I had a lot of questions about this story. In the spirit of transparency (seems important for this story) rather than stir fry my own analysis from their thoughts, I'll share my biggest questions about this story, and the answers I've gleaned.
1) What will be the impact for Google?
As a public relations move, this is already going down brilliantly. It's difficult to find a newspaper or blog post that isn't singing Google's praises for finally taking stand against China's shadowy war against free speech. Financially, exiting China is an unknown long-term sacrifice, but in the short term, leaving the Chinese market would be the equivalent of cutting off some hair, as opposed to chopping off a major limb. Google is not the main search engine in China. The company's revenue from the Chinese market is estimated at $600 million by JP Morgan, about two percent of Google's yearly revenue projections, according to paidContent.
2) What will be the impact for China?
This is harder to suss out. Google's exit is economically immaterial to China. It's the optics that count. Henry Blodget sees Google's move as a harbinger, giving strength and morale to other countries to stand up against the Chinese. He could be right I suppose, but plenty of companies who deal with manufacturing in China are unlikely to be dissuaded by free speech issues they've known about for years. He also says that Google's exit could create a public backlash in China. Again, he could be right, but Google isn't the main search engine in China and savvy Internet users can already use a proxy server or buy a VPN service to bypass China's Great Fire Wall, according to Fallows. As for this move's impact on Sino-American relations, it's really too early to tell. The State Department's statement was short and vague.
3) Wait, Google self-censors itself?
Yes. Google might be the world's greatest force for openness and freedom of speech online, but it also strictly adheres to the laws of the countries where it runs its search engine. In parts of Europe, you can't read about neo-Nazis. Thailand, Pakistan, Turkey, Germany and Brazil block YouTube. In China, Fallows explains, "searches on the main Google.COM have been uncensored for material like "Tiananmen Square" or "Dalai Lama.""
4) Could Google have an ulterior motive here?
Always seeking the latent angle, Marc relays two cynical takes: Google's doing this to cover up for its Google Phone customer services problems; and Google's lobbying for more favorable regulations in the States. Interesting to think about, but I share Marc's cynicism about the cynicism.
5) Was this smart for Google?
Last thing I wanted to share: Fallows had a wonderful interview with Google CEO Eric Schmidt at the Atlantic's "First Draft of History" event. The question about China comes at the 19:00 mark. A transcript is below the video.