Speaking on the company’s official blog, Google’s Chief Legal Officer David Drummond said that the severity of the attack, which targeted the Gmail accounts of Chinese human rights activists, meant Google had decided to review its position in the country.

Despite concerns over censorship and human rights abuses, Google has operated in China since 2006 but has failed to dominate the market; with approx. 13% of the market it trails fair behind local market leader Baidu, which accounts for over 77% of searches.

Google’s potential withdrawal from the market is significant; at almost 350m users China’s internet population is the largest in the world and is still growing quickly. In December 2009 Microsoft (which has only a very small presence in China) declared that China was “the most important strategic market”.

Share price falls

The potential worth of the Chinese market means not being part of it could impact future revenues. News of a possible pull-out saw Google’s shares fall 0.57%, while Baidu’s value was up 13%.

Reaction to Google’s announcement and its motivations was mixed; a statement from Baidu claimed that the move was financially, rather than politically, motivated; with the withdrawal due to a failure to compete or make money in China.

Elsewhere, security firm F-Secure questioned how unusual or out of the ordinary the attack was:

“This wasn’t in my opinion ground-breaking as an attack. We see this fairly regularly. said Mikko Hypponen, of F-Secure. “Most companies just never go public.”

Pull-out a mistake

The general consensus amongst industry experts appears to be that the move is ultimately misguided and will have a negative effect on Google’s long-term revenues.

“This is the most stupid decision in their history,” commented Tang Jun, a former president of Microsoft China. “Giving up China means giving up half of the world.”

In response to Google’s announcement the Chinese government said that foreign internet businesses were welcome to operate in China, provided their actions were “according to the law”, signalling that Google will not be allowed to run its search engine without fiters. The government also emphasised that the Chinese law “proscribes any form of hacking activity.”

Google has faced criticism for its decision to open up bidding on trademarked names on its pay-per-click advertising service and is involved in legal dispute with several firms, including the owners of fashion brand Louis Vuitton.

The complaint levelled by LVMH is that other advertisers are able to exploit trademarked Louis Vuitton trademarked terms when they are offering imitation or unrelated competitor products.

However, Advocate General Poiares Maduro, who is adviser to the European Court of Justice believes that “Google has not infringed trade mark rights by allowing advertisers to buy keywords corresponding to registered trade marks.”

Under the threat of possible legal action, many companies have chosen not to bid on trademarked brands, even though Google has chosen to allow the practice.

“Just because Google’s AdWords policy allows this kind of advertising, it doesn’t make it legal,” comments Interflora’s official blog.

Interflora is currently sueing Marks and Spencer for breach of trademark law after the retailer started to bid on the advertising keyword “interflora” rather than generic flower-related terms. The company settled its case with Flowers Direct Online in March 2009 on the proviso that they stop bidding on the term.

Although Google’s open policy on trademarks looks set to be extremely lucrative for the online search advertisers, the fate of customers taking advantage of the service remains unclear.

In a stance which will give Louis Vuitton’s competitors hope, Maduro explains there is a distinction between using the trademarked keywords to advertise products and using them on a search engine to navigate to them.

“When selecting keywords, there is thus no product or service sold to the general public. Such a use cannot therefore be considered as being a use made in relation to goods or services covered by the trade marks,” said Maduro.

Promised to be faster, more accurate and more comprehensive than previous incarnations of Google’s index (or those of its competitors), Caffeine has been given an initial sandbox release to let power users try the update before its full roll-out.

Although Google is hailing the Caffeine update as a pretty radical improvement, it says that as the user interface will be staying the same, most regular users will not notice the difference.

“Right now, we only want feedback on the differences between Google’s current search results and our new system,” said Google engineers on a company blog posting.

Despite rumours that the update is a response to Microsoft’s recently launched Bing search engine, Google insist the new architecture has been in the pipeline for some time and is the result of an extended development period.

“I love competition in search and want lots of it, but this change has been in the works for months,” commented Matt Cutts, Google’s Head of Webspam.

Google is well-known for its fast-paced development and busy release schedule; the main search algorithms are being constantly refined and adapted. Recently, major changes such as how the engine treats PageRank have gone unnoticed by the search community for months.

The Caffeine update is indicative of how highly Google rates the important of new web content; it has already made efforts to introduce more Twitter updates into its search results and Caffeine should see more “real-time” stories being quickly indexed.

“Caffeine now picks up news stories and puts fresher content higher up the search results,” explained Alex Watson of Custom PC magazine.

- At the time of writing the Caffeine sandbox is offline for database maintenance.