Google stand could be good for business

Martin Wolk Chief economics correspondent • Profile • E-mail

Google’s decision to resist a government demand for millions of its search-engine records may not do a thing to protect the privacy of computer users, but it certainly boosts the company’s reputation as a protector of its customers’ rights.

For a company that declares its corporate motto is “Don’t Be Evil,” the decision to take a principled stand against the broad demand for information offers a rare opportunity to distinguish itself from its rivals just as the issue of government snooping is heating up politically on Capitol Hill.

The search engine giant said Thursday it had refused a subpoena issued by the Justice Department to provide a factual basis for justifying an online pornography law that was struck down by the Supreme Court on free-speech grounds.

Google’s rivals Microsoft and Yahoo both complied with the request in some fashion, as did America Online, although the companies say they did not reveal any personally identifiable information about their users. (MSNBC.com is a joint venture of Microsoft and NBC.)

Google presumably could do the same thing and hand over a random sampling of 1 million search queries from a specific day and 1 million Web addresses from its database, which the  government indicated it would accept after several months of negotiations.

But by choosing to fight the subpoena in court, contending it is overly broad, Google signals to its customers that it is a company that can be trusted with sensitive personal information as it presses ahead with an ambitious business plan to move well beyond search into technology services that compete with  established software, media and entertainment companies.

“I don’t think that they have a choice” but to fight the subpoena, said Denise Garcia, an analyst with WR Hambrecht & Co. “The only reason users will go to Google is because they trust the site. If they don’t trust the site, they will just limit their use of it.”

Risks to Google
Google’s decision carries risks as well, beyond the potentially substantial costs of litigation, which the company can afford with its $5 billion cash stockpile. By failing to support the government’s effort to put the controversial 1998 law into effect, Google also faces the political risks associated with battling the powerful Bush administration, Garcia and other analysts said.

The political risks “probably factored into why both Microsoft and Yahoo folded so quickly,” said technology analyst Rob Enderle of the Enderle Group. “The risks associated with a fight over this topic are in the stratosphere.”

Garcia agreed the fight is risky, and she cautions that the Internet industry is so new that any investment in Google is inherently dangerous, although she has a “buy” rating on the stock and a price target of $480, about 20 percent above its current level. But she said that on balance, Google’s decision was a smart business move.

“Because this is a brand new marketplace, the actions taken now will define what is fair and what is customary for the future,” she said. “I think it’s important as the Internet is shaped as an industry to take a stand right in the beginning. It may be costly, it may take time and it may be inconvenient, but I think it does establish them as a leader.”

Google acknowledged that the government’s request, initially made in August and then narrowed after resistance from the search providers, does not raise privacy issues because the data would be aggregated, with personally identifiable information such as Internet addresses remove.

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