Part - 3 - 10 - Negotiation and Conflict

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KEL590
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JEANNE BRETT, LAUREN PILCHER, AND LARA-CHRISTINA SELL
A New Approach to China:

Google and Censorship in the Chinese Market
It was March 2010 and Eric Schmidt, Google CEO, was having a discussion with Larry Page and
Sergey Brin, Google’s founders. The topic was the upcoming renewal of Google’s license for the local
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Chinese domain Google.cn. Just three months earlier, Google source code had been stolen and e-mail
accounts of Chinese dissidents had been compromised in attacks that appeared to originate from
China. Since 2006, when Google had agreed to self-censor search results as a condition of entering the
Chinese market, human rights groups and Google shareholders had urged the company to exit China.
So far it had resisted, but now that its intellectual property had been stolen and its principles and
reputation were at risk, Google needed to reevaluate its position on self-censorship in preparation for
negotiating the renewal of the Google.cn license with the Chinese government. Schmidt, Page, and
Brin had to decide what Google’s strategy should be.
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Google Background
Google was founded by Stanford University PhD candidates Page and Brin in 1998. Brin had
emigrated from the Soviet Union to America at age six. Brin’s parents left because they viewed the
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Soviet Union as “an opaque society” that was hostile to Jews.1 Brin says “his experience of living
under a repressive regime with limited political freedom had affected both his own outlook and that of
Google.”2
Brin studied mathematics and computer science at the University of Maryland, then attended
Stanford where he met Page, the son of computer scientists.3 Brin and Page quickly became
“intellectual soul-mates and close friends.”4 In their dorm room at Stanford, which was filled with
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cheap computers, they developed a superior way to search the web, ultimately founding Google Inc. in
1998. After three years of rapid growth and success, the founders hired Schmidt, a technology veteran,
as chief executive to provide “adult supervision.”5 Schmidt’s role was to “reassure Wall Street types
1
“Enlightenment Man,” The Economist, December 4, 2008.
2
Claudine Beaumont, “Sergey Brin: My Upbringing in U.S.S.R. Helped ‘Shape’ Google’s Views on China,” The Telegraph, March
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23, 2010.
3
“Enlightenment Man.”
4
Ibid.
5
Ibid.
©2011 by the Kellogg School of Management at Northwestern University. This case was prepared by Lauren Pilcher ’11 and Lara-
Christina Sell ’11 under the supervision of Professor Jeanne Brett. Cases are developed solely as the basis for class discussion. Cases
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GOOGLE AND CENSORSHIP IN THE CHINESE MARKET KEL590
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that Google was responsibly run in preparation for a stock market listing”6 that finally took place in
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2004.
By the summer of 2005 Google had matured from a cutting-edge Silicon Valley startup to one of
the world’s Internet titans. In only seven years the company had transformed an industry and was
generating impressive earnings from advertising and search engine technology licensing. Google’s
publicly traded stock had skyrocketed since its listing in 2001 (Exhibit 1), and the company was
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admired for its audacious goals (nothing short of organizing and providing access to “the world’s
information”7), its corporate principles (Exhibit 2) (famously and succinctly encapsulated in three
words: “Don’t be evil”8), and its healthy balance sheet. By combining a Microsoft-like aggressiveness,
an Apple-like zest for innovation, and adherence to utopian ideals, Google had captivated users,
customers, and investors.
A company that sought to organize the world’s information was not content to limit its presence
to the American market. As Internet usage in other countries grew (Exhibit 3), so did Google’s
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presence in them. Not only did Google.com become one of the most visited sites in the world, Google
also added local domain names (such as Google.fr) to assist non-American users with their searches.
These local sites helped Google gain additional revenue—by 2005 nearly 40 percent of the company’s
revenue and more than half its traffic came from users outside the United States (Exhibit 4). As
Google grew its search business, it also added a number of complementary services, including both
consumer and commercial applications (see Exhibit 5 for a partial list of Google’s other products and
services).
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China Background
The culture and social ideology of the People’s Republic of China was deeply influenced by the
Chinese Communist Party, which had been the ruling party since 1949. Founded on the tenets of
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socialism and more recently embracing nationalism, the party placed greater value on the collective
interests of social harmony and stability than on the more individualistic interest of generating social
change. The Chinese government’s adherence to these norms led to strict control of media content,
especially films and the Internet. The government began regulating the Internet for Chinese users in
1993, blocking some websites and restricting others (e.g., YouTube, Flickr, Facebook, Wikipedia).
The Chinese government used two mechanisms to monitor and control Internet content and
Chinese users’ access to it: the “Great Firewall” and a host of paid government monitors and citizen
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volunteers. China’s Great Firewall was the result of laws and regulations that required Chinese
Internet service providers (ISPs) to filter all websites for illegal information. It contained a list of
banned foreign websites and key words used by filters to stop e-mail and block websites that
contained them. Search engines targeting the Chinese Internet market faced a choice: either establish a
server presence in China and agree to self-censorship on the front end of the search, or maintain an
offshore server and force users to endure significant delays caused by the Great Firewall processing on
the back end of the search.
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6
Ibid.
7
Verne Kopytoff, “Google Bows to China Pressure,” San Francisco Chronicle, January 25, 2006.
8
Ibid.
2 KELLOGG SCHOOL OF MANAGEMENT

KEL590 GOOGLE AND CENSORSHIP IN THE CHINESE MARKET
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The second control mechanism was China’s paid and unpaid government monitors and citizen
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volunteers, who numbered in the tens of thousands.9 They methodically searched the Internet (e.g.,
blogs, chat forums, e-mail) and reported to the government any content that in their judgment would
endanger state order or challenge the country’s “harmonious society.”10 Recognizing that it was
impossible to block all potentially harmful information, local and central governments also hired
commentators to post positive messages to sway public opinion and counteract negative information
on the Internet. These commentators, or members of the “50 Cent Party,” were reportedly paid 0.5
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yuan (or 50 Chinese cents) per post.11
Despite the massive effort to control content, there was still significant uncertainty about what
would and would not be blocked because China’s more than sixty laws governing the Internet were
vague.12 News was required to be “healthy” and “in the public interest,” audio and video content was
not allowed to damage “China’s culture or traditions,” and nothing was permitted to challenge the
Communist Party.13
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While maintaining a harmonious society was important for the Chinese government, promoting
economic development had become a high priority in recent years. This was reflected in the
substantial growth the country had experienced since becoming a member of the World Trade
Organization (WTO) in 2001. Table 1 below highlights China’s economic development as measured
by the production of automobiles, the use of mobile phones, and the use of the Internet.
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Table 1: Measures of Economic Development in China
Compound Annual Growth
2010 (est.) 2005 Rate (%)
Population 1.4 billion 1.3 billion 1.5
Automobile output 17 million 5.7 million 24.4
Mobile phone users 860 million 390 million 17.1
Internet users 420 million 112 million 30.3
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Source: Worldbank, China’s 12th Five-Year Plan (Outline).
This growth reflected the success of China’s 11th Five-Year Plan, outlined in March 2006 by Ma
Kai, minister of the National Development and Reform Commission. The plan set objectives for the
period 2006–2010, including growing the national economy at an annual average rate of 7.5 percent,
increasing the proportion of the service industry, raising income levels of urban and rural residents
through improved public services and development, and enhancing the market economy. As stated in
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the plan:
With the implementation of the 11th Five-Year Plan, the market economy system will be
further enhanced. Breakthroughs will be made in the reform and institutional building of
areas such as administrative governance, state-owned enterprises, taxation, finance,
science and technology, education, culture, and public health. The government’s capacity
of market regulation and social administration will be enhanced remarkably. Opening up
to the outside world and domestic development will be further balanced, and the open
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9
Randy James, “Chinese Internet Censorship,” Time, March 18, 2009.
10
Ibid.
11
Micheal Bristow, “China’s Internet ‘Spin Doctors,’” BBC News, December 16, 2008.
12
Ibid.
13
James, “Chinese Internet Censorship.”
KELLOGG SCHOOL OF MANAGEMENT 3

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economy will arrive at a new level. By 2010, the total import and export volume of goods
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trade and service trade will hit $2.3 trillion USD and $400 billion USD respectively.14
Google Enters China in 2006
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When Google began negotiating for a license for Google.cn in 2005, Chinese Internet users were
able to access the company’s censorship-free offshore sites (e.g., Google.com or Google.co.uk), but
those searches were monitored by the Chinese government, and results deemed unacceptable were
blocked by the Great Firewall. One notable example of this was found in the results of searches for
images of Tiananmen Square on Google.com and Baidu.cn, a local Chinese search engine (Exhibit 6).
Because searches from Google.com might return results deemed contrary to China’s interests, it was
sometimes blocked by the government, and its search results always had to pass through the Great
Firewall. This degraded Google’s service by delaying results and sometimes not returning any results
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at all. To improve its performance and users’ experience while also growing its presence in the
Chinese market, Google wanted to place its servers behind the Great Firewall, which required
licensing the local domain Google.cn from the Chinese government.
After agreeing to filter its Internet searches in conformity with Chinese censorship laws, Google
acquired a license to operate Google.cn in 2006. The company was roundly criticized in the world
press and by its own shareholders for its decision to enter the Chinese market and agree to self-
censorship.15 It was denounced for supporting a government that restricted its citizens’ access to
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online content and for departing from its own mission of providing access to information to everyone
around the world. Google responded by stating, “While removing search results is inconsistent with
Google’s mission, providing no information [. . .] is more inconsistent with our mission.”16
Google’s presence further legitimized the Chinese government, which also benefitted
economically when Google opened a research and development center near Beijing and employed
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seven hundred Chinese programmers and computer scientists. Providing employment opportunities for
its citizens was a high priority for the Chinese government, which believed that rising unemployment
among college graduates could quickly lead to social unrest.
Initially Google elected to refrain from offering products such as Gmail e-mail and Blogger
blogging services, which might have required it to provide government authorities with user
information. Although apparently a surprise to the Chinese government, Google.cn notified users
when its search results were filtered in accordance with Chinese law.17 Google also tried to maintain
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Chinese customers’ access to Google.com. The license for Google.cn was set to expire in June 2010.
Google Expands in China

Despite the global economic crisis in 2008–2009 Google’s stock price consistently outperformed
the market (Exhibit 1). Its international expansion flourished as well. By 2009, the proportion of
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14
China Development Research Foundation, “The 11th Five-Year Plan: Targets, Paths, and Policy Orientation,”
http://www.cdrf.org.cn/en/data/view.php?aid=1157.
15
“Google’s Threat to China Traces Back to Founders,” MSNBC.com, January 14, 2010, http://www.msnbc.msn.com/id/34860435/ns/
business-world_business.
16
“Google Censors Itself for China,” BBC News, January 25, 2006, http://news.bbc.co.uk/2/hi/technology/4645596.stm.
17
Tom Krazit, “Google Redirects Google.cn to Hong Kong Site,” CNET News, March 22, 2010.

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Google’s revenues originating from outside the United States had grown to 53 percent, up 10
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percentage points from 2006 (Exhibit 4). Although revenues in China in 2009 were estimated at a
modest $300 million,18 less than 2 percent of total revenue, Google’s business was growing rapidly.19
By 2009 the Chinese search engine market had grown to about 7 billion yuan (about 1 billion U.S.
dollars),20 and Google’s market share had grown from 16 percent in the second quarter of 200621 to
about 36 percent. At the same time Google’s local Chinese competitor, Baidu, only slightly increased
its market share from 50 percent in the second quarter of 2006 to 58 percent in 200922 (Exhibit 7).
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Although the majority of Google’s 2009 worldwide revenues were still generated by advertising
and search ads (Exhibit 4), the number and variety of products and services it offered had increased
since 2006 (Exhibit 5). This trend was also visible in the Chinese market; since its entry Google had
offered more and more of its products and services to Chinese Internet users.
When Google entered the Chinese market with the local domain Google.cn, it initially refrained
from offering e-mail (Gmail) or blogging services (Blogger) to Chinese Internet users. It defended its
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decision by stating, “We’re not going to offer some Google products, such as Gmail or Blogger, on
Google.cn until we’re comfortable that we can do so in a manner that respects our users’ interests in
the privacy of their personal communications.”23
In early 2007, however, Google started to promote and offer free Gmail accounts to customers in
China. When Google tried to buy the Internet domain name Gmail.cn, it discovered that it was owned
by Beijing-based ISM Technologies, which claimed to be the largest wholesale Internet domain
registrar accredited by the Chinese government.24 ISM refused to sell the domain name, so Gmail was
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only accessible to Chinese Internet users through the Gmail.com domain, which was subject to the
Great Firewall.
Globally, Google expanded into the cellular phone business in 2008 when it began offering its
Android mobile operating system. As its mobile services became increasingly popular around the
world, Google created plans to launch two mobile phones produced specifically for the Chinese
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market in 2010. The phones “had been developed in partnership with the manufacturers Samsung
Electronics and Motorola and were due to be unveiled [. . .] in a deal with the Chinese mobile phone
carrier China Unicom,”25 China’s second largest phone company, which was state owned.26
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18
Miguel Helft, “For Google, A Threat to China With Little Revenue at Stake,” New York Times, January 14, 2010.
19
Ibid.
20
Miao Xiaojuan, Cheng Zhuo, and Wang Cong, “China Seeks Clarity on Google’s Intentions,” China View, January 13, 2010,
http://news.xinhuanet.com/english/2010-01/13/content_12804080.htm.
21
“Google’s Results Bode Well for Baidu’s Earnings,” Seeking Alpha, October 30, 2006, http://seekingalpha.com/article/19500-
google-s-results-bode-well-for-baidu-s-earnings.
22
Joe McDonald, “Google Defends Shrinking China Market Share,” Huffington Post, September 20, 2010,
http://www.huffingtonpost.com/2010/09/20/google-defends-shrinking-_n_731153.html.
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23
Andrew McLaughlin, “Google in China,” The Official Google Blog, January 27, 2006, http://googleblog.blogspot.com/
2006/01/google-in-china.html.
24
Sophie Taylor, “Gmail Domain Dispute Looms for Google in China,” Reuters, February 26, 2007, http://www.reuters.com/article/
2007/02/26/us-google-china-gmail-idUSSHA22047620070226.
25
Jane Macartney, “Google Withdraws from China Phone Launch,” The Times, January 20, 2010.
26
Kathrin Hille and Justine Lau, “China Unicom Ditches Google on Mobiles,” Financial Times, March 24, 2010.

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Friction with the Chinese Government
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Despite its agreement to follow Chinese law and self-censor its results, Google’s relations with
the Chinese government were not always smooth. For example, in March 2009 China blocked access
to Google subsidiary YouTube for four days after a video of Chinese police officers beating Tibetan
protesters appeared on it.27 In anticipation of the twentieth anniversary of the controversial protests in
Tiananmen Square, the government denied Chinese users access to their Google blogs28 as well as
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non-Google web services such as Twitter in May 2009.29
On January 12, 2010, Google announced on its blog that it had been the target of China-based
cyberattacks in December 2009 and that the “primary goal of the attackers was accessing the Gmail
accounts of Chinese human rights activists.”30 As a consequence of these attacks and the Chinese
government’s “attempts over the past year to further limit free speech on the web,”31 particularly
speech regarding human rights, Google announced it would stop censoring the search results of
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Google.cn and threatened to discontinue its operations in China altogether.
In the January 12 blog posting, Google expressed its desire to work with the Chinese government
to find a way to legally offer an unfiltered search capability, but there was little immediate public
reaction. Although the government insisted on January 13 that it did not condone cyberattacks,32 there
was no further coverage of the matter in the Chinese press. Most articles reporting on the attacks
stated that “the ministry’s spokesperson was not available for comment.” On January 19, Google
announced it would postpone the planned launch of its mobile phones in China due to the ongoing
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dispute with the government over censorship of its services.33 On January 23, the Chinese government
stated that those doing business in China must follow Chinese laws.34
Two months later, on March 22, 2010, Google announced it would redirect Google.cn search
requests to its search site in Hong Kong, which was not censored due to the freedoms promised to
Hong Kong when the territory reverted to China in 1997.35 Searches were still subject to filtering by
the Great Firewall at the back end, however, which could result in partial or complete blockage of
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Google’s services.
Once Google decided to stop self-censoring its search results, Google mobile-phone services in
China—such as Google Maps and Google Search—would have been able to access information
disallowed by Chinese censorship rules. As a result, Google’s phone partner, China Unicom, removed
these preloaded Google services from its phones.36
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27
“Google in China: A Timeline,” The Week (blog), March 22, 2010, http://theweek.com/article/index/200837/google-in-china-a-
timeline.
28
Tania Branigan, “”China Blocks Twitter, Flickr and Hotmail Ahead of Tiananmen Anniversary,” The Guardian, June 2, 2009.
29
Ibid.
30
David Drummond, “A New Approach to China,” The Official Google Blog, January 12, 2010, http://googleblog.blogspot.com/2010/
01/new-approach-to-china.html.
31
Ibid.
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32
Sam Gustin, “Timeline: Google’s Dispute with China (Updated),” Daily Finance, March 30, 2010.
33
Ibid.
34
Ibid.
35
“China Condemns Decision by Google to Lift Censorship,” BBC News, March 23, 2010, http://news.bbc.co.uk/2/hi/asia-
pacific/8582233.stm.
36
Macartney, “Google Withdraws from China Phone Launch.”

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License Renewal Negotiations
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Google’s license was due to expire on June 30, 2010. As the renewal deadline approached,
observers around the world waited to see how Google and the Chinese government would address the
following issues:
 The cyberattacks: Would Google emphasize in the press that the attacks were coming from
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China? Would China admit the attacks or deny them? How would this affect the reputations
of both Google and the Chinese government?
 Privacy in the Chinese market: Would Google be able to preserve its users’ privacy? Would
China insist on continuing its surveillance?
 Censorship of Google’s search results: Would Google agree to continue self-censorship?
Would China reject the Google.cn license unless Google recommitted to self-censorship?
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Would compromising its position of required self-censorship of .cn domain names negatively
impact China’s political stability? Would accepting the government’s requirements for self-
censorship and repeated interference in Google.cn negatively impact Google’s global
reputation?
 Google’s search presence in China: What would be the impact on Google and China if no
agreement was reached? Would Google exit the Chinese market? And if it did, who would be
harmed more, Google or China?
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Conclusion
Schmidt, Page, and Brin needed to make a decision, but they were not in agreement on Google’s
China policy. Schmidt had always publicly defended Google’s self-censorship, claiming that Chinese
would eventually be the dominant language on the Internet and Google needed to be in China in order
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to participate in this growth.37 The founders were divided on the issue: Brin had never been
completely comfortable with Google playing by the Chinese government’s rules and Page, before the
cyberattacks occurred, had voted against shareholder proposals that Google pull out of China.38
Now the three men needed to decide together how the company should approach the upcoming
negotiations and begin their preparations.
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37
Helft, “For Google, A Threat to China With Little Revenue at Stake.”
38
“Google’s Threat to China Traces Back to Founders.”
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Exhibit 1: Timeline and Google’s Stock Price
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FIRST SERIES OF NEGOTIATIONS: GOOGLE’S ENTRY INTO CHINA
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June 15, 2004: Google Late 2005: Google
acquires stake in Baidu, executives may have
which is headquartered begun negotiations with February 15, 2006:
in Beijing the government of U.S. congressional
June 2005: Google China hearings on China and
courts key Microsoft the Internet
executives to expand
China presence
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August 19, 2004:
Google’s stock begins
June 2007:
trading on Nasdaq for
Google gets license for
$100/share
Google.cn
July 2005: Google
executives recruit January 27, 2006:
employees; plans are Google announces the
January 3, 2005: made for hiring 30‐50 launch of Google.cn
Google’s stock closes engineers
above $200/share for
the first time
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SECOND SERIES OF NEGOTIATIONS: GOOGLE’S LICENSE RENEWAL
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January 19, 2010:
Google postpones
launch of mobile phone
in China
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March 22, 2010:
Google starts redirecting
December 2009:
Google.cn users to
A number of Gmail January 12, 2010: Google Google’s search site in
accounts belonging to accused China of cyber‐
Hong Kong
Chinese human rights attacks and announced it
March – June 2009: China activists were hacked would no longer be willing
blocks access to Google’s to censor its search results;
YouTube site; access to other Google threatened to leave
Google online services is denied the Chinese market
to users (e.g., Blog, Gmail) completely
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Exhibit 2: Excerpts from Google’s Code of Conduct
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PREFACE
Our informal corporate motto is “Don’t be evil.” We Googlers generally relate those words to the way
we serve our users—as well we should. But being “a different kind of company” means more than the
products we make and the business we’re building; it means making sure that our core values inform our
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conduct in all aspects of our lives as Google employees.
The Google Code of Conduct is the code by which we put those values into practice. This document is
meant for public consumption, but its most important audience is within our own walls. This code isn’t
merely a set of rules for specific circumstances but an intentionally expansive statement of principles meant
to inform all our actions; we expect all our employees, temporary workers, consultants, contractors, officers
and directors to study these principles and do their best to apply them to any and all circumstances which
may arise.
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The core message is simple: Being Googlers means striving toward the highest possible standard of
ethical business conduct. This is a matter as much practical as ethical; we hire great people who work hard
to build great products, but our most important asset by far is our reputation as a company that warrants our
users’ faith and trust. That trust is the foundation upon which our success and prosperity rests, and it must
be re-earned every day, in every way, by every one of us.
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So please do read this code, and then read it again, and remember that as our company evolves, The
Google Code of Conduct will evolve as well. Our core principles won’t change, but the specifics might, so
a year from now, please read it a third time. And always bear in mind that each of us has a personal
responsibility to do everything we can to incorporate these principles into our work, and our lives.
***
I. Serving Our Users
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Google has always flourished by serving the interests of our users first and foremost. Our goal is to
build products that organize the world’s information and make it accessible to our users. Here are several
principles that all Googlers should keep in mind as we work toward that goal.
a. Usefulness
Our products, features and services should make Google more useful for our users, whether they’re
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simple search users or advertisers, large or small companies. We have many different types of users, but
one primary goal for serving them all. “Is this useful?” is the one question every Googler should keep in
mind during any task, every day.
b. Honesty
Our communications with our users should be appropriately clear and truthful. Our reputation as a
company our users can trust is among our most valuable assets, and it is up to all of us to make sure that we
nourish that reputation.
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c. Responsiveness
Part of being useful and honest is being appropriately responsive: recognizing relevant user feedback
when we see it, and doing something about it. We take pride in responding to communications from our
users, whether in the form of comments or questions, problems or compliments.

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Exhibit 2 (continued)
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d. Taking Action
Saying that Google, and the products and services we produce, should be useful, honest and responsive
is one thing; achieving that goal 100 percent of the time is, of course, quite another. That means that
improving our work over time is largely contingent on the vigilance of our staff. Any time you feel our
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users aren’t being well served, don’t hesitate to bring it to the attention of the appropriate person. Googlers
don’t sit back and say nothing when the interests of the user are at stake. When you feel it’s warranted, we
encourage you to take a stand.
***
VII. Obeying the Law

Google takes its responsibilities to comply with the laws and regulations applicable to it very seriously.
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Although we recognize that it is probably impossible for you to understand all aspects of every applicable
law, please take the time to try to generally familiarize yourself with the major laws and regulations that
apply to your work and take advantage of our Legal Department to assist you and answer questions. We
must all always remember that our reputation is the foundation of our present and future success—and that
earning, and then maintaining, that reputation requires attention and effort to stay in compliance with the
law.
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a. The Foreign Corrupt Practices Act
Google requires full compliance with the Foreign Corrupt Practices Act, export control regulations,
antitrust laws and other trade regulation statutes.
The Foreign Corrupt Practices Act prohibits any “corrupt” offer, payment, promise to pay or
authorization to pay any money, gift or anything of value to any foreign official, or any foreign political
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party, candidate or official, for the purpose of: influencing any act or failure to act in the foreign official or
party’s official capacity; or inducing the foreign official or party to use influence to affect a decision of a
foreign government or agency, in order to obtain or retain business for anyone, or direct business to
anyone.
What all does this legal jargon mean to you? Simply put: that any attempt on the part of any Google
employee or contractor to bribe or otherwise unethically influence any United States or foreign official, in
either the public or private sector, is probably illegal and regardless, is completely unacceptable and against
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Google’s Code of Conduct.
As always, though, there’s a gray area here: you should take great caution with any gifts or other
inducements that could be perceived as bribes. That doesn’t mean all minor gifts or promotional and
marketing materials are unacceptable (although, in general, government officials in the United States and in
many other countries may be very reluctant to accept any gifts or items of value to avoid the appearance of
impropriety); just that the care we all take to stay on the right side of ethical business practices also must be
adhered to in the international arena.
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***
Source: Google Investor Relations, Code of Conduct, http://investor.google.com/conduct.html.

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Exhibit 3: Worldwide Internet Usage Rates, 2006 vs. 2010
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2006
Internet
Internet Users, Population Penetration Source and Date of Latest % of World
# Country or Region Latest Data (2006 Est.) (%) Data Users
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1 United States 203,824,428 299,093,237 68.1 Nielsen//NR Dec. 2005 20.0
2 China 111,000,000 1,306,724,067 8.5 CNNIC Dec. 2005 10.9
3 Japan 86,300,000 128,389,000 67.2 eTForecasts Dec. 2005 8.5
4 India 50,600,000 1,112,225,812 4.5 C. I. Almanac March 2005 5.0
5 Germany 48,722,055 82,515,988 59.0 C. I. Almanac March 2005 4.8
6 United Kingdom 37,800,000 60,139,274 62.9 ITU Oct. 2005 3.7
7 Korea (South) 33,900,000 50,633,265 67.0 eTForecasts Dec. 2005 3.3
8 Italy 28,870,000 59,115,261 48.8 ITU Sept. 2005 2.8
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9 France 26,214,174 61,004,840 43.0 Nielsen//NR Dec. 2005 2.6
10 Brazil 25,900,000 184,284,898 14.1 eTForecasts Dec. 2005 2.5
11 Russia 23,700,000 143,682,757 16.5 eTForecasts Dec. 2005 2.3
12 Canada 21,900,000 32,251,238 67.9 eTForecasts Dec. 2005 2.2
13 Indonesia 18,000,000 221,900,701 8.1 eTForecasts Dec. 2005 1.8
14 Spain 17,142,198 44,351,186 38.7 Nielsen//NR Dec. 2005 1.7
15 Mexico 16,995,400 105,149,952 16.2 AMIPCI Nov. 2005 1.7
16 Australia 14,189,544 20,750,052 68.4 Nielsen//NR Dec. 2005 1.4
op
17 Taiwan 13,800,000 22,896,488 60.3 C. I. Almanac March 2005 1.4
18 Netherlands 10,806,328 16,386,216 65.9 Nielsen//NR June 2004 1.1
19 Poland 10,600,000 38,115,814 27.8 C-I-A March 2005 1.0
20 Turkey 10,220,000 74,709,412 13.7 ITU Sept. 2005 1.0
Top 20 Countries 810,484,127 4,064,319,458 19.9 IWS Dec. 31, 2005 79.6
tC
Rest of the World 207,573,262 2,435,377,602 8.5 IWS Dec. 31, 2005 20.4
Total World Users 1,018,057,389 6,499,697,060 15.7 IWS Dec. 31, 2005 100.0
No
Do

t
os
2010
Internet
Internet Users, Population Penetration Growth (2000–2010) % of World
# Country or Region Latest Data (2010 Est.) (%) (%) Users
rP
1 China 420,000,000 1,330,141,295 31.6 1,766.7 21.4
2 United States 239,893,600 310,232,863 77.3 151.6 12.2
3 Japan 99,143,700 126,804,433 78.2 110.6 5.0
4 India 81,000,000 1,173,108,018 6.9 1,520.0 4.1
5 Brazil 75,943,600 201,103,330 37.8 1,418.9 3.9
6 Germany 65,123,800 82,282,988 79.1 171.3 3.3
7 Russia 59,700,000 139,390,205 42.8 1,825.8 3.0
8 United Kingdom 51,442,100 62,348,447 82.5 234.0 2.6
yo
9 France 44,625,300 64,768,389 68.9 425.0 2.3
10 Nigeria 43,982,200 152,217,341 28.9 21,891.1 2.2
11 Korea (South) 39,440,000 48,636,068 81.1 107.1 2.0
12 Turkey 35,000,000 77,804,122 45.0 1,650.0 1.8
13 Iran 33,200,000 76,923,300 43.2 13,180.0 1.7
14 Mexico 30,600,000 112,468,855 27.2 1,028.2 1.6
15 Italy 30,026,400 58,090,681 51.7 127.5 1.5
16 Indonesia 30,000,000 242,968,342 12.3 1,400.0 1.5
op
17 Phillipines 29,700,000 99,900,177 29.7 1,385.0 1.5
18 Spain 29,093,984 46,505,963 62.6 440.0 1.5
19 Argentina 26,614,813 41,343,201 64.4 964.6 1.4
20 Canada 26,224,900 33,759,742 77.7 106.5 1.3
Top 20 Countries 1,490,754,397 4,480,797,760 33.3 417.8 75.8

tC
Rest of the World 475,760,419 2,364,812,200 20.1 551.2 24.2

Total World Users 1,966,514,816 6,845,609,960 28.7 444.8 100.0
Notes: World Internet User Statistics were updated for June 30, 2010. The most recent user information comes from data published by
Nielsen Online, International Telecommunications Union, official country reports, and other trustworthy research sources.
Source: Internet World Stats, Top 20 Countries with the Highest Number of Internet Users, http://www.internetworldstats.com/top20.htm.
No
Do

t
Exhibit 4: Google’s Revenue Development, 2005–2009
os
Revenues by Source ($ in millions)
Year Ended December 31
2005 2006 2007 2008 2009
Advertising revenues
rP
Google websites 3,377.1 6,332.8 10,624.7 14,413.8 15,722.5
% of total revenues 55 60 64 66 66
Google network websites 2,687.9 4,159.8 5,787.9 6,714.7 7,166.3
Total advertising revenue 6,065.0 10,492.6 16,412.6 21,128.5 22.888.8
yo
Licensing and other revenues 73.6 112.3 181.4 667.1 761.8
Total revenues 6,138.6 10,604.9 16,594.0 21,795.6 23,650.6
Source: Google Annual Reports.

op
Revenues by Geography (%)
Year Ended December 31
2005 2006 2007 2008 2009
United States 61 57 52 49 47
United Kingdom 14 15 15 14 13
Rest of the world 25 28 33 37 40
tC
Source: Google Annual Reports.
“The growth in international revenues from the three and nine months ended September 30, 2004 to the
three and nine months ended September 30, 2005 is the result of our efforts to provide search results to
international users and deliver more ads from non-U.S. advertisers. We expect that international revenues
will generally continue to grow as a percentage of our total revenues during 2005 and in future periods.
While international revenues accounted for approximately 39% of our total revenues in the nine months
No
ended September 30, 2005 and 33% in the nine months ended September 30, 2004, more than half of our
user traffic during these periods came from outside the U.S.”
Source: Google’s Third Quarter 2005 10-Q SEC Statement, p. 24 (emphases added).
Do

t
Exhibit 5: Partial List of Google’s Services, 2006 vs. 2010
os
2006
rP
yo
op
tC
No
Do

t
os
2010
rP
yo
op
tC
No
Do
Source: http://www.google.com/intl/en/options.

t
Exhibit 6: Censorship of Web Content in China, Google.com vs. Baidu.cn
os
(Search Date: March 2006)
First Images Returned when Searching for “Tiananmen Square” on Google.com
rP
yo
op
First Images Returned when Searching for “Tiananmen Square” on Baidu.cn
tC
No
Do

t
Exhibit 7: Market Share of Search Companies in China, Q2 2005–Q3 2010
os
5% 100%
6% 6% 6%
34% 24% 21%

Others 40% 43% 31%
36%
rP
16%
Google 23% 13%
70% 73%
58% 64%
44% 50%
Baidu 37%
yo
Q2 2005 Q1 2006 Q2 2006 … Q4 2009 Q1 2010 Q2 2010 Q3 2010
Note: Data is based on analysis performed by Beijing-based research firm Analysys International.
Sources:
For Q2 2005–Q2 2006: “Google’s Results Bode Well for Baidu’s Earnings,” Seeking Alpha, October 30, 2006,
http://seekingalpha.com/article/19500-google-s-results-bode-well-for-baidu-s-earnings.
op
For Q1 & Q3 2010: Fran Wang, “China’s Baidu Expands as Google Contracts,” AFP, December 1, 2010,
http://dailyupdatenews.com/uncategorized-chinas-baidu-expands-as-google-contracts-afp.
For Q1 & Q2 2010: Joe McDonald, “Google Defends Shrinking China Market Share,” Associated Press, September 20, 2010,
http://www.usatoday.com/tech/news/2010-09-20-google-china_N.htm.
For Q4 2009 & Q1 2010: Wang Xing, “Google’s Loss Is Really Baidu’s Gain,” ChinaDaily, April 30, 2010,
http://www.chinadaily.com.cn/cndy/2010-04/30/content_9795183.htm.
tC
No
Do

Exhibit 8: Planning Document

Do
CHINA GOOGLE
Issue Priority Priority Priority Priority
Cyber-
spying and    
hacker
attacks
No
Privacy
(Gmail,    
etc.)
tC
Censorship
of Google’s    
services
op
Google’s
presence    
in Chinese
market
yo
BATNA
rP
os
KELLOGG SCHOOL OF MANAGEMENT
t
18

Part - 3 - 10 - Negotiation and Conflict

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t

A New Approach to China:

2 KELLOGG SCHOOL OF MANAGEMENT

Source: Worldbank, China’s 12th Five-Year Plan (Outline).

KELLOGG SCHOOL OF MANAGEMENT 3

Google Enters China in 2006

Google Expands in China

4 KELLOGG SCHOOL OF MANAGEMENT

KELLOGG SCHOOL OF MANAGEMENT 5

6 KELLOGG SCHOOL OF MANAGEMENT

KELLOGG SCHOOL OF MANAGEMENT 7

8 KELLOGG SCHOOL OF MANAGEMENT

KELLOGG SCHOOL OF MANAGEMENT 9

VII. Obeying the Law

Google’s Code of Conduct.

Source: Google Investor Relations, Code of Conduct, http://investor.google.com/conduct.html.

10 KELLOGG SCHOOL OF MANAGEMENT

KELLOGG SCHOOL OF MANAGEMENT 11

Top 20 Countries 1,490,754,397 4,480,797,760 33.3 417.8 75.8

Rest of the World 475,760,419 2,364,812,200 20.1 551.2 24.2

12 KELLOGG SCHOOL OF MANAGEMENT

Total revenues 6,138.6 10,604.9 16,594.0 21,795.6 23,650.6

Source: Google Annual Reports.

Source: Google Annual Reports.

KELLOGG SCHOOL OF MANAGEMENT 13

14 KELLOGG SCHOOL OF MANAGEMENT

KELLOGG SCHOOL OF MANAGEMENT 15

First Images Returned when Searching for “Tiananmen Square” on Google.com

16 KELLOGG SCHOOL OF MANAGEMENT

34% 24% 21%

KELLOGG SCHOOL OF MANAGEMENT 17

Exhibit 8: Planning Document

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