Andrew Mclaughlin, Fmr. Google`s Global Public Policy

(This is not a legal transcript. Bloomberg LP cannot guarantee its accuracy.)

ANDREW MCLAUGHLIN, FORMER DIRECTOR, GOOGLE'S GLOBAL PUBLIC POLICY, TALKS ABOUT CHINA AT BLOOMBERG TV

APRIL 12, 2011

SPEAKERS: DEIRDRE BOLTON, BLOOMBERG NEWS ANCHOR

ERIK SCHATZKER, BLOOMBERG NEWS ANCHOR

ANDREW MCLAUGHLIN, FORMER DIRECTOR, GOOGLE'S GLOBAL PUBLIC POLICY

07:29

DEIRDRE BOLTON, BLOOMBERG NEWS ANCHOR: Our next guest knows a thing or two, actually firsthand, about the challenges that internet companies face in China.

Andrew McLaughlin is Google's former Director of Global Public Policy. He was at the search giant when it decided to enter China. And he is joining us this morning from Washington.

Andrew, we're so glad you could join us. Thanks so much. I know you didn't want Google to go to China. Were you more concerned with barrier-to- entry issues?

Were you more concerned with doing business once there or both?

ANDREW MCLAUGHLIN, FORMER DIRECTOR, GOOGLE'S GLOBAL PUBLIC POLICY: Well, actually the biggest reason I didn't think Google should go into China was what I thought China would do to Google.

In other words, the day-to-day moral degradation that you have to endure to do business as an information company actively engaged in censorship, I thought, would do something to Google that would be unpleasant internally.

My thought was it's a big world. There are a lot of people to serve. Why spend your engineering time and talent building products that are actively censored?

ERIK SCHATZKER, BLOOMBERG NEWS ANCHOR: Andrew, here's a question. You just said that you are concerned about what China would do to Google if Google entered China.

So what is China going to do to Facebook?

MCLAUGHLIN: Well, we can't know exactly, of course. We don't know exactly what kind of a deal Facebook has cut, if any, with a partner in China.

But let's assume that Facebook has agreed that they're going to set up some kind of a social network in China.

There are two broad categories of things that Facebook's going to be required to do - or I should say, its joint venture in China, would be required to do in order to do business there.

One of those is censorship. The other is surveillance of its users. And those are two broad categories of requirements that all internet companies in China are required to do.

And they can be extremely troubling and in the case of some of the users of Facebook, you know, could lead them to be arrested, jailed, or worse.

BOLTON: Yes, this seems like the darker side, Andrew, of technology and how it can be used, as you mentioned, to put people in jail, who perhaps don't deserve to be there at all.

One curious thing, though, getting back to the business aspect. Do you think the Chinese government is going to see Facebook differently, if it is, in terms of developing this joint venture with Baidu?

Because you have to assume that China wants domestic companies, its own companies, to be successful. So does this partnership change something in Facebook's potential success?

MCLAUGHLIN: Well, China has a history of a schizophrenic relationship to foreign technology companies. The Chinese government has a significant chunk of it that very much wants them to be in China.

They want access to the best technology. They want access to the most advanced products and features. On the other hand, China has an unbroken record of basically killing off foreign joint ventures in the internet space.

Amazon, eBay, Yahoo! - they've all gone into China through acquisitions and through joint ventures. And everyone of them has essentially flopped in the Chinese marketplace.

And the reason for that is a combination of, you know, mistakes on the part of the American companies, you could say, but also, kind of a package of techniques that the Chinese government uses to make business more difficult.

The flip side of their desire to have the most advanced technology is their desire for Chinese companies to be champions.

And the government's pursued an affirmative strategy of favoring and tilting the playing field toward its own companies.

BOLTON: So Andrew, I mean, do you think it's safe to say that China has, in the past, invited, let's say, Western internet companies to come in. They can see how the technology works.

And then, I mean, without being crude, sort of more or less encourage their own domestic companies to steal the ideas and launch competitors?

MCLAUGHLIN: Well, I think, you know, a cynical way to say it would be that the Chinese want Western companies to show up, to bring their technologies into China, to help train Chinese engineers.

And then they want those companies to fail in the face of competition from domestic champions.

SCHATZKER: Andrew, do you see a security risk beyond the transfer of intellectual property?

Is it possible that through this joint venture, the Chinese company might do, we understand, through Wikileaks and other sources they've done before, which is try to tap into the sensitive user information or content in the form of e-mails of Facebook users?

MCLAUGHLIN: Well, it depends very much - again, assuming that Facebook goes forward with some kind of a deal or joint venture, it depends very much on how they set it up.

One option would be for them just to try to expand Facebook directly into China. I think that would be extremely difficult for reasons of licensing, for a Facebook-owned social network that's part of the global Facebook network to be in China.

Another option would be for Facebook to do a joint venture where the new social network uses Facebook technology and expertise but is kind of an island independence from the rest of Facebook.

In that case, you would be a lot less nervous if you were a user in the United States. But the Chinese authorities would be spying on your behavior.

On the other hand, the value of Facebook, to some extent, is the network effect that you get from everybody being able to connect to everybody else in the world.

And that wouldn't be present in the case of that sort of island model.

SCHATZKER: Andrew, do we have any idea just what's at stake for Facebook here in terms of the financial opportunity?

When Google decided to forgo the Chinese market, we were told that it was only something in the order of $400 million a year which was kind of a rounding error for Google.

Is it really that big for China? Is it really that big, rather, for Facebook? And if you were Mark Zuckerberg, would you feel that inexorable tug towards China?

MCLAUGHLIN: Well, in the short-term is, no, it's not an important financial opportunity for Facebook. In the long term, thought, you know, a billion to potential users does seem like a pretty big market.

Online advertising in China is still at a much earlier stage of development than it is in the United States. So you can't be motivated by the short- term gains.

It's got to be a long-term play largely built on faith. If I were Mark Zuckerberg, I would wait it out.

I would say it's probably not worth it to be in China anytime soon, as I said before, because of what being in China does to Facebook, the company.

SCHATZKER: Great perspective, Andrew. Thanks so much. Andrew McLaughlin, Google's former Director of Global Public Policy and the former Deputy U.S. Chief Technology Officer.

07:36

***END OF TRANSCRIPT***

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