Kai-Fu Lee

Inside Google's China misfortune

April 15, 2011: 5:00 AM ET

The problems that Google faced while establishing its foothold in China would shake the very foundations of the company and its "Don't be evil" operating ethos. A look at Google's past five years in China -- and where it went wrong along the way.

By Steven Levy, guest contributor

Viewing the July 22, 2009, solar eclipse with Google goggles

Viewing the July 22, 2009, solar eclipse with Google goggles

FORTUNE -- Plans for Google.cn were well under way by May 7, 2005, when an unexpected e-mail arrived in the in-box of Eric Schmidt. It was from a computer scientist and executive at Microsoft named Kai-Fu Lee. "I have heard that Google is starting an effort in China," he wrote. "I thought I'd let you know that if Google has great ambitions for China, I would be interested in having a discussion with you." Kai-Fu Lee was a celebrated computer scientist -- he'd worked for Apple previously -- who had become a phenomenon in China. Lee, who had grown up in Taiwan and gotten his Ph.D. at Carnegie Mellon, was the embodiment of the "sea turtle" -- an Asian-born engineer whose success in America was a prelude to a homecoming that allowed him to contribute to China's drive to the pinnacle of the world economy. Lee was perhaps the most famous of all sea turtles. Hundreds of thousands of people went to his website and wrote to him for advice, as if he were a combination of Warren Buffett, Bill Gates, and Abigail Van Buren. Google immediately recognized how Kai-Fu Lee could accelerate its plans to make a mark in China. "I all but insist that we pull out all the stops and pursue him like wolves," senior vice president Jonathan Rosenberg wrote to his fellow executives. So Lee flew to meet with Google founders Sergey Brin and Larry Page in Mountain View, Calif., on May 27, 2005. The session was a lovefest. Lee was startled when Sergey, who had arrived by skateboard, asked him, "Do you mind if I stretch?" and then did body motions on the floor while asking questions. As they left, Lee overheard one say to the other, "People like Kai-Fu don't grow on trees." When Lee returned to Seattle, he was greeted by a huge box of Google swag, including a basketball, a chair, and a coin-operated gumball machine with a Google logo.

Lee resigned from Microsoft (MSFT) on July 18 and officially accepted Google's (GOOG) offer the next day. It was worth over $13 million, including a $2.5 million signing bonus. On his Chinese-language website, Lee said that Google had given him a "shock" by its fresh approach to technology and postulated that in China, his new employer's youth, freedom, transparency, and honesty would produce a miracle. "I have the right to make my choice," he wrote. "I choose Google. I choose China." Microsoft rushed to the courthouse and charged Lee with violating a noncompete agreement that was part of his employment contract. But on Sept. 13, Judge Steven Gonzalez ruled that while Lee was prohibited from sharing proprietary information with or helping Google in competitive areas such as search and speech technologies, he could participate in planning and recruiting for Google's effort in China. Ultimately, the two companies would settle, and the restrictions on Lee's activities would be lifted in 2006. More

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