12.30.2007 ET

A Google funded startup providing genetic testing and analysis services adds to growing ethical concerns regarding the extent and depth of knowledge the software giant has on individuals. Recently, controversy surrounding 23andme, an online company funded partly by Google added to the roster of growing ethical issues, privacy and security concerns against the software behemoth. 23andme operates in the space known commonly as direct to consumer genetic testing (DTC). The startup, of which Google is a major stakeholder, has recently started offering DNA tests to consumers for $999 shedding light on, among various things, their genetic tendency to inherit certain diseases and conditions. Google is already facing a slew of privacy and security concerns and their DoubleClick acquisition has run into troubled waters for precisely these reasons. Google has been unable to effectively address these concerns despite their many attempts to do so.

For investors, these growing developments should be of concern. The cornerstone of Google’s competitive advantage is its users- customer satisfaction and trust is therefore essential for Google’s long term competitiveness. In this context, the controversy surrounding Google’s involvement in 23andme is a further indicator of the increasing dissatisfaction and suspicion about the company’s extent and depth of knowledge on its users. This heightens the risk of possible user migration to competitor search engines and that may in turn lead to a drop in advertising revenues. 23andme touts that its service will enable users to identify personal disease risks and in the future when its database becomes larger, allow customers to take part in scientific studies that will help determine the type of individual most likely to have a life threatening drug reaction or most likely to benefit from a cancer treatment. Google’s involvement with a company that analyses and interprets the most personal information an individual possesses- his or hers genetic history- and aims to build a genetic database is unsettling given that the company already possesses and archives user’s search history analyzing it to determine user behavior, preferences and tastes. Google has been under societal pressure for “knowing too much” about its users for quite some time now.

Currently, the DTC field is characterized by a lack of regulatory oversight and the possible misinterpretation of genetic information and its associated psychological effects on the customer. Though 23andme has stated that a professional will interpret the results for the customer, the level of risk associated with such a service remains high and Google as a major investor needs to be adequately prepared to address such risks. As per Innovest’s research, Google has not appeared to have developed a plan to buffer this additional risk. A genetic database is an added dimension to Google’s burgeoning repository on users – a fact that has not gone down well with customers and society and the company’s management of this stakeholder issue has been less than exemplary.

As mentioned earlier, growing suspicion and dissatisfaction among users on the ethical, privacy and security of information front may lead to a possible migration of users to competitor search engines, weakening Google’s competitive advantage and leading to a possible drop in advertising revenues- investors should note that the company’s services and activities as elaborated upon in this article, exhibit not only a strategic business risk but also have tangible financial implications to them. Google, part of the Software and IT services sector, received a rating of A by Innovest this year.

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