First let me say I love Google. I think Google created one of the greatest inventions of the past century and continues to give back much more value to the world than they “capture” in revenue.
Secondly, I think Google itself has almost nothing to do with the decline of newspapers. That is due to, among other things, 1) the newspapers losing their classified business to Craigslist and others, 2) the internet making geography irrelevant and hence causing newspaper competition go from 1 or 2 papers per market to thousands.
That said, I am bothered by the arguments I hear in internet circles of the form:
Premise 1: X can stop working with Y at anytime. (NYTimes could opt out of Google search results / Google news at any time)
Premise 2: X would lose out if it did that (NYTimes would lose traffic and revenue if they opted out of Google).
Conclusion: Hence Y is helping X. (Google is helping the NYTimes and the NYTimes should stop whining.)
The conclusion doesn’t follow from the premises. The NYTimes might in fact be better off in a world without Google. More specifically, they would be better off if the search engine market were genuinely competitive.
The power dynamics between Google and the newspapers has the same dynamics of any buyer-supplier market.
Newspapers, like all websites, are suppliers of content to Google. In most markets, with genuinely competitive buyers and suppliers, the revenues are shared between buyers and suppliers in proportion to their relative bargaining power. Their bargaining power depends on how fragmented each side of the market is – how many genuine alternatives each company has.
Normally there is some reasonable level of interdependence between buyers and suppliers, hence the revenue split is positive and non-negligible. Pepsi and Coke are always jostling with their bottlers about the percentage split but in the end each side usually makes a profit.
And in situations where the relative bargaining power is severely imbalanced, there are normally business mechanisms for correcting the imbalance. For example, before Staples was founded, office supply stores were mostly mom-and-pop shops that were tiny relative to their suppliers, and hence had very little bargaining power. The central business concept behind creating Staples was to “roll up” these shops and thereby increase their bargaining power with their suppliers. In doing so, they were able lower their costs and increase their margins even while lowering their prices. One of the primary reasons companies merge is to increase bargaining power with respect to buyers and suppliers.
As a “buyer” of web content, Google has incredible dominance, so much so that the price they pay for that content is zero. If the NYTimes decided to opt out of Google tomorrow, Google users would barely notice. (Perhaps the only content site that would matter and hence in theory could bargain with Google would be Wikipedia – but even Wikipedia only accounts for ~2% of Google click throughs). On the flip side, the NYTimes would see a massive decrease in traffic and hence ad revenues. Google has so much power they can split 0% of the revenue for organic traffic (and of course charge for paid links).
Now imagine a world where search engines are truly competitive. I know it’s hard – but imagine there are say 20 search engines, each with 5% market share. And suppose they differ primarily according to which content sites they index. (I am not saying I’d prefer this world – I’d actually hate it – but please bear with me for the sake of argument). On the content side, suppose there are only a couple of newspapers left – maybe the NYTimes, WSJ, USA Today, and the Financial Times (which, btw, will probably be the case in a few years). In this situation the newspapers would have enough leverage to get the search engines to pay them for inclusion in their organic listings. I know that in my own case if two search engines were nearly identical except one included my favorite newspaper and the other didn’t, I’d use the one that did. I suspect a lot of other people would make the same decision.
There is nothing inherently un-monetizable about newspaper content. Like all goods and services, if newspaper content has value to people and is scarce (it’s not scarce today but as more newspapers go out of business will become increasingly so), they can eventually generate sustainable revenue (albeit probably operating at a much smaller scale). The revenue can come either through consumers paying directly or buyers like Google sharing revenues, or some combination thereof.
For the moment, and for the foreseeable future, newspapers (and all content sites) just happen to be in a dreadful bargaining position with respect to Google.
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>But if you believe that Google has pretty much nothing to do with the decline of newspapers, isn't the >rest of your post simply a red herring? Why does it matter then that newspapers don't get a rev >share from Google if that has nothing to do with their problems?
I think the decline of newspapers is due to 1) decoupling of classifieds and other revenue generating categories from straight news, 2) vast overabundance of competition from other newspapers, blogs, etc. And it is compounded by the fact that there is a single dominant search engine.
I totally agree that “there is nothing inherently un-monetizable about newspaper content.” I think the problem comes from a sort of self-esteem issue of the newspaper itself; a fear that if they start charging for their content, no one will read it at all. This is silly for a couple of reasons, 1) most newspaper make a tiny fraction of their revenue from their web presence compared to their off line paper (except for those that charge for it), 2) if the content is so poor that no one is going to pay for it, how can an advertiser justify paying any sort of premium (or even pay at all), and 3) I really believe that people recognize good content and they will pay for it when asked.
Google is only a plus for the newspaper; obviously, it sends them traffic. The newspaper, on the other hand, needs to have the courage to change what they do with that traffic. My suggestions are:
1) Push online visitors to their offline paper. I know, this is going to sound like heresy to some, but the fact is, print ads demand a MUCH higher rate than online ads – the the reason you state – scarcity. Give online readers a teaser to the off line paper, give them community, give them collaboration on a topic and respect for their view points – but if they want your content, they need to read it off line.
2) If you cannot stop putting your content online, then charge for it, but do it in the following way:
a) Allow me to see what other people are paying for that content, and let me see who they are; give me a Digg, but with money as the currency for recommendation.
b) Allow me to decide what an article is worth; don't make me pay a quarter, allow me to pay anything I want, maybe with a minimum; also, I want to buy the single, not the album, but with newspapers, if you know what I mean.
c) Only allow comments on an article if the person has paid for it; start a different type of dialog between the writer and the reader.
d) Allow an ecosystem to develop between someone who is creating content that has value, and a group of people who recognize that value and are willing to pay for it.
f) Although it would bother me, sell ads against content that someone has paid for; I am far from an expert on this topic, but it seems to me that you could charge a premium for an online ads placed next to content that someone has deemed valuable enough to pay for.
Finally, g) allow me to get a full refund for the amount I paid, immediately after I read the article, if I so desire; I may need to tell you why, but I should be able to vote with my dollars on the value of what I'm reading.
Josh
But if you believe that Google has pretty much nothing to do with the decline of newspapers, isn’t the rest of your post simply a red herring? Why does it matter then that newspapers don’t get a rev share from Google if that has nothing to do with their problems?
Well, I don’t think Google itself caused the decline of newspapers. It is mainly due to industry structure. 1) decoupling of classifieds business 2) abundance of competition (other online newspapers, blogs etc), 3) single dominant search engine.
I am curious: what is the great invention Google created? Great company, definitely, but invention? Search (it was Altavista)? Or do you consider the adwords as one of the greatest invention?
It would be useful to know what percentage of traffic to newspaper sites is driven by organic search. I have a suspicion that it's not too high, especially when compared to other forms of referrals (passed links, etc).
Newspaper owners appear more annoyed with aggregators, which allow content to be viewed out of context. That said, your arguments regarding Google's bargaining power in search are pretty much unassailable.
I have always thought Microsoft should pay to get the exclusive of say NYT and WSJ to help gain market share. Maybe it it just too costly for the content providers to be tied to single gateway. I think content providers benefit from being on yahoo and now it seems yahoo is trying to increase its own original content.
Chris, thanks for the eloquent write-up of many of the points that I've been trying to make at The Noisy Channel ( http://thenoisychannel.com/?s=google+newspapers )–and of course that other rational voices in the “is Google killing the newspaper industry?” discussion have made elsewhere. It is indeed a prisoner's dilemma.
I think MSN would have to get a ton of exclusive content at this point to get users to switch.
I think their search engine was a significant advancement over past search engines. The idea of using links & anchor text and the non-trivial algorithm behind weighting those properly (pagerank). Plus just the product focus of having a simple dedicated search engine when everyone else was building massively cluttered portals.
Thanks, Daniel. I was definitely inspired/influenced by yours and other people's posts on the topic.
I agree with all this, but this sounds more like very good execution than invention.
While I agree “there is nothing inherently un-monetizable about newspaper content.” It doesn't follow that the money must come from Google (or another search engine). In the bizarro world you describe, where there are only 5 newspapers, those newspapers could probably charge their actual users for access.
It's not like people are just logging onto Google News to get their news. A sizeable number of people continue to navigate to their favorite news sites. In a world where there are fewer news sites, why wouldn't they be able to charge their users directly?
Maybe if someone built a better search engine, then they would lose market share. I don't really understand what your point is. Assume that Google switched to opt – in, in that it would only index your page if you explicitly opted in. What do you think the nytimes would do? Opt in.
[...] new revenue models. I heard a lot of interesting thoughts, some new, some old. Today, we are being subjected to something inherently old-fashioned, and incorrect at [...]
We often struggle to understand the internet with “real world' metaphors, even when they might not be applicable. I think that's part of the issue with what you're suggesting.
Let me employ another real world model to explain. Cable or satellite television. Content owners will negotiate carry fees because of the various networks don't carry them, they don't get seen — period. Channels in demand can get paid; those not in demand might have to pay.
You kind of suggest things should be like that for Google. That it will carry anyone for free, but if someone refuses, it doesn't care — no one channel is big enough as a must include. So all the other content owners lose out, so to speak. They can't get paid their worth.
That's flawed. The fact remains that if you're not in Google, you still can be viewed, so to speak. If I want New York Times content, I can go there. Go on, take out Wikipedia. I know where to find it. I never search on Google for some things that I know I want from Amazon. I've learned where Amazon is, I go there.
This is something I once described as the “search gap.” We know that something like 90 percent of people search on the web each day. But sites do not, on average, get 90% of their traffic from search engines. It tends to be around the 30% range. Why the gap? Because many people, once they've discovered a site, go directly back to it.
We've had a far more competitive situation with search engines in the past, say late 90s and early 2000s. Google wasn't so dominant then. And newspapers nor anyone was able to demand the carry fees you suggest. Actually, it was the opposite. It was far more widespread that search engines pushed the paid inclusion idea — want to be in our results? You pay to make sure we get more than we might normally find.
Honestly, I don't see why newspapers or any content owner should get special treatment over others. Google for all its flaws is a fairly level playing field. Good content rises to the top. Let the papers participate in the same environment as the rest of us.
(I, for one, wouldn't miss Wikipedia).
While the buyer/supplier demands of the “real world” might be interesting, I don't think they apply here.
It suggest that each and every web site should be negotiating with Google for carry fees, as if Google is some type of cable network and that people can only get to the programming if Google carries it. Important channels can charge more, because the network knows its audience
And oops, sorry for the extra bits below where I left off. Left over from when I started writing.
Rather than crying foul, maybe newspapers should join together and get something akin to a search engine going. Where people can choose their locale & set their preferences.
A paper “customized” to each individual's needs .. I get to read writers I like in one place regardless of which publication they are currently affiliated with. Maybe rather than trying to protect their turf, they should concentrate on adding more value to their customers
Besides, this isn't the first time an industry has been in treat of losing control of the distribution ..
wsj doesn't seem to need Google to make a viable business. I think the arguments around a world with or without Google are specious. (The model of a world of partitioned crawling is just a bizarre creation that only makes sense as a way to prop up the rest of the argument that having a dominant search engine causes all sorts of problems.)
A dominant search engine does cause all sorts of problems if the only way to structure things is by making them free-with-ad-support because then you have a middle man as the only route to profit. In that world, the content providers make less money because they are put in direct competition with all of the other content providers… and, it turns out that the world is awash in content. The only one guaranteed to get good ad-traction is the middle man.
Most of these discussions involve tons of post-hoc reasoning where the free content and use of ads to subsidize our habits are kept constant. The audience prefers lots of great, free content, of course. And, as it turns out, the content providers prefer the juicy margins they used to make. Two poorly kept dirty little secrets…
I think both sides are going to end up needing to give some.
[...] important is the pipeline? Posted on September 13, 2009 by switch11 Great post by Chris Dixon discussing Google and Newspapers. In particular he says – As a “buyer” of web content, Google [...]
First let me say that my point was mainly academic. I was trying to refute a certain form of argument. I don't think anyone “should” pay Google anything. I have no dog in this fight and if I did take sides would probably take Google's.
Your comparison to the cable companies is a good one. Does the fact that I can get around cable companies, say via Hulu or piracy, change the basic bargaining dynamics? It's not whether you *can* go around – it's whether in practice people actually do. As long as the cable companies have 90% share, they are going to have bargaining power.
Your point about the search gap is interesting. If people use search engines to discover sites and then go back directly in large volume, that indeed would be a strong counterargument to my argument.
That's the New York Times's “last man standing” strategy. I think there is some validity too it. See http://www.nytimes.com/2009/02/09/business/medi...
Sure, they would definitely opt in. My point is that you have to opt in to Google because of their incredible dominance versus websites that “provide them content.”
[...] Google and newspapers: the false choice of opting out | cdixon.org 〈新聞の凋落とグーグルは無関係だがが・・・〉 [...]
You have the right intuitions, but one thing missing from your argument is that there are far more newspapers/news organizations than there are search providers (even under the hypothetical situation with 20 search engines). The bulk of news content today is commoditized — I will gladly find more than 100 distinct articles on any major news item today, and sure enough the 100 will have more or less the same editorial content. Commoditization of news means that whether there are 2 or 20 search engines, each search provider will have no incentive to pay anything beyond commodity prices (in this case, zero) for news.
That said, certain sections of major publications (WSJ, NYT, WP) have original content that I would pay for (and even Google may pay for). In fact, I pay for my WSJ subscription because I do believe they have unique perspective and unique coverage that is far from commoditization today.
I agree actually. I think only certain parts of certain papers (the ones you mention) are non-commodotized. My argument was hypothetical to try to prove the point that just because a newspaper doesn't want to opt out doesn't mean a dominant search engine is good for you.
True for the moment. But the number of papers (and, with AP, the amount of original content) could decline to the point that there are not too many newspaper suppliers. That's where Chris's argument gets interesting for me.
But there will still be competitors — the blogs and politico.com's. And it's tough for me to see how newspapers will be cheap and agile enough to compete against these.
More about that in my response post: http://elstudio.us/post-the-free-content-blues
Thanks, Chris, for getting me thinking!
I'm so tired of the PageRank myth. Every engine started using links and/or anchor text around the same time. Infoseek called it ESP, Inktomi called it LinkFlux, and so on. It made a huge difference in rejecting spam and a moderate difference in search quality. Infoseek continued to have search quality as good or better than Google.
Google won because their pages were fast and had no ads. They ran a search charity for a very long time. Their most important technology was putting ads on the page without losing their visitors, that is, inventing the text ad instead of the banner ad.
I was at Infoseek from 1997 until after they were bought by Disney, so I competed against Google back when it was beta.
I agree about pageload speed. That is huge and underappreciated.
What if the search itself wasn't free? Would people pay to use a search engine that had proprietary content associated with it?
It would probably have to be business content like Lexis/Nexis.
[...] Google and newspapers: the false choice of opting out, cdixon.org [...]
[...] Dixon writes about the current imbalance in the negotiating power between google and [...]
[...] From cdixon.org [...]
Good job for bringing a bit of microeconomics to this spat! But I'm not convinced that Google's strength would go away if it were smaller, or if it were replaced by others. Full version at http://ondemandmedia.typepad.com/odm/2009/09/ba...
Interesting argument. Not sure I disagree. I was really just mainly trying to argue against that fallacy – or throw some actual microeconomics into the debate as you say.
This post looks awfully prescient in light of the last week's brouhaha about The Wall Street Journal and it's theoretical deal with Bing.
While you're not advocating it, you are the first (I've seen) to point out how search competition could be explicitly monetized by the newspapers.
ha, i was thinking the same thing but didn't want to say so myself
Now I will delete my post from your listings if you don't pay me $5
Great perspective, well defended and described assumptions and points-> on my 8th popular post (of the 13 you listed today) I score this one 8/10.
Capitalism absolutely depends on competition, hence our keen observation for potential abuse by monopolies.
There is little doubt in my mind that Google isn't approaching a search and information controlling monopoly in practice. He who gathers all the data owns it. They own our clicks/searches and click scoring.
Yes there is competition, but hands down they are the best and own search. I have used Bing, and others and have found them lacking. But even in the face of this powerful search monopoly real time search, and social search as evolved.
Perhaps monopolies can be bypassed in the space of the net, due to its very nature. User needs evolve, and that need drives innovation. Entrepreneurs feed off of that gap between need and availability. No one else is more empathetic to a users real needs than the relentless attention of startups. We'll fulfill what users most need because we won't even consider what they don't need. Big businesses have to deal with the cost of momentum shift within their large structures, and therefore roll onward unable to change course as fast emerging markets.
Some interesting ideas Josh, I certainly liked the option to only allow comments for folks that buy in. But I'd like to ad, comments are as valuable to other readers (or moreso). Perhaps prioritize the showing of comments based on user crowd sourcing (votes) and large sorts by whether or not they support the media channel (special avatar, or they show up all together up top).
Their continued innovation of the implementation of search was the killer app.
Look at the data warehouses they have created to consistently support massive web archiving and ordering. Pretty fascinating designs.
Great perspective, well defended and described assumptions and points-> on my 8th popular post (of the 13 you listed today) I score this one 8/10.
Capitalism absolutely depends on competition, hence our keen observation for potential abuse by monopolies.
There is little doubt in my mind that Google isn't approaching a search and information controlling monopoly in practice. He who gathers all the data owns it. They own our clicks/searches and click scoring.
Yes there is competition, but hands down they are the best and own search. I have used Bing, and others and have found them lacking. But even in the face of this powerful search monopoly real time search, and social search as evolved.
Perhaps monopolies can be bypassed in the space of the net, due to its very nature. User needs evolve, and that need drives innovation. Entrepreneurs feed off of that gap between need and availability. No one else is more empathetic to a users real needs than the relentless attention of startups. We'll fulfill what users most need because we won't even consider what they don't need. Big businesses have to deal with the cost of momentum shift within their large structures, and therefore roll onward unable to change course as fast emerging markets.
Some interesting ideas Josh, I certainly liked the option to only allow comments for folks that buy in. But I'd like to ad, comments are as valuable to other readers (or moreso). Perhaps prioritize the showing of comments based on user crowd sourcing (votes) and large sorts by whether or not they support the media channel (special avatar, or they show up all together up top).
Their continued innovation of the implementation of search was the killer app.
Look at the data warehouses they have created to consistently support massive web archiving and ordering. Pretty fascinating designs.