If you don't know the story, you can read up on the New York Times or the Wall Street Journal (and again in the Journal here, with more focus on the backlash for Skype). In a nutshell, the story is that the University of Toronto's Citizen Lab, which focuses on Internet, free-speech and censorship issues, released evidence that TOM-Skype, the joint venture between E-Bay and Tom.com that runs the China version of the Skype service, is monitoring its users conversations for the kind of keywords that one usually associates with China's net nanny.

It was interesting to watch Skype's response to this situation evolve over 24 hours. Yesterday was the focus on the "security issue" (which it most certainly was). From the New York Times article:

Jennifer Caukin, an eBay spokeswoman, said, “The security and privacy of our users is very important to Skype.” But the company spoke to the accessibility of the messages, not their monitoring. “The security breach does not affect Skype’s core technology or functionality,” she said. “It exists within an administrative layer on Tom Online servers. We have expressed our concern to Tom Online about the security issue and they have informed us that a fix to the problem will be completed within 24 hours.” EBay had no comment on the monitoring.

 However, by today the repositioning had begun, with the emphasis shifting from security to privacy. From the second Journal article:

Jennifer Caukin, a spokeswoman for Skype, said practices related to a text filter that blocked certain words in chat messages had been changed "without our knowledge or consent and we are extremely concerned. We deeply apologize for the breach of privacy on TOM's servers in China and we are urgently addressing this situation with TOM."

Jennifer's hat seems to have changed overnight. If I was the kind of person who wore a tinfoil hat (and I might be) I might think they were trying to keep the focus off the E-bay parent brand. But it might just be a result of the channel the journalist went through.

The Journal's "China Journal" blog tracks the interesting evolution of Skype's written statement in response to this situation. Skype says that text filtering has always been part of the package and that no one should be surprised at Chinese government monitoring, but then shifts rapidly into outrage mode when theoretical possibility that the government might be monitoring communications starts looking like it's actually happening:

The idea that the Chinese [government] might be monitoring communications in and out of the country shouldn’t surprise anyone, and in fact, it happens regularly with most forms of communication such as emails, traditional phone calls, and chats between people within China and between people communicating to people in China from other countries.

[But later]

In 2006, Skype publicly disclosed that Tom operated a text filter that blocked certain words on chat messages but that it did not compromise Tom customers’ privacy. Last night, we learned that this practice was changed without our knowledge or consent and we are extremely concerned. We deeply apologize for the breach of privacy on Tom’s servers in China and we are urgently addressing this situation with Tom.

To which Imagethief can reply to Skype/E-bay with a wry smile, "The idea that the Chinese [government] might be monitoring communications in and out of the country shouldn’t surprise anyone." It especially shouldn't surprise American Internet firms, all of which no doubt paid close attention to the bombing that Yahoo took when it's Chinese partner was revealed to be providing user information to the Chinese police. I say with the deepest of apologies to Claude Rains that I am shocked (shocked!) to hear that surveillance is going on in this establishment.

From a PR point of view, here are the problems for American (and, in fairness to Skype although it's now owned by E-Bay, European) Internet firms operating via joint ventures or partners in China:

It's your brand at stake, regardless of whether you're a minority shareholder, you simply licensed the core technology, or you simply had no idea what was going on. This was true for Yahoo, who surrendered all control of what happened with their brand in China when they sold their China operations to Alibaba.com. It's true for Skype's JV with Tom.com in China. A visit to the home page of the Skype-Tom home page reveals tons of Skype branding, while TOM appears only in text links at the top and bottom of the page.

Your Chinese JV partner doesn't care what your stakeholders back home think. This is especially true if you've surrendered control of the technology or hold only a minority stake. It's concerns first and foremost will be 1) the Chinese authorities, 2) profitability or potential thereof and 3) winning Chinese customers. The concerns of your overseas stakeholders will be somewhere way down the list of priorities.

The Chinese government will be involved somehow. They will set censorship guidelines, listen in, demand personal information on users who cross the line or all of the above. Now refer back to the first point in the previous paragraph.

For the reasons above, Imagethief thinks it makes sense for you, the foreign Internet firm, to own and operate your own business in China rather than surrender your brand or technology or both to a joint venture partner. It's not that you'll be able to escape the problems above, it's that you'll have much better visibility into what's going on and control over what's happenening, and you'll be much less likely to be caught by surprise as Skype apparently was. Google, for instance, has taken this route and has so far avoided the worst outcomes despite submitting its Chinese search engine to local censorship requirements.

The problem with flying solo is that foreign Internet firms who do so in China tend to bomb. This is something that E-Bay knows a lot about, having been chased out of China by Jack Ma's Taobao.com. (MySpace is latest arriviste to be suffering.) So I suppose it all comes down to priorities and the specific risks you want to absorb.

We'll see if Skype and E-Bay absorb serious fallout over this. Honestly, my gut feel is probably not. Tom Lantos, who carried the torch for this issue in congress died earlier this year, and congress is anyway too busy not rescuing America from impending financial collapse to focus much about this kind of thing at the moment. As for the public, if you're worried about making your car payment, the travails of a bunch of innocent nerds in faraway Cathay probably doesn't grab as much attention as it once did.

An extensive list of Imagethief's prior comments on this topic is here. See also Rebecca MacKinnon's characteristically fiery post on the situation. For more information check out the blog of Nart Villeneuve, who authored the study.

Skype-Tom 

Who goes there?