It is purely my gut feeling, but the Yahoo incident in which the company provided Chinese authorities information about two journalists’ online activities and their subsequent jailing by government authorities, has real legs. 

The company — wisely — settled a lawsuit with the journalists families in short order, but this one has reputational bite.  Here are three reasons why (again, instinct) this feels like an brand transforming event.

1. Violates core identity: Like so many consumer-embraced brands, Yahoo! was built on fun, irreverence and a renegade spirit (banjo music + hillbilly yodel).  Yahoo! users are more sophisticated online types and this kind of perceived "sell out"  is a blow to the heart of the company’s customer base; a fact that Cisco, Microsoft and others who have had similar episodes don’t have to face.
2. Privacy Violation = Anger: People have such a visceral, angry reaction to their privacy being compromised.  In this case, compromised privacy got people locked up. The visual of family members sitting behind executives during Congressional testimony was a killer, as well.  So too was the [1] family’s heartbreak.
3. Confirms Cynicism:  The whole episode confirms many folks’ worst cynicism about what companies will do to access lucrative markets.

Here’s a [2] letter in the Wall Street Journal (subscription required until Murdoch waives) that captures a pervasive sentiment:

The real story of "[3] Yahoo’s Lashing Highlights Risks of China Market"
(page one, Nov. 7) is that two highly remunerated corporate executives
exposed their inability to weave, bob and obfuscate despite being
advised by an army of high-powered attorneys and image consultants.
They exposed their personal weaknesses, the reality that Yahoo Inc.
never had direct control over their own employees in China, and that
the "masters of the universe" may have money but no sound moral and
ethical principles.

This isn’t so much a China issue as one that relates
to the get-rich-at-any-cost culture inherent in our
entrepreneurially-driven world.

Jack C. Fensterstock

Bethesda, Md.

A tempting response is, "Hey, everybody is doing it" (conforming to oppressive Chinese laws).  As this [4] insightful blogger points out:

Cisco is hardly alone in helping China keep the jackboot to the neck of
its people. Skype, an EBay Inc. subsidiary, helps the Chinese
government monitor and censor text messaging. Microsoft Corp. likewise
is a willing conscript in China’s Internet policing army, as Bill
Gates’ minions regularly cleanse the Chinese blogosphere. Google Inc.’s
brainiacs, meanwhile, have built a special Chinese version of their
powerful search engine to filter out things as diverse as the BBC,
freeing Tibet and that four-letter word in China — democracy.

The greatest stumble  — and talk about cynicism — was Yahoo’s very poor performance at the government hearings.  They looked ill-prepared and the sharks lapped up the blood in the water. 

[5]