As a first reaction of investors Google shares immediately went down , whilst shares of Chinese competitor Baidu won 7% after hours. Although quite cynical - the free market supporting censorship - as a first reaction this seems to make sense because - as JPMorgan analyst Imran Khan estimates - Google's China revenues at around $600 million this year are at stake. But it's very probable those 600 million will prove to be be a very smart investment, both from a short as a long term investors point of view.
For the short term this move generates an enormous amount of very positive publicity around the world. Once again Google will be the champion of free speach and openness of the internet. Google can do with some positive publicity in a world that becomes more and more suspicious of the monopolistic marketing power of the internet giant. Only a week ago German minister Sabine Leutheusser-Schnarrenberger said in an interview with "Der Spiegel" that she was concerned the firm was accruing too much power and information about citizens via programs like Google Earth and Google Books.
On the longer term history will eventually prove the Chinese government unable to completely control, filter and restrain the internet for their citizens. With a (temporary) withdrawel from China - where Google's market share is relatively small - Google will do a lot of damage to the image of the Chinese regime and consequently will gain a lot of sympathy with the Chinese public. Already Chinese dissidents put flowers outside Google's Chinese headquarters. Baidu on the other hand will in the long run be hurt by their image of complying to the regime's demands and restraining their customers from a free information flow. So by temporarily losing some revenue, Google could very well secure a significant gain in future market share in China.
Update march 25, 2010
http://tcrn.ch/9x4u4j
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