“We actually did an evil scale and decided not to serve at all was worse evil.”

– Google CEO Eric Schmidt on the company’s decision to offer a censored version of its search services in China, Jan. 30, 2006

Evidently Google is taking its informal “don’t be evil motto” a bit more seriously these days. The search sovereign threatened late Tuesday to pull out of its operations in China after detecting a “highly sophisticated and targeted attack on [its] corporate infrastructure originating from China.” Targeted in the assault: The Gmail accounts of Chinese human rights activists.

“These attacks and the surveillance they have uncovered–combined with the attempts over the past year to further limit free speech on the web–have led us to conclude that we should review the feasibility of our business operations in China,” Google’s chief legal officer, David Drummond, wrote in a post to the company blog.

“We have decided we are no longer willing to continue censoring our results on Google.cn, and so over the next few weeks we will be discussing with the Chinese government the basis on which we could operate an unfiltered search engine within the law, if at all,” Drummond added. “We recognize that this may well mean having to shut down Google.cn, and potentially our offices in China.”

Shut down Google.cn, and potentially our offices in China? Hmm. What’s the Chinese word for “Bing”?

Drummond didn’t directly accuse the Chinese government of orchestrating the incursion, but he certainly seems to be implying there’s a link. And you’d think one would have to exist for Google (GOOG) to threaten pull out of a country that has more Internet users than the total population of the U.S.–even if its efforts to gain market share there haven’t met with the same success as in the rest of the world.

It’s tough to stake your claim in a country where the government favors the local rival and blocks your traffic if you fail to censor. Baidu’s share of the Chinese search market in the third quarter was 77 percent, up from 75.6 percent. Google’s share for the same period? Just 17 percent, down from 19 percent.

So, to some extent, Google can probably threaten to leave China because the country accounts for such a small portion of its revenue. On the other hand, China leads the world in Internet users and presents a hell of a market opportunity–large enough that Google willingly provided a censored version of its services as a prerequisite for doing business there. Or, rather, it used to.

At $395.50 Baidu shares are up more than two percent after hours on the news. Google shares are down 1.6 percent at $581.01.

Drummond’s post in full, below, as well as another on the safety of data on Google by Dave Girouard, President of Google Enterprise:

A new approach to China

Like many other well-known organizations, we face cyber attacks of varying degrees on a regular basis. In mid-December, we detected a highly sophisticated and targeted attack on our corporate infrastructure originating from China that resulted in the theft of intellectual property from Google. However, it soon became clear that what at first appeared to be solely a security incident–albeit a significant one–was something quite different.

First, this attack was not just on Google. As part of our investigation we have discovered that at least twenty other large companies from a wide range of businesses–including the Internet, finance, technology, media and chemical sectors–have been similarly targeted. We are currently in the process of notifying those companies, and we are also working with the relevant U.S. authorities.

Second, we have evidence to suggest that a primary goal of the attackers was accessing the Gmail accounts of Chinese human rights activists. Based on our investigation to date we believe their attack did not achieve that objective. Only two Gmail accounts appear to have been accessed, and that activity was limited to account information (such as the date the account was created) and subject line, rather than the content of emails themselves.

Third, as part of this investigation but independent of the attack on Google, we have discovered that the accounts of dozens of U.S.-, China- and Europe-based Gmail users who are advocates of human rights in China appear to have been routinely accessed by third parties. These accounts have not been accessed through any security breach at Google, but most likely via phishing scams or malware placed on the users’ computers.

We have already used information gained from this attack to make infrastructure and architectural improvements that enhance security for Google and for our users. In terms of individual users, we would advise people to deploy reputable anti-virus and anti-spyware programs on their computers, to install patches for their operating systems and to update their web browsers. Always be cautious when clicking on links appearing in instant messages and emails, or when asked to share personal information like passwords online. You can read more here about our cyber-security recommendations.

We have taken the unusual step of sharing information about these attacks with a broad audience not just because of the security and human rights implications of what we have unearthed, but also because this information goes to the heart of a much bigger global debate about freedom of speech. In the last two decades, China’s economic reform programs and its citizens’ entrepreneurial flair have lifted hundreds of millions of Chinese people out of poverty. Indeed, this great nation is at the heart of much economic progress and development in the world today.

We launched Google.cn in January 2006 in the belief that the benefits of increased access to information for people in China and a more open Internet outweighed our discomfort in agreeing to censor some results. At the time we made clear that “we will carefully monitor conditions in China, including new laws and other restrictions on our services. If we determine that we are unable to achieve the objectives outlined we will not hesitate to reconsider our approach to China.”

These attacks and the surveillance they have uncovered–combined with the attempts over the past year to further limit free speech on the web–have led us to conclude that we should review the feasibility of our business operations in China. We have decided we are no longer willing to continue censoring our results on Google.cn, and so over the next few weeks we will be discussing with the Chinese government the basis on which we could operate an unfiltered search engine within the law, if at all. We recognize that this may well mean having to shut down Google.cn, and potentially our offices in China.

The decision to review our business operations in China has been incredibly hard, and we know that it will have potentially far-reaching consequences. We want to make clear that this move was driven by our executives in the United States, without the knowledge or involvement of our employees in China who have worked incredibly hard to make Google.cn the success it is today. We are committed to working responsibly to resolve the very difficult issues raised.

Keeping your data safe

Many corporations and consumers regularly come under cyber attack, and Google is no exception. We recently detected a cyber attack targeting our infrastructure and that of at least 20 other publicly listed companies. This incident was particularly notable for its high degree of sophistication. We believe Google Apps and related customer data were not affected by this incident. Please read more about our public response on the Official Google Blog.

This attack may understandably raise some questions, so we wanted to take this opportunity to share some additional information and assure you that Google is introducing additional security measures to help ensure the safety of your data.

This was not an assault on cloud computing. It was an attack on the technology infrastructure of major corporations in sectors as diverse as finance, technology, media, and chemical. The route the attackers used was malicious software used to infect personal computers. Any computer connected to the Internet can fall victim to such attacks. While some intellectual property on our corporate network was compromised, we believe our customer cloud-based data remains secure.

While any company can be subject to such an attack, those who use our cloud services benefit from our data security capabilities. At Google, we invest massive amounts of time and money in security. Nothing is more important to us. Our response to this attack shows that we are dedicated to protecting the businesses and users who have entrusted us with their sensitive email and document information. We are telling you this because we are committed to transparency, accountability, and maintaining your trust.

It is an extraordinary market play. And an unsettling one. For it seeks to place Google (GOOG), which already collects vast amounts of data about our Internet use, at the very center of our information experience.

The privacy implications are, of course, horrendous. And while Google will inevitably dismiss such concerns as paranoid and argue that any data the company might collect at the OS level will be used only to improve its services and benefit users, it should still give us all pause. Because when it is finally launched, Chrome OS will be yet one more deep well of consumer data to which Google will have access.

There are already quite a few such wells, including Google Search and Chrome, that profile user interests and surfing habits: Gmail, which gives the company access to our email conversations, and Google Voice, which gives the company access to our spoken ones. Add to this Google Street View and Latitude, a service that tracks the physical location of its users, and mobile and desktop operating systems and, well…that kind of consolidation of Internet-based services around a single dominant company should give us all pause.

Lest we forget, Google is in the behavioral targeting business. Why would people ever use an OS developed by a company whose business is based on meticulously recording and analyzing their online behavior? Because they enjoy using its other services, I suppose. But there is a privacy-vs-ease-of-use tradeoff here. And with Chrome OS, it is unprecedented. Further, while Google might tout its “don’t be evil” motto as reason enough to trust the company with our data, there are other entities that don’t always share that sensibility. Remember, it wasn’t so long ago that the federal government tried to force Google to turn over user search data to the Justice Department…

“Competition in the OS market should always be welcome, but Google is the special case,” Marc Rotenberg, executive director of the Electronic Privacy Information Center, told Digital Daily. “It has become dominant across many essential Internet services–search, mail, video, online apps, and advertising. Coupled with Google’s growing profiles of American consumers and reluctance to adopt meaningful privacy safeguards, we expect that antitrust authorities in the US and Europe will view Google’s entry into the OS market with enormous skepticism.”

Jeff Chester, executive director of The Center for Digital Democracy, echoed Rotenberg’s concerns. “Google’s new OS has to be placed under the data collection X-Ray by US and EU privacy regulators and advocates,” he said. “Any expansion into the marketplace by either Google or Microsoft should generate intense scrutiny, especially for the privacy implications. These two are engaged in a global data collections digital arms race, which has far-reaching implications for consumers and their information.”

As CEO and chairman of Mozilla, respectively, John Lilly and Mitchell Baker steward the development of Firefox, the open-source browser that challenged and then broke Microsoft’s choke hold on the browser market. As of April 2009, Firefox claimed 22.48 percent of Web browser market, according to Net Applications. That makes it the second most popular browser world-wide, after Internet Explorer, which holds 66.1 percent. An impressive feat. And an important one. Because by dislodging Internet Explorer from its dominant market position, Firefox has proven not only that open-source projects often provide better software–something to which any Linux geek will attest–but that it’s possible for a particularly well done one to become an everyday consumer application.

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