Google Agonizes on Privacy as Ad World Vaults Ahead

(Please see Corrections & Amplifications item below)

A confidential, seven-page Google Inc. "vision statement" shows the information-age giant in a deep round of soul-searching over a basic question: How far should it go in profiting from its crown jewels—the vast trove of data it possesses about people's activities?

Should it tap more of what it knows about Gmail users? Should it build a vast "trading platform" for buying and selling Web data? Should it let people pay to not see any ads at all?

These and other ideas big and small—the third one was listed under "wacky"—are discussed in the document, which was reviewed by The Wall Street Journal and compiled in late 2008 by Aitan Weinberg, now a senior product manager for interest-based advertising. Along with interviews with more than a dozen current and former employees, the vision statement offers a candid, introspective look at Google's fight to remain at the vanguard of the information economy.

Google is pushing into uncharted privacy territory for the company. Until recently, it refrained from aggressively cashing in on its own data about Internet users, fearing a backlash. But the rapid emergence of scrappy rivals who track people's online activities and sell that data, along with Facebook Inc.'s growth, is forcing a shift.

A person familiar with the matter called the vision statement a "brainstorming document" and said it wasn't presented to senior executives. Some of its ideas are "complete non-starters," this person said. Efforts to reach Mr. Weinberg weren't successful.

Still, several have been implemented. Among them: Last year, Google for the first time started collecting a new type of data about the websites people visit, and using it to track and show them ads across the Internet.

Worries about the size of Google's data cache are "hypothetical," said co-founder Larry Page last month in response to a reporter's question about privacy. "It is always easy to be fearful of what could happen, right?"

As Google changes, it is likely to bring the rest of the online world with it. With more users than any other Internet company, it has an unparalleled ability to make new ad-targeting methods mainstream. The company also actively participates in trade groups that regularly craft new privacy practices among themselves in hopes of thwarting legislation. The Federal Trade Commission said last year that the field can regulate itself as long as companies disclose their practices to users, among other things.

Google is overwhelmingly important to online privacy. Roughly 75% of global Internet users, or 943.8 million people, used its services in June, more than any other Web company, according to comScore.

The vision statement describes the company's immense search database as "the BEST source of user interests found on the Internet," during a discussion of ways to make ads more relevant to users. "No other player could compete," it says. Later, the document warns that some ideas range from "safe" to "not" safe.

The most aggressive ideas would put Google at the cutting edge of the business of tracking people online to profit from their actions. A data-trading marketplace, for instance, would allow personal information from many sources—including Google—to be combined and used for highly personalized tracking of individuals.

Tiny companies like BlueKai Inc. and eXelate Media Ltd. already offer some of these services, pressuring Google to match them. A Wall Street Journal investigation, "What They Know," is examining the widening trade in this kind of data and the consequences for individual privacy.

Google trails in some of these techniques by choice. Famous for its unofficial corporate motto, "Don't Be Evil," for years it resisted using any method to track people online without their knowledge at the fierce insistence of founders Sergey Brin and Mr. Page. But the two men have gradually decided they can begin exploiting the data their company controls, without exploiting consumers, according to interviews with more than a dozen current and former employees.

The founders believe they are improving the Internet user's experience, said Alma Whitten, who leads Google's privacy engineering, in a June interview. "What's good for the consumer is good for the advertiser."

A recent Journal examination of the proliferation of online tracking found that Google's tracking code appeared on 45 of the 50 most popular U.S. websites. (For details on those findings, go to WSJ.com/WTK.)

The 2008 vision statement along with a dozen other internal documents reviewed by the Journal tell the inside story of how Google dragged its feet while its founders' views evolved.

Selling ads is Google's big money-maker, but the online-ad business is broadening away from Google's sweet spot, selling ads tied to the search-engine terms people use. Instead, advertisers want to target people based on more specific personal information such as hobbies, income, illnesses or circles of friends.

The changes at Google reflect a power realignment online. For years, the strongest companies on the Internet were the ones with the most visitor traffic. Today, the power resides with those that have the richest data and are the savviest about using it.

That has propelled Internet ad companies into an arms race so swift that even Google fears being left behind. One slide from an internal presentation in mid-2008, which was reviewed by the Journal, is headlined bluntly: "Get in the Game."

That particular slide describes the importance of breaking into the lucrative business of selling "display" ads, which are larger ads with pictures, as opposed to smaller text ads. Today, Google still trails market leader Yahoo in U.S. display-ad revenue, according to analysts.

Google still leads the Internet pack overall, of course. Its revenue, $23.7 billion in 2009, is more than three times Yahoo's, its closest competitor. Its online advertising business is growing faster than those of its publicly held U.S. rivals.

But Google's revenue growth has slowed dramatically. And social-networking powerhouse Facebook is a widening threat with its ability to sell highly targeted ads to its more than 500 million users.

Facebook fears run deep at Google, which is designing its own social-networking service. In a sign of how quickly things change, the 2008 vision statement scarcely mentioned social networks.

Google also plans to go head-to-head with Facebook's "Like" button—a tiny tool on many websites that lets people tell friends they "like" something. Each click gives Facebook valuable, personal data about people's interests.

Few online companies have the potential to know as much about its users as Google. Consider 26-year-old Ari Brand, an actor living in Manhattan's East Village. Google has access to the fact he paid $733 for a flat-screen TV, because he uploaded his budget to Google Docs, an online word processor and spreadsheet. It has access to the 23,000 emails he has sent through Gmail. Google also saves searches tied to the network address of Mr. Brand's computer, which it makes anonymous after 18 months.

Significantly, however, Google doesn't mix those separate pots of personal data. For instance, it doesn't use data gleaned from a person's Gmail account to target ads to that person elsewhere online. Google's computers do, however, scan Gmail messages to place contextual ads next to the emails themselves.

Google also says much of its data can't be tied to a person by name.

Executives long considered the privacy risks too great relative to the business rewards. According to people familiar with Google's thinking, they felt the company was being held to a higher standard than less well-known firms, and preferred to let more aggressive rivals test the boundaries.

Concerns about antitrust scrutiny also heightened the risk of finding new ways to profit from Google's exclusive data.

As recently as 2006 or so, Google's sights weren't set on Facebook—they were set on AOL and Yahoo, which together controlled roughly 40% of the U.S. display-ad business, analysts say.

One big obstacle in winning more of that business was Google co-founder Mr. Page, who objected to letting Google's advertising customers work with companies that installed "cookies" on people's computers for purposes of serving ads and tracking their performance. Cookies are little text files that can, among other things, be used to help track people's activities online to show them ads targeted to their interests.

Those policies hurt Google's display ad sales because the company wouldn't let advertisers use technology they were used to. Google didn't use ad-targeting cookies itself, either. That meant Google could only sell ads based only on the name or content of a page—for instance, putting a shoe ad on a page about shoes. That is known as "contextual" targeting, and many advertisers consider it less effective than "behavioral" targeting, which identifies specific users and their interests.

In 2006, Gokul Rajaram, then a senior Google staffer, and ad-sales executive Tim Armstrong tried to change Mr. Page's mind about letting other companies place cookies.

In an interview, Mr. Rajaram recalls that he thought it would be an easy sell. A growing number of advertisers were refusing to buy display ads from Google. Market research showed AOL and Yahoo were trouncing Google in the display market.

Messrs. Page and Brin weren't swayed. "I was kind of shocked," Mr. Rajaram says. "They just didn't look at it the same way."

As factions inside Google fought over the issue, an opportunity arose. DoubleClick Inc., a giant in the business of placing display ads on websites, put itself up for sale—and Google archrival Microsoft Corp. was circling.

Google executives were leery of the way DoubleClick used cookies to track people online, on the principle that many users had no idea they were being tracked, people familiar with the situation say.

But an acquisition of DoubleClick would instantly bring in display-advertising expertise and clients, they thought.

In 2007, Google agreed to buy DoubleClick for $3.1 billion. At the time, some employees joked Google had to spend billions just to get Mr. Page to like cookies, people familiar with the matter say.

Google and DoubleClick executives huddled to decide how to blend the two companies' products. They had a lot of ground to make up.

According to a resulting presentation slide, dated July 2008—the one headlined "Get in the Game"—Google offered fewer ways to measure an ad's effectiveness than Atlas, a rival owned by Microsoft. And Google had none of the behavioral-targeting capacities of AOL's Tacoda unit—meaning it couldn't target ads to people based on websites they visited.

Google executives finally agreed it was cookie time. As a result, every page where Google sold a display ad began installing a DoubleClick cookie on users' computers.

For the first time, Google had the ability to deliver ads targeted to individual people's computers. But just because it had the ability, Google didn't start using it. There was still too much internal resistance.

Mr. Weinberg, the author of the 2008 "vision statement," came to Google from DoubleClick. He and a small group of product managers and marketing officials began discussing the ways Google could target ads to people more aggressively.

His memo, stamped "INTERNAL CONFIDENTIAL," acknowledged the delicateness of the subject. Audience targeting is "of a sensitive nature," it stated in the very first sentence, due to the possibility of "mis-understanding" among users.

The memo then went on to outline a sweeping vision in which Google could get other websites from around the Internet to share their data with it for the purpose of targeting ads.

The document also says Google could start selling ads across the Web based on the things it knew about people from their Gmail accounts, and also from their use of Google's Checkout service, a PayPal rival.

All of that would be a significant change. Currently, although Google places contextual ads within a user's Gmail account, it doesn't follow that person to other websites with those ads.

The document shows awareness of the privacy implications. Nothing would happen "without strong consideration of privacy, legal and industry best practices in mind," it states. A goal should be to limit users' feeling of "creepiness" from seeing finely targeted ads, it says.

By late 2008, Google executives were preparing to launch ads targeted at users' interests. But the specifics still remained controversial.

Tensions erupted during a meeting with about a dozen executives at Google's Mountain View, Calif., headquarters about 18 months ago when Messrs. Page and Brin shouted at each other over how aggressively Google should move into targeting, according to a person who had knowledge of the meeting. "It was awkward," this person said. "It was like watching your parents fight."

Mr. Brin was more reluctant than Mr. Page, this person said. Eventually, he acquiesced and plans for Google to sell ads targeted to people's interests went ahead.

Google launched the new advertising product, "interest-based ads" in March 2009. The service, currently available only to a limited group of advertisers, uses cookies to track any time a user visits one of the more than one million sites where Google sells display ads.

To offset the founders' concerns about cookies' secretiveness, Google set up a page, www.google.com/ads/preferences, where people can opt out and see what Google has inferred about their interests.

Google adopted other vision-statement ideas. Last September, it launched its new ad exchange, which lets advertisers target individual people—consumers in the market for shoes, for instance—and buy access to them in real time as they surf the Web. Google takes a cut of each ad sale.

In short, Google is trying to establish itself as the clearinghouse for as many ad transactions as possible, even when those deals don't actually involve consumer data that Google provides or sees.

The further step in that progression would be for Google to become a clearinghouse for everyone's data, too. That idea, also laid out in the vision statement, is still being considered, people familiar with the talks say. That would put Google—already one of the biggest repositories of consumer data anywhere—at the center of the trade in other people's data as well.

Excerpts: Google's Confidential 'Vision Statement'

Graphic: Google's Widening Reach

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Full Coverage: WSJ.com/WTK

Corrections & Amplifications

Google Inc. is "moving very fast" to explore new uses for its database of users' online searches, Google founder Larry Page said to reporters last month. An earlier version of this article failed to make clear that Mr. Page was referring specifically to using search logs for such purposes as identifying public-health trends, rather than using its broad data for advertising.

Write to Jessica E. Vascellaro at jessica.vascellaro@wsj.com