Reprinted courtesy of The Wall Street Journal
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
SÃO 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.
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
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 São 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.
[Thiago Tavares Nunes de Oliveira]
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.
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 Büyükkökten, 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. Sérgio Gardenghi Suiama, a federal prosecutor in São 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?
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. Büyükkökten, 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.
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 São 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.
Visitors to social-networking sites in September.
Unique users % Change
Windows Live Spaces 119,838 21
Six Apart Sites
Source: comScore World Metrix