[A2k] Wall Street Journal: Google Under Fire Over a Controversial Site

[Thiru Balasubramaniam]

http://online.wsj.com/article/SB119273558149563775.html


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Google Under Fire
Over a Controversial Site
Racist Speech, Porn
Stir Battle in Brazil;
A 'Pandora's Box'
By ANTONIO REGALADO and KEVIN J. DELANEY
October 19, 2007; Page A1

S=C3O PAULO, Brazil -- Google Inc. makes billions marrying advertising to
the Web. Just yesterday, it reported yet another surge in revenue and
profit.

But here in Brazil, the Internet powerhouse is embroiled in an
embarrassing episode over its efforts to profit from social networking,
one of the fastest-growing activities online.

Google has gotten in hot water over its Web site Orkut, which like
other social-networking sites allows people to swap information and
create personal Web pages. While many Americans have never heard of it,
Orkut is a powerhouse overseas, with more than half its 25 million
monthly visitors in Brazil. By some measures, it ranks among the top 10
sites on the Web in popularity, alongside other heavily used
social-networking sites such as News Corp.'s MySpace and Facebook Inc.
(See related article1.)

A central challenge for all these companies is how to turn the usage
into cash. All of the big players are looking to advertisers to
generate revenue. For most of its history Orkut was ad-free.

Then, when Google tried putting ads on the site, it ran into trouble.
Critics in Brazil released a report showing advertisements on Orkut
alongside pictures of naked children and abused animals. Google
immediately suspended the ads, but the Mountain View, Calif., company
is still grappling with the fallout from critics' Orkut campaign.

The head of Google's Brazilian operation is facing criminal contempt
charges for refusing to turn Orkut users' data over to police. And next
month there is a hearing in a case brought by a S=E3o Paulo prosecutor
threatening daily fines of $100,000 or the shuttering of Google's
Brazil office. "We have won," says Thiago Tavares Nunes de Oliveira, a
28-year-old Brazilian law professor who wrote the graphic report and
has crisscrossed Brazil making the case that Google allowed Orkut to
become a redoubt of criminal activity, including child pornography and
racist speech.

The U.S.-based National Center for Missing and Exploited Children,
which tracks reports of child pornography, says Orkut generates a
comparable amount of pedophilia complaints as other social networks.
Google says it regularly removes illegal content from its services. It
adds that while Orkut's data are not directly subject to Brazilian law,
the company has changed its policies to more swiftly address Brazilian
police and judicial requests.

Google also acknowledges the company made mistakes by not devoting
enough resources to understanding a culture and country where its site
had become popular. "We'd do it differently today," says Alexandre
Hohagen, the head of Google's Brazil office, who is facing contempt
charges. "The product grew faster than the support. That is a fact."

Indeed, Google's traditionally hard-line stance on privacy issues --
which it views as necessary to preserve user trust -- exacerbated the
situation in Brazil as well. Last year, the U.S. Justice Department
took Google to court for refusing to hand over data about consumer Web
searches that Yahoo Inc., Microsoft Corp. and Time Warner Inc.'s AOL
had supplied. Google eventually complied after a federal judge ordered
the government's request dramatically scaled back.

But what makes social-networking sites so popular -- the ability of
anyone to post material -- also makes them hard to control, threatening
the ability of Internet companies to make money off them. New York
Attorney General Andrew Cuomo this week reached a settlement with
privately held Facebook in which the Palo Alto, Calif., company
promised to respond to user complaints about nudity, pornography or
harassment within 24 hours. Mr. Cuomo's office had accused Facebook of
being slow to respond to complaints about sexual predators.

The regulatory problems are more acute overseas. U.S. laws on Internet
privacy and freedom of speech are relatively well-developed. But that's
often not the case in other countries, where companies face conflicting
laws, unpredictable environments and national or religious
sensitivities. Brazilian law, for example, does not offer Internet
companies the same immunity for defamation-related claims that they
enjoy in the U.S. In India, nationalists have called for an Orkut ban,
and the site is already blocked in some Arab countries.

For advertisers, the Orkut episode helped reinforce concerns that
social networks are an unreliable advertising vehicle. "Orkut is a
Pandora's box," says Brian Crotty, a vice president at
McCann-Erickson's Brazilian advertising office.

Liquor maker Diageo PLC of London says it stopped advertising on all of
Google's properties after learning that its ads ran alongside
pornographic images on the site. Spokesman Stuart Kirby says Diageo
didn't realize that ads for its Johnnie Walker brand had appeared on
Orkut, where many users are below legal drinking age.

Orkut screen shots collected by Mr. Tavares also show content he views
as objectionable running next to ads from Alibaba.com, a
business-to-business site based in Hong Kong and whose parent is 40%
owned by Yahoo. An Alibaba spokesman said the company is concerned
about the situation. "We are contacting Google to understand what steps
they are taking to insure that search advertisements do not appear
alongside content that is inappropriate or illegal," he added in a
statement.

Google is exploring ways to put advertising back on Orkut without it
appearing alongside content advertisers find objectionable, says one
person familiar with the matter.

Addressing such problems can prove expensive. News Corp.'s MySpace
faced similar complaints in recent years. Now, company executives say,
each of the eight million new pictures uploaded to its site each day is
reviewed at least once by a human being. That program costs MySpace
several million dollars a year.

News Corp. has agreed to acquire Dow Jones & Co., the publisher of The
Wall Street Journal. In addition, News Corp. and Google have an
agreement for Google to sell ads that appear on MySpace and share the
ad revenue.

How to make money from Orkut -- and keep increasing revenue from
outside the U.S. -- are strategic questions for Google. In the third
quarter of this year, 48% of Google's revenue came from outside the
U.S., up from 43% in 2006 and 39% in 2005. Thanks partly to the fact
that Brazilians are some of the most active Internet users in the
world, Orkut now has about as much global overall traffic, or "page
views," as Google's top-ranked search engine, according to data from
comScore Inc.

Google released Orkut -- named after creator Orkut B=FCy=FCkk=F6kten, a
Google software engineer -- in 2004. It became a surprise hit in
Brazil, where it quickly won millions of users.

Hewing to its usual strategy, the Internet giant didn't immediately try
to make money from the site. As recently as the middle of 2005, Google
had just three employees in Brazil. Google's low investment in Orkut
contrasted sharply with its growing importance in Latin America's
largest country. Orkut has become a major center of Brazilian social
life, with two-thirds of all Internet surfers using the service, many
of them children.

The site rapidly became a reflection of the good and bad of Brazilian
society, a country famed for its fun-loving spirit as well as slum
violence. Communities were built around such themes as soccer, love and
overcoming injustice. Almost 400,000 people joined discussions in a
group called "My mother is the best on Earth," Google says.

Criminal elements also connected with each other and recruited
sympathizers on the site, including neo-Nazis, organized gangs and
pedophiles. Mr. Tavares says in one year he recorded thousands of pages
related to pedophilia. Other communities boasted names like "Black: the
inferior race" and "I'm a Nazi, so what?" "It was like there were two
Orkuts. A normal Orkut and a pornographic Orkut, living in parallel,"
says Irineu de Carli Jr., a Brazilian software consultant.

Orkut's dark side drew the interest of Mr. Tavares, a solemn man who
became the second-ever youngest professor at his school, the Catholic
University of Salvador. In 2004, Mr. Tavares received a small grant to
track human-rights violations on the Internet. He says he soon
discovered that while Internet use is exploding in Latin America, the
region has few laws and limited resources to govern the rapid growth.

In December of 2005, Mr. Tavares set up a nonprofit group called
SaferNet. Modeled on U.S. organizations, the site allows users to
report online crimes via its Web site. Within weeks, he says, the site
was receiving hundreds of complaints. More than 90% were about Orkut.

Mr. Tavares began pointing out problems to Internet companies. He says
Yahoo of Sunnyvale, Calif., and Microsoft of Redmond, Wash., promptly
removed material he flagged as offensive and promised to hold copies
for authorities. Microsoft invited Mr. Tavares to a meeting with its
top Brazilian executive.

But the young lawyer says Google gave him the brush-off. He says Mr.
Hohagen, the head of Google's Brazil operation, didn't reply to several
requests for meetings. In early 2006, Mr. Tavares gave a Google press
officer a CD containing 220 pages of evidence of alleged Orkut crimes.
He never heard back.

Google in Brazil says it can't find clear records of any such meeting
requests by Mr. Tavares. But Mr. Hohagen confirms his account of the
CD.

Google, meanwhile, began looking to make money in Brazil. In July 2005,
it formed a local subsidiary to sell online advertising. Orkut was part
of the strategy. "I lose sleep just thinking about the gold mine that
Orkut could represent," Mr. Hohagen told Exame, Brazil's leading
business magazine, in 2005.

But Google faced a growing wave of complaints, many instigated by Mr.
Tavares. S=E9rgio Gardenghi Suiama, a federal prosecutor in S=E3o Paulo in
charge of human rights, began flooding the company's Brazil office with
subpoenas seeking identifying information, such as email addresses, of
Orkut users accused of committing crimes online.

Under direction from Google's U.S. headquarters, Mr. Hohagen refused to
accept the subpoenas. Google's chief legal officer, David Drummond,
traveled to Brazil to explain the situation. In April 2006, Mr.
Drummond testified at a congressional hearing requested by Mr. Tavares.
He said Google wished to assist authorities, but Orkut data were all
stored on computer servers located in the U.S. Therefore, he said, the
data were subject to U.S. laws, not Brazilian ones.

Those laws include strict protections on users' private data and
typically don't allow Google to reveal private communications without a
user's express consent, except under very limited conditions and when
ordered by a U.S. judge. And some crimes being investigated by
Brazilian authorities -- like racist speech -- aren't crimes in the
U.S. If Google met Brazilian demands, what would it do if Saudi Arabia,
where homosexuality is a crime, began asking it to unmask gay users?

Orkut has been sparking debates over freedom of expression elsewhere.
The United Arab Emirates blocked the site this summer after concerns
that a community called "Dubai Sex" was promoting immorality. In India,
members of the Army of Shiva, a political party, responded to
criticisms of it on the site by attacking cyber-cafes and demanding
that Orkut be banned as a "threat to national security."

But Brazilians are sensitive to the idea that Americans dominate the
Internet. In 2005, for instance, Brazil joined China in a bid to wrest
control from the U.S. of the Internet's domain-name system -- the
management of suffixes like .com and .net that help route Internet
traffic.

Google took other steps that angered local officials. The company gave
responsibility for handling its Brazilian legal crisis to an outside
lawyer, Durval de Noronha Goyos Jr., head of one of Brazil's largest
law firms. Mr. Noronha criticized the prosecutor, Mr. Suiama, for
presenting "inept" judicial demands to Google's Brazil subsidiary
rather than its headquarters in California, where the company wished to
handle them. Mr. Suiama, he said, was more interested in "exhibitionism
in the media" than in solving problems.

The approach backfired. In August of 2006, Mr. Suiama requested a
police investigation of Mr. Hohagen for disobeying judicial orders and
filed a lawsuit threatening Google with heavy fines unless it complied
with his requests. That case is scheduled to go to an arbitration
hearing next month. "If they want to do business in Brazil, they must
obey the laws here," Mr. Suiama says.

By early this year, Mr. Hohagen says Google was already looking to
shift strategies. It sent Orkut's creator, Mr. B=FCy=FCkk=F6kten, on a
three-week tour through Brazil where he was mobbed by fans for
autographs. During the tour Google announced that a test of Orkut
advertising, which had started in India and the U.S. last year, would
be extended to Brazil.

But the test provided additional ammunition for Mr. Tavares's 12-person
team at SaferNet. Trawling through Orkut's communities, Mr. Tavares
noticed that Google's automated ad system couldn't tell the difference
between a page dedicated to pedophilia and one with ordinary content.

On Aug. 17, Mr. Tavares sent an 18-page complaint to Brazil's
advertising watchdog, known as CONAR, documenting cases of embarrassing
juxtapositions: advertisements for Diageo's Johnnie Walker whiskey next
to pornographic images; a pet store pitch on a community dedicated to
stabbing animals with knives. In the report, Mr. Tavares alleged that
Google's "flagrant illegalities" had resulted in ads appearing next to
"barbaric" content.

After CONAR opened an investigation a few days later, Google
immediately suspended advertising world-wide on Orkut. The company
described the ads as part of a test marketing program involving only 1%
of Orkut pages. Given Orkut's heavy usage, however, the ads could have
been viewed by users hundreds of millions of times a month.

Google has since moved swiftly to address critics' concerns in Brazil.
In a news conference last month in S=E3o Paulo, Mr. Hohagen announced a
shift in strategy: Google Brazil would begin accepting police and
judicial requests, although, he said, the company's U.S. parent would
still respond to them. And the company offered to outfit nonprofits,
including SaferNet, with special accounts so their complaints about
content would receive top priority.

In late September, Mr. Hohagen called Mr. Tavares and the pair sat down
for a five-hour meeting. They discussed steps the company could take to
improve Orkut. "It was obvious that they could only commercialize Orkut
after they proved to everyone they had solved the problem," Mr. Tavares
says.

--Vauhini Vara contributed to this article.

Write to Antonio Regalado at antonio.regalado@wsj.com2 and Kevin J.
Delaney at kevin.delaney@wsj.com3
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Thiru Balasubramaniam
Geneva Representative
Knowledge Ecology International (KEI)
voice +41.22.791.6727
fax +41.22.723.2988
mobile +41 76 508 0997
thiru@keionline.org