Google's China Loss is Microsoft's Gain?

As the biggest name in web services pulls out of China, the players left behind are probably feeling pretty good. Those remaining include Microsoft, but the market isn't wide open for them by any means.The Google exodus from China began when Google announced their servers had been hacked, most likely by agents of the Chinese government looking for information on dissidents. According to Google, the hackers also got source code that could be used for further attacks. And, Google wasn't the only company attacked; Google claimed that more than 30 companies were targeted, and Intel later confirmed that they were attacked as well.

Just as with the United States or Europe, companies operating inside a country are subject to its laws and need to comply with official requests for information. Google was doing this, perhaps grudgingly, including censorship when required. This apparently wasn't enough for the Chinese government -- or at least parts of it -- that decided hacking was more expedient. Whatever the details, Google seemed to feel that it couldn't operate inside China when its government felt it didn't need to follow its own laws. Although Google has set up Chinese operations in Hong Kong, the Chinese government predictably blocked the new site within a day.

The other technology companies that were victims of the Chinese hacker attacks haven't said much, and none of the others have announced any intentions to leave China. In a blog post back in January, CEO Steve Ballmer didn't address the Google attacks specifically, but said "We have done business in China for more than 20 years and we intend to stay engaged, which means our business must respect the laws of China." So it seems safe to say at this point that the others have decided to grin and bear it, hoping that their China fortunes will be be be brighter.

Google's departure does leave some opportunities for other web services, including Microsoft. But there are also other non-Western companies that are strong players. For example, baidu.com offers a spectrum of services that are equal to that of Google, Yahoo, or Microsoft. Home-grown companies are less likely to chafe under control of the Chinese government, which means there is a huge home-field advantage that could overcome the expertise companies like Microsoft bring to the country.