With Google’s recent announcement that they may have to pull out of China, the big question that everybody’s asking, is what do they hope to gain?

As stated on their blog several advanced hacking attacks, including a shoal of phishing emails with links to spyware software were just the tip of the iceberg. In addition to targeting human rights activists using Gmail, it appears that systematic attempts were made to steal intellectual property from at least twenty major western corporations including Adobe.

Of course, Google denies that this is an “attack on cloud computing”, but it would have been far harder for them to hold that line if any of their accounts had been fully breached.

This is a serious matter for Google, as it’s not just their reputation at stake. In addition to being 100% behind cloud computing they hold the private data of millions of individuals, businesses and government departments, along with all of their own employees, thanks to their “eat your own dog food” policy.

Were hackers able to gain full access to their servers then everything from your personal emails to State Secrets and their magical PageRank algorithm could be at stake.

Clearly, this goes way beyond the human rights of a few Chinese protesters, as the attacks were sophisticated enough to suggest government backing, in addition to the apparent political agenda. For example, many of the attacks were launched from compromised servers in Taiwan, along with some from Rackspace for good measure. The attacks were specifically tailored to each of the target corporations, exploiting vulnerabilities in Adobe PDF scripts and using phishing emails to install hidden spyware. Further, Adobe may have been targeted in order to try and find new ways to exploit their software.

Before Google became a world power – their annual revenue now eclipse the GDPs of Iceland, Jordan or Bahrain – and trustee of so much private data, the risk of having a server compromised wasn’t such an issue. Their data centres have multiple redundancy and advanced load balancing and hot switching to ensure that the outside world rarely sees any of their hardware failures (which must happen frequently, given how much they own).

Google hasn’t officially declared that it plans to leave China, however they have thrown down the gauntlet to the Government by stating that they’re not planning to censor their search results from now on, even though that probably mean it’s the end for Google.cn.

Some people including a deleted blog post from Baidu have disingenuously suggested that Google pulled out for financial reasons, however, given the huge growth of the Chinese market and Google’s growing market share that argument doesn’t hold much weight.

…the chief architect of Baidu said Google’s decision to quit was for financial reasons, rather than a human rights issue, as Google had failed to dominate the Chinese search market.

“What Google said makes me sick,” he said. “If you are to quit for the sake of financial interest, then just say it.”

First and foremost it appears that Google’s no longer willing to tolerate the risk to their data security that comes from being based in China. In addition to the attacks themselves, working out of China means complying with Government censors and storing data in local servers. It appears that Google now fears security breaches and industrial espionage more than the “almost insignificant” amount of their Global revenue currently contributed by their Chinese arm.Moreover, Google was starting to gain market share, increasing to around 31% of Chinese searches in the last quarter, so, if anything, they were looking forward to the future.

The public’s trust is key to their cloud computing dreams and so making a stand won’t do them any harm back home – North America, the UK and everywhere else where they have the lion’s share. It might also endear them with regulators at home and abroad who are increasingly intervening as they try to innovate, lobby and disrupt other industries.

Despite Google’s desire to “organise [all] of the world’s information”, “don’t be evil moto” and their desire to protect their customers’ data, investors will still be forgiven for wondering whether they have a plan, abandoning such a fast growing market at short notice.

The answer may lie in their ever growing array of additional ventures. For example, Google appears fully committed to the mobile market, having just released a new Android phone with iPhone like abilities. (Detractors complain that the iPhone is better, but that misses the point. The only phone the Nexus One is being compared to is the iPhone, suggesting that they’re already perceived to be in second place, despite being new to the game.) Factor in their Chrome browser, operating system and, soon, a netbook running their own propriety OS and a comprehensive strategy starts to emerge.

Google’s plan to pull their data centres out of China saves them from facing several future battles. For example, many Chinese people (only 20% so far are online) may end up relying on wireless connections including mobile networks and satellites for their internet connection. Google wants to be your search engine of choice, and sell you the phone and laptop that you surf with too.
China’s clumsy and ineffective Green Dam censorship software illustrates their commitment to the freedom of speech, and Google might have been anticipating pressure to adjust their new operating systems to make them work in a party-censor-friendly manner.

So, it looks like Google’s now going to redouble its efforts to make their international web properties available from within China, while working on their plans to offer secure cloud computing and internet connectivity through as many different channels as possible. If nothing else, their new policy should keep liberals, capitalists, Baidu and the US State Department happy for a while. It’s just a shame that they couldn’t please everyone.