John Battelle wonders why “Yahoo and Microsoft can go into China no problem, but once Google does, then the US Congress gets into the act.” He points to a Financial Times piece reporting that a House of Representatives subcommittee on human rights has just announced it will hold hearings “to examine the operating procedures of U.S. internet companies in China.” The subcommittee chairman intoned, “It is astounding that Google, whose corporate philosophy is ‘don’t be evil,’ would enable evil by cooperating with China’s censorship policies just to make a buck.”

I think the reason Google is getting its feet held to the fire is simple: It asked for it. As soon as the company broadcast its “Don’t Be Evil” pledge, it guaranteed that any time it stepped into ethically ambiguous territory it was going to touch off a firestorm in the press – and, in turn, draw the attention of the public and the public’s media-hungry elected representatives. It’s the old Gary Hart effect. Plenty of Senators get a little on the side without finding their dalliances on Page One, but as soon as Hart claimed to be pure, he guaranteed that reporters and cameramen would come knocking on the door of his lovenest. Whether it was hubris or just naivete that led Google to proclaim its moral purity can be debated, but from a business standpoint it was a surpassingly dumb thing to do – and the consequences were entirely predictable.

“I gradually grew comfortable, and I think we’re doing the right thing.” So says Google wunderkind Sergey Brin, to a Fortune reporter, in defending the company’s decision to censor search results in China. That’s the way it always works. You start out with high-flown ideals, and then you “gradually grow comfortable” with breaking them, and finally you’re able to convince yourself that you’re “doing the right thing.” On the flight home from Davos, Brin might want to read some Thomas Hardy novels.

But beyond the Google cofounder’s education in capitalist ethical situationalism (“Don’t Be Evil, Relatively Speaking”), this story brings into clear relief the broader situational fault lines of the internet. Whatever your feelings about filtering content, the fact is that search engines are now routinely choosing to filter out different types of content in different situations, usually in response to local laws or local social norms. The Wild West days are over. The internet is being subsumed into the real world.

Brin’s belief that the internet might exist in a separate uncompromised space, where all the world’s information is always available, unfiltered, to everyone, is not just a personal ideal; it’s one of the internet’s foundational ideals. And it’s a good ideal: it puts a stake in the ground. But it’s clear now that the future of the internet is going to be determined by how wisely we compromise that ideal, not by how fiercely we hold onto it.

On the heels of SAP’s dubious claim that companies using its software are 32% more profitable than companies that don’t, Oracle is now claiming that “leading global retailers who use Oracle Retail solutions outperform their peers with 49.7 percent higher operating profits and 61.5 percent higher return on invested capital.” What’s fascinating is that both SAP and Oracle base their claims on research from the same company, Stratascope. On Wednesday, I reported that Stratascope’s CEO, Bruce Brien, took issue with SAP’s claim of a causal relationship between its software and superior profits. In an email to me, Brien said, “We try to make it very clear to our clients that software does not make companies perform better, that software cannot improve your bottom line and that since most software is not free it will cost you money.”

Now, Stratascope is also calling into question Oracle’s numbers. The research firm yesterday issued a press release saying “it has discovered that its research had been mischaracterized, misrepresented and referenced without permission by Oracle Corporation to make claims about Oracle’s performance in the retail industry.” The release quoted Brien as saying, “As a Stratascope Inc. customer, Oracle has the right to pull financial statements out of our repositories, but we have no knowledge of the validity of the criteria and methodology they have used, particularly because several of their claims are based on a set of data that we do not possess. Our name, which was misspelled in their announcement, was used without our permission and erroneously attributed.” In his email to me, Brien commented further: “The SAP study was conducted by highly trained financial analysts in my full-time employ. The numbers, methods, and formulas have been audited and we stand behind their accuracy. We cannot stand behind any claims that Oracle makes in this regard.”

As with the SAP study, I find no indication that Oracle has released the details of its research, so it’s impossible to check its claims. Corporate software buyers would do well to call the bluffs of both these firms.

On Wednesday eBay reported another quarter of strong sales and earnings growth. But news out of China points to a big challenge facing the great auction empire. Hammered by fierce competition from Chinese auction sites, most notably Taobao.com (run by Yahoo-backed Alibaba), eBay today stopped charging transaction fees, according to the Financial Times. It continues to charge sellers a small listing fee, but the FT notes that the discontinued transaction fees had been much larger:

In China, eBay’s transaction fees were previously charged as a percentage of the value of completed sales, ranging from Rmb10 for a sale worth Rmb500 ($62) to Rmb115 for one worth Rmb20,000. Its listing charges are much lower – a maximum Rmb3 for items with an initial price of Rmb2,000 or more.

In contrast to its retreat on fees in China, eBay on Wednesday announced another substantial fee hike for the U.S. The company’s been able to get away with regular increases in fees here, despite grumbling from sellers, because it’s faced only weak competition. But the emergence of sites like Craigslist and Google Base suggests that eBay will not always be so well shielded from rivals. It seems likely, for instance, that some entrepreneur will get backing to launch a sophisticated auction site supported not by fees but by ads. If that does happen, the incentives for sellers to make a switch will go up substantially – and eBay will have no choice but to respond by sweetening the pot for sellers, as it just did in China. EBay has big advantages, but it may not be able to avoid a bidding war for listings.

Even in China, eBay long claimed that it would be able to maintain its transaction fees. As the FT reports: “EBay China had repeatedly waved aside challenges by Alibaba to scrap its charges, saying in October: ‘Free is not a business model.'” “Free” may not be a business model for eBay, but it may well be a business model for eBay’s competitors. And that’s the problem.

First things first: Google is to be applauded for fighting a subpoena requiring it to turn over data on people’s searches to the federal government. The government isn’t seeking the data for a criminal investigation; it’s on a fishing expedition to build a case for getting an anti-porn law through the courts. As John Paczkowski writes, the subpoena puts us on a “very slippery, very dangerous slope.” If privacy laws are to mean anything, they need to apply to governments as well as companies.

But if Google’s on the right side of this fight, that doesn’t mean it’s necessarily doing the right thing in making the foulest sort of pornography – rape and incest images, for example – readily accessible to children. If you’d like to see the kind of stuff that Google disseminates, just go to Google Image Search, turn off the SafeSearch filtering (it’s just a checkbox), and do a search on “rape.” Trust me: it’s nasty. Google’s not alone, of course. You can do the same thing on Yahoo – though at least Yahoo forces you to click on two checkboxes before it coughs up the bad stuff.

I know this is a complicated issue. My own instincts run toward the libertarian when it comes to placing controls on what’s online. But there is a case to be made that placing some controls on the accessibility of some online content is in the best interests of society. (In fact, Google is actively censoring video content already.) And even if you reject that case (as principled people can), you need to at least consider the consequences of pretending there’s no problem here. If the internet community doesn’t police itself, it may well end up being policed by the police. Like it or not, some slippery slopes have to be negotiated.

Back in November, I expressed some skepticism about a claim that software giant SAP made in an email newsletter it sent out. The newsletter reported that “a recent study of companies listed on NASDAQ and NYSE found that companies that run SAP are 32% more profitable than those that don’t.” The email included a link that promised “We invite you to see for yourself,” but instead of bringing you to details about the study, the link just brought you to a SAP web page with more marketing pitches. I did a considerable bit of searching but, as I reported, I was unable to find any documentation of the study – either on SAP’s site or on the site of the company that performed the study, Stratascope. But I did find that SAP is a big client of Stratascope’s. I wrote: “Now, the fact that SAP and Stratascope are cozy – and that it’s in Stratascope’s interest to make its client happy – doesn’t mean that Stratascope’s research is necessarily unsound. But it does raise questions – questions that can only be answered through a careful review of the research methodology and results.”

Although I didn’t realize it at the time, the SAP newsletter was just the start of a huge advertising campaign built around the “32% percent more profitable” study. If you’ve opened a business magazine recently, or watched any cable TV, you’ve likely seen the ads. To the best of my knowledge, though, SAP still hasn’t released the details of the research.

Today, Stratascope’s CEO, Bruce Brien, posted a comment to my November post, which I reprint here in full:

It is interesting that Mr. Carr, in his detailed research for this article, never contacted us at Stratascope Inc. The study was commissioned by SAP so it will not be published on our website. SAP owns the study. I would be more than happy to explain our methodology and calculations, as well as our auditing and quality assurance procedures that we use whenever we undertake such a study for any of our clients. All Mr. Carr had to do was ask.

I can also tell you that SAP commissioned the study without any idea what the results would show. The Ad campaign was created as a result of the study and not the other way around.

We also need to understand a little about statistics. Hypothetically, if the average non-SAP client in the study was showing a profit margin of 6%, a 32% higher margin would be only 7.92%. The numbers are not so hard to imagine in this light.

Finally, it is also clear that this is a success by association Ad campaign. There are no claims in any aspect of the campaign that imply that the client’s success is because of SAP.

Although bespoke research always makes me nervous, I’m willing to accept Brien’s assurance of the study’s integrity. Nonetheless, I continue to believe that SAP has an obligation to release the full report so that we can judge the basis and reliability of its claim that the use of SAP is associated with significantly superior profitability. In fact, Brien’s comment leads me to believe that such a disclosure is all the more important because SAP appears to be mischaracterizing the Stratascope study. Brien underscores that the research does not show that the use of SAP causes superior profitability; it’s just associated with superior profitability. Brien goes on to write that “There are no claims in any aspect of the [ad] campaign that imply that the client’s success is because of SAP.” Oh yeah? Here is a transcript of the voiceover from a SAP television ad:

The right software can make any size company more efficient, more agile, more responsive. In short, make your company more. That’s why companies that run SAP are 32% more profitable than companies that don’t.

After receiving Brien’s comment, I shot him an email, asking: “Doesn’t the ‘that’s why’ [in the SAP ad] suggest causality rather than just association?” He replied:

You are correct. I guess I didn’t pay enough attention to the voiceover. We try to make it very clear to our clients that software does not make companies perform better, that software cannot improve your bottom line and that since most software is not free it will cost you money.

If the people running the company make better decisions because of the software, then they can impact the performance of their business. This campaign was played back to us as an association type campaign where smart people who run great companies are choosing SAP and you should too.

Brien’s a straightshooter. I wish I could say the same for SAP’s marketers.

I had thought the big internet news yesterday was the announcement that the online casino GoldenPalace.com had bought William Shatner’s kidney stone for $25,000. But Yahoo’s earnings shortfall seems to have trumped Captain Kirk’s offal windfall.

Yahoo reported strong growth throughout its business, but it came up a penny short of Wall Street’s expectations on its earnings-per-share number. Given that Wall Street’s real expectation was that Yahoo would beat Wall Street’s expectations (got that?), the shortfall is causing a big fall in Yahoo’s stock this morning, as well as collateral damage to Google and other internet stocks. What’s probably making investors more antsy than that missing penny, though, is Yahoo’s admission that it’s having trouble “monetizing” its search results. Facing fierce competition from Google, and impending competition from Microsoft’s MSN network, its profit margin in paid search appears to be getting squeezed. The increasing competition in the online ad market means, moreover, that the squeeze will probably get worse. Reported the New York Times: “In forecasting a slowdown in growth, the company said it would have to give other Web sites a greater share of the money it took in from selling ads on their sites.”

Steve Rubell sees the Google results as heralding a Web 2.0 crash: Sell Google, he says, and “if you’re a start-up hoping to pin your business on advertising, get to higher ground.” Wall Street seems to have some sympathy for Rubell’s view, as two analysts have already cut their ratings on Google to “sell.” Business 2.0’s Owen Thomas, though, says the fears are overblown. He sees in Yahoo’s numbers a confirmation that the skies ahead are still a cloudless blue. According to Thomas, “nothing in Yahoo’s earnings suggested that the company’s strategy or execution is off course, save for the trouble with search monetization.” Then again, investors’ enthusiasm for Web 2.0 is largely built on rosy scenarios about pay-per-click advertising, so “trouble in search monetization” is, well, trouble. The question is: Is this a blip or a trend?

In describing his very expensive kidney stone yesterday, Shatner said, “If you subjected it to extreme heat, it might turn out to be a diamond.” Or was he talking about Web 2.0?