Google has abandoned plans to offer a major new cloud service in China and other politically sensitive countries due in part to concerns over geopolitical tensions and the COVID-19 pandemic, two employees familiar with the matter said, revealing the challenges for US tech giants to secure business in those markets.
In May, the search giant shut down the initiative, known as “Isolated Region” and which sought to address nations’ desires to control data within their borders, the employees said.
The action was considered a “massive strategy shift,” said one of the employees, who added that Isolated Region had involved hundreds of employees scattered around the world.
Alphabet Inc’s Google is pouring money into cloud computing, part of a broader effort to find new sources of growth beyond search advertising.
Google Cloud last year generated US$8.9 billion in revenue — a 53 percent increase over the previous year — as it has pushed into sectors such as finance and government that require special security clearance and features that shield confidential data. Rivals Microsoft Corp and Amazon.com Inc already offer these capabilities through their cloud units.
Google’s decision to nix the Isolated Region project was made partly because of global political divisions, which were exacerbated by the pandemic, said the employees, who requested anonymity because the project had not been made public.
The initiative would have allowed Google to set up cloud services controlled by a third party, such as a locally owned company or a government agency.
The result would be a business sequestered from Google’s existing cloud computing services, which include data centers and computer networks.
In January last year, amid growing tensions between the US and China, Google decided to pause its plans for Isolated Region in China and instead began to prioritize potential customers in Europe, the Middle East and Africa, the employees said.
The project was scrapped entirely in May, and Google has since weighed a pared back cloud offering to enter China, they said.
A Google spokeswoman said Isolated Region was shelved because “other approaches we were actively pursuing offered better outcomes.”
She declined to detail those approaches.
“We have a comprehensive approach to addressing these requirements that covers the governance of data, operational practices and survivability of software,” the spokeswoman said. “Isolated Region was just one of the paths we explored to address these requirements.”
“What we learned from customer conversations and input from government shareholders in Europe and elsewhere is that other approaches we were actively pursuing offered better outcomes,” the spokeswoman said. “Google does not offer and has not offered cloud platform services inside China.”
One of the employees said that the plan involved selling cloud services in what Google calls “sovereignty sensitive markets,” such as China and the EU, where there are strict laws for companies offering services that involve the collection or processing of people’s data.
The project, which began in early 2018, sought to address rules in China that require Western companies to form a joint venture with a Chinese partner company when they provide data or networking services, one of the employees said.
In such a relationship, the partner company would have retained both physical and administrative control over user data.
The arrangement was intended to satisfy Chinese authorities while also providing a barrier between Google’s Isolated Region cloud services and the rest of its data center network, which stores and processes e-mails, documents, photographs and other data from its users, the employee said.
By handing over control of user data to third-party companies in foreign countries, Isolated Region also aimed to appease privacy concerns about the US government’s potential ability to carry out covert surveillance of Google’s Cloud services, the employee said.
Those concerns increased in March 2018, following the passing of the Clarifying Lawful Overseas Use of Data Act, better known as the CLOUD Act, a federal law that granted US law enforcement agencies more power to request personal data stored by US technology companies even if the data is stored on servers located outside of the US, the employee said.
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