Google 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 pandemic, according to two employees familiar with the matter, revealing the challenges for U.S. tech giants to secure business in those markets.
In May, the search giant shut down in 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,” according to one of the employees, who said Isolated Region had involved hundreds of workers 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 generated $8.9 billion in revenue in 2019 – a 53% 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 via their cloud units.
Google’s recently to take a decision to nix the Isolated Region project was made partly because of global political divisions, which were exacerbated by the Covid-19 pandemic, according to the two employees, who requested anonymity because the project hasn’t previously been made public. The geopolitical issues placed demands on Isolated Region that it couldn’t deliver, according to one of the employees. Documents provided to workers also detailed global tensions and their influence on Isolated Region’s closure, the employee said.
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 2019, amid growing tensions between the U.S. 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, according to the two employees. But the project was scrapped entirely this May, the two employees said. Google has since weighed a pared back cloud offering to enter China, according to the two employees.
Other Approaches: A Google spokeswoman, speaking after the story was published, said Isolated Region wasn’t shut down over geopolitical concerns or the pandemic. She also said the company isn’t weighing options to offer the Google Cloud Platform in China.
Isolated Region was shelved because “other approaches we were actively pursuing offered better outcomes,” she said, declining 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 stakeholders 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.”
According to one of the employees, the plan involved selling cloud services in what Google calls “sovereignty sensitive markets,” such as China and the E.U., 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 emails, documents, photographs and other data from its users, the employee said.
By handing over the control of user data to 3rd party companies in foreign countries, Isolated Region also aimed to appease privacy concerns about the U.S. 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 U.S. law enforcement agencies more power to request personal data stored by American technology companies even if the data is stored on servers located outside of the U.S., the employee said.