Google Breaks Up With China

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Google (Stock Quote: GOOG) and China have been going through a lot of drama recently.

Late Tuesday, Google announced that it would stop censoring searches in China and might pull out of the country completely in the near future. And it all started with some Chinese hackers.

According to the Wall Street Journal, “Google said it suffered a ‘highly sophisticated and targeted attack on our corporate infrastructure originating from China’ in mid-December, which it said resulted in ‘the theft of intellectual property.’ The company said it found evidence to suggest that a primary goal of the attackers was accessing the Gmail accounts of Chinese human-rights activists.”

Wired reports that the hackers also attacked more than 30 other companies. These attacks “were well targeted and ‘unusually sophisticated’ and aimed at grabbing source code from several hi-tech companies based in Silicon Valley as well as financial institutions and defense contractors.” And, perhaps most importantly, these attacks made Google mad… and you don’t want to make Google mad.

Google’s realization that hackers were targeting human-rights activists seems to have come as a wake-up call to the company. As we reported previously, Google has come under fire ever since it first agreed to cooperate with Chinese officials and censor search results in China. Now it seems Google’s experiment with censorship is over, and if the Chinese government does not accept Google’s new terms of operation, the two may part ways.

It’s probably a bad sign though that the news that Google might pull out of China was itself quickly censored by the government. And earlier today, China defended the need for censorship. "Properly guiding Internet opinion is a major measure for protecting Internet information security," one government official said. On top of that, tabloids in the country were claiming that Google was fleeing the country because they couldn't compete with Baidu, the local search engine. Some argued that rather than being a repudiation of China, this was actually a sign of its strengths.

The press has gone bananas over the news, with the Wall Street Journal going so far as to declare it a “watershed moment.” But the real question is what effect will it have on the company and China if Google should make good on its threat.

MarketWatch argues that the initial financial effect on Google would be minimal. They report that some analysts argue “the loss of Google's China earnings will likely be ‘immaterial’ for the company, as it's estimated to draw just about 1% of its total revenue from mainland China.” However, it would have a serious impact on Google’s growth projections for the coming years. There are more than 300 million potential Google users in China, and Google currently has about 80 million of them.

Meanwhile, some speculate the Chinese government may face a serious backlash. Even with the censorship of the news, The Washington Post reports that several users in China have already “placed flowers outside the company’s offices” and thousands more may express frustration with the government if Google does leave. How that frustration might manifest itself is still a mystery.

This all came after news earlier this week that Google had apologized to two Chinese authors who had filed a lawsuit against the company for scanning their books without permission. Google has scanned millions of other books as part of their global project to digitize all the world’s books and make them available in the Google Book Search, angering many publishers worldwide.

We don’t know if this is an indication that Google is less evil than we argued in a previous piece, or rather proof that Google has advanced to the point where it now has feelings.

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