Consider then if Google had decided to leave it would have had a huge negative backlash on the law, given the usefulness of Google.

Instead Australia can now get what it wants and the backlash is minimal at best. Meanwhile they can go on to celebrate their dystopian law as working because of the endorsement Google gave them by capitulating.

Short term yeah it'd suck for Australia to lose Google but then the law gets changed back, Google comes back, and everyone wins. Well except for the Australian government.