December 15, 2010 4:00 AM PST

Search steady, Google branches out in 2010

Jump to: Featured stories of 2010

Google saw a return to prosperity in 2010, not that it was all that affected by the economic downturn of a year ago. Still, while its online advertising juggernaut continue to produce large profits it was not the greatest year for its product development arm, and international intrigue underscored just how powerful and influential Google is around the world.

The year was barely two weeks old when Google made its biggest announcement of 2010: it had been hacked by a group believed to be working on behalf of the Chinese government, who made off with source code and prompted Google to declare it could no longer abide by Chinese laws requiring search engines to comply with government censorship of sensitive topics. Google eventually wound up moving its Chinese-language search operation to Hong Kong, where the laws are slightly different but where China can also filter traffic through The Great Firewall. As a result, Google is expected to lose ground in the fast-growing Chinese Internet market, but was lauded by U.S. authorities such as Secretary of State Hillary Clinton for drawing a line in the sand over Internet freedom.

Around the same time, Google also shook up its fast-growing Android mobile-phone operating system project with the release of a good-but-doomed product: the Nexus One. An elegant Android phone free of the restraints that carriers put on their Android phones, the Nexus One was popular with reviewers but its Web-only sales and tech-support strategy didn't catch on with the public. Not only that, it confused Google's mission and angered Android partners, and while other so-called "Google experience" phones are said to be in the works, it's unlikely any of them will be promoted as heavily as the Nexus One.

Search is still king at Google, and its Google Instant search announcement helped keep the company's dominant share of the search market very stable. But social media is quickly gaining steam as an alternative method of finding information on the Internet. Google made aggressive moves in social media during 2010 but had little to show for it by the end of the year: Google Buzz adoption has been tepid after privacy missteps, Google Wave, the darling of 2009, was abruptly canceled, and a confusing strategy to incorporate social-media features across existing products had yet to get off the ground by the end of the year.

Acquisitions--and the requisite regulatory scrutiny--continued apace at Google in 2010. Several dozen companies were purchased or presented with offers over the year, most notably AdMob, Slide, ITA Software, and Like.com. Google actually proposed buying AdMob in 2009 but a long review held up the completion of that deal, and a similar review is expected to delay completion of the ITA deal--should be it approved--into 2011.

One of the most debated Google projects of 2009--Google Books--is amazingly still on hold as 2010 comes to a close, without the formal approval of a settlement between Google and groups representing authors and publishers over Google's right to display out-of-print but copyright-protected books after final settlement hearings in February. It's not clear what is causing the delay, but some Google watchers believe the company is still negotiating with the U.S. Department of Justice over the parameters of the deal, which would grant Google unique publishing rights that U.S. copyright law doesn't fully address.

It was a good year for Google's enterprise software division, as it gained new customers for Google Apps and nurtured a new source of friction with Microsoft. The good news for Google is that it's being taken more seriously in the enterprise, the bad news is that Microsoft is taking Google more seriously as an enterprise competitor.

But the one development from 2010 that could have the longest-lasting impact at Google was the revelation that it had used its Street View cars to gather "payload" data from unsecured wireless hot spots around the world. Google said it was a mistake, but a class action lawsuit pending in California could expose embarrassing internal documents and force Google to write a hefty check before all is said and done, not to mention the damage to its reputation for a company that depends heavily on user trust.