This is all well and good—the press can use any extra revenue it can get these days—but it’s hardly going to save the industry on its own. Even if the press could get Google to fork over 5 percent of its total revenue this year—something that would never happen—it would come to just $1.1 billion or so.
That’s nice, but even an outlandish number like that wouldn’t be nearly enough to fundamentally change the dismal economics of the Web for the press. Newspapers alone took in more than $3 billion in online ads last year and that doesn’t come close to cutting it.
In second-day coverage, The New York Times writes that such a pact could be a “watershed moment in the history of the Internet.” Well, maybe, but it would have been worth noting that such a thing is not without precedent. News Corp. itself got a $900 million contract from Google to index and provide ads for MySpace (though it will end up short of that because of traffic declines). Microsoft a few weeks ago said it would pay Twitter to index its content. That should have made the NYT story, too.
The story’s kicker is strange:
Craig Newmark, the founder of Craigslist, argued that the Internet had tended to favor entities willing to share information rather than those trying to build barriers.
“The spirit of the Internet is about people working with each other, and that is part of the Google ethic. I think this move would strengthen Google.”
Say what? That doesn’t make sense.
But Danny Sullivan, who’s quoted in the piece, does:
“My reaction is that this is probably more of Murdoch trying to put pressure on Google for a deal than anything else,” Mr. Sullivan said.
Yep. This move seems more likely to be an incremental one for the news industry as far as revenue goes—even if it backfires. The implications for the search industry longer term, however, could be more interesting.
What’s interesting as a tangential news angle is something that venture capitalist Albert Wegner points out (h/t Josh Young): There’s a ton of room for competitors to come in and take business from Google:
But one thing that I have missed from everything I have read (and it may well be that it’s there and I missed it) is what this is truly all about: the immense competitive pull of Google’s amazing profits! The big challenge for businesses with network effects is how to split the profits pie between themselves and others.
I mentioned this in comments a couple of weeks ago:
Much as I don’t think Google would much miss the WSJ alone in its search results, Eric Schmidt has bemoaned the “cesspool” of poor information out there, and he wouldn’t want to see an exodus of professional content providers to a fat-pocketed Microsoft willing to lower its margins or even lose some money in order to weaken the Google search monopoly.
No (non-monopoly) company with gross margins of 63 percent and operating margins of 35 percent will keep them that high for long. That’s evidence of inefficiency in an industry and someone, sometime will come along and undercut such a company, cutting into those margins.
Whether for Google that comes from having to share revenue with the content creators (including non-professional ones) it makes money off of or something else no one knows. But Sullivan points out that Microsoft has already tried to give searchers themselves cash when they purchase something via a Bing ad—with little results (although I saved a few hundred bucks last year with it!).