal widely interpreted as paying Alibaba to take the failing Yahoo China portal off their hands. Right now that is looking like the worst billion dollars they ever spent.

Let’s be clear: Alibaba is not evil. It’s a perfectly fine Chinese technology company run by a flamboyant Chinese entrepreneur, Jack Ma. The company does nothing sinister (at least, not that I am aware of). It simply operates the way it has to as a Chinese company subject to Chinese laws. Although it is now based in Hong Kong, it was founded in Hangzhou, Mr. Ma is Chinese and its pedigree remains thoroughly Chinese. Although some aspects of the business are international, including the English language version of its namesake trading portal, most of its services are China oriented and most of its success comes from China.

The original Yahoo press release announcing the deal with Alibaba makes heartbreaking reading in retrospect. So much optimism. It also suggests why Yahoo Corp will continue to have problems with Yahoo China. Yahoo Corp owns 40% of Alibaba, with 35% voting rights (a minority, it scarce needs be pointed out). Yahoo holds one of four board seats, against two from Alibaba and one from Softbank. Essentially, they’ve surrendered management of their brand in China to an organization over which they have little control, and which has, in turn, little stake in what happens to the Yahoo brand everywhere else in the world. Yahoo China is a bit player in the China portal scene to begin with, and –taking my colleagues as a sample– your average Chinese Internet user is completely inured to outrage over Internet censorship, which is seen as an essentially normal part of government function and a minor inconvenience to be dealt with as best as possible. (This also raises the interesting question of how the role of journalists is perceived in Chinese society, and how that perception differs from the the Western “fourth estate” role that is at the core of RSF’s mission and assumptions. But that’s a topic for another time. For the record, I’m a fan of the “fourth estate” approach.)

As for Mr. Ma’s personal stake in Yahoo’s PR problems, an acquaintance of mine, a seasoned Chinese PR pro with long experience in the China technology industry, summed up the situation thus: “Jack Ma’s baby is Alibaba. He doesn’t give a shit about Yahoo’s problems in the United States.” It’s hard to know how true that is without being able to peer into Jack Ma’s skull (a privilege I’ve not been afforded), but it’s certainly believable.  But what’s definitely true is that the average western Internet user doesn’t know or care about the ownership and control structure of Yahoo China. For them, as for RSF, the Yahoo brand is monolithic. Yahoo’s transgressions in China are Yahoo’s troubles globally.

So what is Yahoo to do?

What if?
Last week I had lunch with another China PR pro from a competing company. As you do in these situations, when the Diet Coke begin to flow and tongues loosen, we got onto the topic of US Internet companies’ travails in China. We talked a bit about Sergei Brin’srecent woolgathering about whether Google had made the right decision in going with Google.cn. In the course of the discussion my dining companion suggested that Google ought to follow through on Brin’s statement, close Google.cn and tell American and European audiences that it had been a mistake to compromise their principles to enter China. A retreat, yes, but one that might boost their brand significantly overseas at the debatable cost of the business opportunity for them in China. (Like all other US Internet brands in China, Google does not lead its segment. eBay, Yahoo China and MSN China are similarly second best or also-rans in their respective spaces.)

Let’s transplant that discussion to Yahoo. What if Yahoo simply kissed-off China? I am not a financial expert, I’m a spin doctor, so take all the following with a grain of salt. Yahoo would have to divest themselves completely of their stake in Alibaba, or announce their intentions to do so within the limits of their contractual obligations. Alibaba isn’t publicly traded, so this would mean finding a private equity buyer or buyers willing to spend probably less than what Yahoo paid to take the stake off their hands (they’d smell a distressed sale) . Alibaba already returned Yahoo’s capital to shareholders, so, although Mr. Ma may be the largest shareholder and, thus, the largest beneficiary of that distribution, Alibaba itself might not be able to buy the stake back unless they took on debt to do it. Yahoo’s ability to sell on their Alibaba stake might also be subject to the approval of Alibaba’s majority shareholders, which could complicate things. But an announcement of intent could be the first step.

Part of the deal would have to be that Alibaba drop the “Yahoo” brand name from the China portal. Since, despite its struggles in the China market, there is perceived value to the Yahoo name they would probably be able to wring some extra concessions from Yahoo. Forget for a moment that Yahoo essentially paid Alibaba to take over Yahoo China — that wouldn’t matter any more. Yes, Yahoo would pay to get in and pay to get out. That’s price of not seeing this coming. Yahoo would officially withdraw from China and close their China rep office, if they still have one. They would maintain Yahoo Hong Kong and a simplified Chinese site hosted offshore and carrying the full contents of Yahoo’s index. If the Chinese government chooses to block it, so be it.

Yahoo’s management –by which I mean the founders and the CEO– would also have to publicly explain their decision in terms of values, and what role they see for Yahoo in society. They would also have to review their operating policies in less visible cases of censorship around the world (although a quick glance at the map shows few other Yahoo locations likely to be as problematic as China). It would be a hard climb-down, but necessary.

As part of this, they could create and publicize a clear manifesto of what conditions Yahoo will operate and offer its services under, and what position it takes with regard to Internet censorship. Ideally, these would be clear and uncompromising. I notice that there is nothing of the sort on Yahoo’s “core values” statement.

What would Yahoo lose? 40% of Alibaba at the cost of a few hundred million. Not chump change, but probably not lethal for a company that has bought Flickr, Delicious and such in in the past year and that had nearly four billion in the bank at the end of Q1. They’d also say goodbye to a China market in which, let’s face it, they were destined to be a bit player for some time to come. Possibly forever.

What would they gain? An end to these brand-scarring attacks from RSF and other NGOs, a chance to climb back on the moral high horse and to claim to have set an example for other Internet firms. A chance to remind everyone, under the banner of the Yahoo brand, of what is best about the Internet and what it can bring to people. A chance to show that there are limits to the compromises they are willing to make. A chance to take back control of this issue and make Yahoo the visible advocate for an uncensored Internet. So, what is their brand worth to them?

As further mental exercise, imagine if all the US Internet companies operating in China did the same thing. It would be a shocking public rebuke to a Chinese government that is increasingly image conscious in the run up to their 2008 coming-out party. It would be a reminder that if China really wants to be an enduring International business power, it will have to think about what global integration means in terms of access to information. The Chinese government would not, of course, be expected to make any accommodation for the moral qualms of troublesome foreign Internet firms. But as the Internet becomes an increasingly important tool for doing business it would have to ponder the level of inconvenience it is willing to foist on international businesses that are used to doing business in China much as they would in any other country. (One other thing that my lunch companion and I discussed was the theoretical possibility of Google setting up a paid “premium” service for business customers in China, operating from a separate, private URL and providing full, uncensored access to Google’s services. Think of it as the poor man’s Factiva.)

Back to reality
Nothing on the scale of what I have suggested will ever happen. Time to put the comics away and come back to reality. We live in a world of compromise, and businesses are master compromisers. That’s one reason why PR people are seldom out of work. Any company that did what I suggested above could expect to find itself banned from China for the foreseeable future. In Microsoft’s case, this might extend to their bread-and-butter software sales, which are looking up in China after several dismal years. The China market still glitters too much for Internet firms to write it off, and most are willing to bend their principles in the name of grabbing a handful of that glitter.

But one firm that has found itself back-footed for months, and which has increasingly little to lose and much to gain, might still consider it.

Imagethief does not service any American Internet firms that operate in China.

Imagethief has generally been a supporter of US Internet firms entering China, even considering the compromises they have to make. His oft-stated belief is that it is better for them to be here than not, and that more choice is always good. On the other hand, he is not averse to reviewing that stand from time to time.

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