Google: Once-brotherly image turns Big Brotherly

Posted: August 3, 2008 in 2005, Articles
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SAN FRANCISCO — Opponents long ago painted Wal-Mart, Microsoft and a handful of other behemoths into a rogue’s gallery of too-powerful corporations needing government restraint.

Now, a brash upstart with a “don’t be evil” mantra may soon join them: online search giant Google.

In just seven years, Google has emerged as one of the most influential companies of the 21st century, a multinational whose recent forays into classified ads, book publishing, video, Wi-Fi and telecom make its data empire ever more powerful. That’s pushing it into a growing buzz saw of competitors, such as Microsoft, and lawmakers worried about data privacy and protection.

“Google could easily become the poster child for a national public movement to regulate data collection,” says Jeff Chester, head of the Center for Digital Democracy, a privacy advocate.

Google is building defenses to block government actions that slowed growth and innovation at other once-fast-growing companies. It is bolstering its new Washington lobbying office, on top of the $360,000 it paid a lobbying firm since 2003, public documents show. The Capitol Hill effort, starting so early, is in contrast to Wal-Mart and Microsoft, which suffered after ignoring Congress and antitrust regulators.

It recently named a new communications chief, Elliot Schrage, whose blue-chip background in law and sensitive issues such as offshoring shows Google is gearing up for more contentious times.

Founders Sergey Brin and Larry Page launched their $1 billion charitable arm in October. The Google Foundation came much more quickly than Microsoft founder Bill Gates’ foundation, which softened his digital dictator reputation. Gates didn’t start big philanthropy until 25 years after Microsoft’s start.

Google says the shift is to be expected as it adds competitors, becoming a bigger target. “We’re getting more public scrutiny,” says David Drummond, vice president of corporate development.

He says Google hasn’t lost sight of the “don’t be evil” pledge Brin and Page laid out last year. As Google expands, Drummond says, “We do that in an ethical and responsible way.” Nonetheless, he says, there will always be “people who don’t like what you do.”

Google started out golden

Its public image is stellar: a quirky start-up whose youthful founders want to put the world’s information at consumers’ fingertips — for free, no less.

Millions of users “Google” the Internet daily, making the company a cultural touchstone. It just made its debut at No. 3 on the Reputation Institute’s list of 60 most prominent U.S. companies; only perennial favorites Johnson & Johnson and Coca-Cola ranked higher.

Yet recent events have started jeopardizing Google’s underdog image, threatening to galvanize powerful interests that could slow its meteoric growth.

Google stock has soared above $400 a share, giving it a $119 billion market value, topping McDonald’s, Hewlett-Packard and other giants.

From the “Googleplex” headquarters in Silicon Valley’s Mountain View, Brin and Page, both 32, have become globe-trotting industrialists worth $15 billion each. They could soon displace Wal-Mart’s Walton family among the world’s wealthiest.

Board member and Stanford University President John Hennessy told authors of a new book, The Google Story, that Google now controls the world’s biggest computer network and database, bragging rights Wal-Mart has long claimed.

Google’s network of more than 100,000 computer servers cost so much to build, competitors may never catch up, he says. And it’s still growing; Google expects $800 million in capital spending this year vs. $319 million last year.

Revenue this year is expected to be $4 billion, up 25rom 2004, from tiny text ads companies pay to have shown next to Google users’ search results.

Google has nearly 5,000 employees and about two dozen foreign offices. Its website lists more than 700 job openings when many tech companies are scaling back. Among its newest targets: a push to beat Microsoft in hiring engineers and attracting consumers in the fastest-growing big economy, China.

Its aggressive expansion is beginning to worry Wall Street, where Google has been a darling since going public at $85 a share in August 2004. Shares closed Wednesday $404.22.

Lauren Fine, a media analyst at Merrill Lynch, warned in a Nov. 28 research note that the launch of services like Google Base classified advertising could tarnish its do-only-good reputation. “As Google’s newer businesses start to encroach on some otherwise profitable business models, we have to ask how they define evil,” Fine wrote.

Other observers wonder, too. Search engine expert John Battelle’s tech blog lit up with comments last week after New YorkMagazine reported a “seismic shift” in public sentiment, “from unalloyed Googlemania to gathering Googlephobia.”

As it tears into new markets, Google threatens politically powerful interests such as the real estate industry and print media. And it faces more scrutiny in data security, a subject it mentions among 20 pages of risk factors in its annual 10K filing with federal regulators.

Competitors, including Yahoo, cite similar risks. “There’s an arms race between companies collecting data and companies compromising it,” Drummond says.

Google stores users’ searches:

Unbeknownst to many users, privacy advocates like Chester say, Google’s technology gives it enormous power to collect data on the interests and online habits of millions of Web surfers.

Google stores every user’s searches in its growing database and index of websites, maps, photographs and other documents. Its free e-mail program, Gmail, stores all user messages — including deleted ones — forever.

Type someone’s name or phone number into Google’s search box and you’ll likely turn up a home address, allowing you to see an aerial photo of their house from the Google Earth satellite photo service, started last year.

Daniel Brandt in San Antonio, creator of the Google-Watch.org website, worries that law enforcement authorities or repressive foreign governments could demand access to Google’s database to examine users’ surfing habits.

“Google will become bigger and bigger, and they will be a massive problem in terms of Internet privacy,” Brandt says.

Drummond says Google’s privacy policy, on its website, discloses the risk of subpoenas. Yahoo and Microsoft’s MSN post similar policies, their websites show.

Google’s growth comes when Congress is prodding data collectors such as banks and retailers after a series of high-profile thefts or losses of Social Security numbers, home addresses and other personal information.

The Senate Judiciary Committee last month passed a data privacy bill that goes to the full Senate. The bill, whose sponsors include Arlen Specter, R-Pa., and Dianne Feinstein, D-Calif., would regulate data brokers, force more security and increase penalties for identity theft.

A breach of Google’s database could be a catalyst for more lawmaker attention. “That would be the Tylenol scare to end all Tylenol scares at Google,” Battelle says.

Likely nemesis list grows

Groups such as the Electronic Privacy Information Center say they don’t have the financial muscle to challenge Google the way organized labor went after Wal-Mart and competitors sicced the Justice Department on Microsoft. Revenue growth and innovation at Wal-Mart and Microsoft suffered as senior executives devoted more time to fending off legal attacks.

Yet Google’s incursions are riling better-financed opponents, especially Microsoft. The two are now jousting over a search partnership with Time Warner’s America Online. Time Warner’s talks with Microsoft and Google center on search and related ad sales and would replace its deal to use Google search services, which expires in 2006. Google got about 10f its revenue in the first nine months of this year from the pact.

The Google-Microsoft fight grew bitter in July, when Google nabbed a leading Microsoft computer scientist, Kai-Fu Lee, in charge of the software giant’s China push. Google named Lee president of its China research and development center. Microsoft and Google have sued each other over Lee’s defection.

That followed Google’s launch of Desktop search software, beating Microsoft to a tool that lets users quickly find all sorts of documents — including ones created with Microsoft software — stored on PCs.

Underlining its growing Google fear, Microsoft just launched a new software strategy emphasizing services like Google’s that could generate more search-based revenue.

Google launched a copyright battle with book publishers when it began copying books with Stanford and four other research libraries. The text will join Google’s searchable database. Users will be able to read small passages but not an entire book, Google says. Google says it can do so under the “fair use” legal doctrine. But the Association of American Publishers and the Authors Guild disagree. They have sued to stop Google.

The new Google Base also is provoking angst because it works as a free online classified ad service. Users fill Base with items like consumer electronics, job openings or homes for sale. That threatens newspapers, online auctioneers like eBay and job sites like Monster.

Base could send Google on a collision course with one of the USA’s most powerful lobbies, the National Association of Realtors, if the service siphons real estate listings from members’ crucial multiple listing service. The Realtor group’s political action committee gave $3.8 million to federal candidates for the 2004 elections — more than any other PAC, says the Center for Responsive Politics, a campaign watchdog group.

Realtors spokesman Lucien Salvant said the group had no comment on Google’s recent moves.

A force to be reckoned with

Despite rising opposition, Google won’t be easily outflanked. A secondary stock offering three months ago added $4 billion to its war chest. [about the time of the NASA merger]

None of its initiatives comes close to the anti-competitive behavior alleged against Microsoft, says Lawrence Lessig, a Stanford professor and expert on cyberlaw. “They’re big. They’re successful. They’re powerful. They’re rich. Those are good things. What’s bad is anti-competitive behavior,” he says.

New communications chief Schrage, appointed in October, will lead a more global public relations offensive. Schrage, a Harvard graduate, was a senior fellow in business and foreign policy at the Council on Foreign Relations, a non-partisan think tank.

Google also will draw on its lobbying office, led by Alan Davidson, a former computer scientist who was associate director of the Center for Democracy and Technology. Drummond says Google expects to add one or two more lobbyists.

Google paid outside lobbying firm Public Policy Partners $100,000 in the first half of this year. Public documents show the firm’s interests included the Justice Department and the Federal Trade Commission and issues such as privacy, offshoring data, telecom reform, data breaches and security.

Even as Google mounts a more robust defense, Wall Street analysts like Fine are anxious. She warns that increased negative publicity adds to an already risky bet: “This stock is not for investors with a weak stomach.”

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