News is a lousy business for Google too

There is a widespread myth that search engines have taken profits away from news websites. A few months ago, Rupert Murdoch said: “Google has devised a brilliant business model that avoids paying for news gathering yet profits off the search ads sold around that content.”

The reality is that news is a lousy business. Period. Even Google doesn’t make money on it. For example, here are Google’s search results for the phrase “afghanistan war”:

Notice there aren’t any ads on the page. This is because ads for “afghanistan war” generate such low revenues per query that Google doesn’t think it’s worth hurting the user experience with a cluttered page. Google can afford to do this on news queries (along with many other categories of queries) because their real business is selling ads on queries where the user likely has purchasing intent. Big money-making categories include travel, consumer electronics and malpractice lawyers. News queries are loss leaders.

It’s an historical accident that hard news categories like international and investigative reporting were part of profitable businesses. The internet upended this model by 1) providing a new delivery method for classified ads (mainly Craigslist), 2) increasing the supply of newspapers from 1-2 per location to thousands per location, thereby driving the willingness-to-pay for news dramatically down, and 3) unbundling news categories, making cross subsidization increasingly hard.

The internet exposed hard news for what it is: a lousy standalone business. Google arguably contributed to this in many indirect ways, including by helping users find substitute news sources. But the idea that Google takes profits directly from newspapers is simply misinformed.

http://letschatbusiness.blogspot.com/ Mike D

This was my exact reaction when I heard Murdoch say that. Good post.
Noah

Not that I'm disagreeing, but type that same query instead in google news search (instead of the main search) and an ad is served (for history channel magazine)

http://www.cdixon.org chris dixon

Yeah you'll see ads for some news queries but they are very low CPCs
and usually limited runs (advocacy groups etc)

http://www.saurabharora.name/ Saurabh Arora

Ads (don't know if they are geo targeted) are also appearing in search results – by Ask.com http://twitpic.com/17e2j2

http://mediamemo.allthingsd.com/ PKafka

You're conflating “hard news” with newspapers. There are plenty of other Google searches that provide info that papers either used to have a monopoly or a near-monopoly on, and Google does sell against those. That's a direct transfer of dollars — and perfectly appropriate, btw.

http://www.cdixon.org chris dixon

What are some example queries?

http://mediamemo.allthingsd.com/ PKafka

Shopping, entertainment, real estate, “service journalism” etc. Try macys, knicks, park slope apartment, meatballs, etc

http://www.cdixon.org chris dixon

Park slope apartment – I would argue craiglist killed this for
newspapers, not google.

Analagous arguments for other ecommerce sites for shopping keywords.

http://mediamemo.allthingsd.com/ PKafka

We agree that craigslist hurt papers more directly than google did (http://mediamemo.allthingsd.com/20090522/the-en…). But Google certainly chipped in — there's a reason all the e-commerce sites flood Google's results pages.

http://mediamemo.allthingsd.com/ PKafka

Anyway, newspapers themselves know that “hard news” is a bad business — that's why they were systematically cutting back on it before the advent of the Web boom. It is expensive to produce and difficult to advertise against, no matter what the format.

http://benatlas.com/ Ben Atlas

Peter, once again this presumes that advertising is the only model. And if Google did a real lasting damage is this assumption that you can only monetize via ads.

http://mediamemo.allthingsd.com/ PKafka

It's not the only model, just the one that provided the majority of newspaper's revenue. It's fine to argue that the papers should adapt. It just doesn't make sense to say that the Internet (because that's what Google is a proxy for, really, in this discussion) didn't take away newspapers' ad dollars.

http://benatlas.com/ Ben Atlas

It just doesn't seem that people are ready to honestly evaluate the role of Google in the direction of the Internet culture. That is a serious conversation not picking on the old man at Fox. There are standards that Google sets indirectly.

teachj

What will google and others do when 80-90 percent of the newspapers are gone? Not only won't there be news to “not sell ads against,” but there won't be ANY news. By then, all that will be left is infotainment – celebrity gossip, product reviews, soft news morning shows pitching softball Q&A's. Guess even google benefits from that – no more nosey reporters trying to find out how google is treating its workers in China, etc.

http://www.cdixon.org chris dixon

I'm not saying newspapers dying is a good thing. In fact I think it's
a bad thing.

http://www.skimlinks.com/ Alicia Navarro

I think it is heart-breaking that newspapers and proper news is dying. So many other internet entities – Google, the blogosphere, etc – rely on the regurgitation of news in some form or another, but when this descends even further into frivolity (and some frivolity isn't bad, but we need serious international investigative news to keep us abreast as objectively as possible on current affairs), what will it do for us as a people?
What is the answer? I'm dying to work it out. There has to be some other way newspapers can make money outside of advertising and classifieds? News that is somehow tied to a commercial activity has a chance, but serious political and humanitarian news… no idea.

http://twitter.com/maxniederhofer Max Niederhofer

I think the answer lies in the distribution scale of the internet. E.g. the Guardian and the NYT are today read by far more people internationally than they used to be. I imagine eventually having a very limited number (2, 3, 4?) of large, high-quality and paid-for news services with millions of subscribers that will replace the unnatural tie-in of local and national/international news now dished out by most city-focused newspapers. Local news can be done by editor+blogger+UGC type set-up (see e.g. topix). The “death of newspapers” isn't the “death of quality journalism” – it's just the model starting to change.

The interesting part will be that no-man's land of newspapers' folding and no new players having emerged yet. My bet is: it'll come out of left field, look like a toy or a premium priced specialized news service (think Bloomberg w/o the terminal), with serious background/academical grounding, some of the best writing we've seen.

The future's bright…

http://www.thesecomefromtrees.com petekazanjy

But here's the thing: That loss leader is pretty damn important, right?

If the user knew that he couldn't get news from Google (i.e., not only no sponsored results, but no organic results either), he would quickly know not to come to Google for that, and, likely by extension, for other queries as well.

That is, unless users can't get in the habit of switching search engines predicated on use case (which, I think that perhaps Yelp, TripAdvisor, and YouTube show us that they actually may be able to do this…)

So Rupe's quote is wrong. He's wrong that Google is selling ads against that specific content. But he's right that Goog certainly profits from being the “go to” place for information, right?

Now, of course, those info providers get value in the form of backlinks to them, and if those backlinks didn't exist they'd have to figure out other ways to acquire those users.

It's a weird push and pull. If Twitter can charge Goog / Yahoo for the firehose, it would seem that other information providers could too, right?

http://twitter.com/cdixon chris dixon

Yeah, I totally agree. It's in the same way Google will make money off long tail book searches if the book search settlement ever happens – by being the go to place for searching.

The problem- somewhat tragic for our society perhaps – is that by itself hard news isn't profitable.

http://twitter.com/michaeljung michaeljung

“If Twitter can charge Goog / Yahoo for the firehose, it would seem that other information providers could too, right?”

Wrong @petekazanjy. Other economics, other situation; Twitter “owns” the firehose, the content, the access, TOS, your tweets, your ass. It operates 'as is'. As is tumblr & co.

Who owns “news”, that Michael Jackson died? There is no copyright on reporting about the beautiful sunset in the Bay Area, and no copyright about events in general.

I blogged and argued the same way you did @cdixion …

“[T]he time where you can reap huge profits (being able to build an empire/conglomerate) is over. That is pure economics. Thus, it -the competition- drives down your margin as you compete for customers with basically the same good (the same story that Michael Jackson died). The end of the story will be, (1) that this process (or transition effects) will plateau … sometime, (2) distinction between competitors will be the overall brand and product (talent, track record, quality), and (3) price differences will be narrow for general news.

Basically, the business of publishing ‘what happened in the world today’, becomes a near-commodity, a digital commodity (laws of copy & paste, least ownership, creativity driven, distribution not controllable etc).”

And I commented about it here (http://www.theequitykicker.com/2010/03/08/old-m…) too at length. Basically copied my mind-blurps on 'media change' on tumblr.

It is a transition of an industry. There will be failures, success, collateral damage, … fights.

I am working on one of the answers, because I have a great pain in it too. I grew up behind a wall (Iron Curtain), I don't want a new wall. That is for certain.

http://www.optimizeandprophesize.com/ jonathanmendez

It's interesting that most news sites get the bulk of their natural search traffic (usually 25% or higher of all traffic) from a myriad of long-tail terms to pages that have been indexed for some time and can no longer qualify as “news.” In my mind this presents a great opportunity. News sites should embrace this gift of free traffic Google has bestowed upon them and do something to add value to it.
Jonah Peretti

Mostly agree but I think the availability of free news content does provide some strategic value to Google. It is easier for Google to own “search with purchasing intent” if consumers go to Google for all search. And consumers are more likely to do that if Google is good at indexing news.

http://www.cdixon.org chris dixon

Agree. Think this is similar to me calling news loss leader.

vishigondi

Google can earn money on news if newspapers are the ones who innovate and find a way to charge for news.

News papers would then be the ones putting ads on “Afghanistan war”.

The only way for news papers to innovate is to find was to charge for the things only they can do. That is, high touch local news.
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http://benatlas.com/ Ben Atlas

I am not hearing this point about “taking the money” but no one would argue that Google or aggregation in general dilutes a brand.

The core of the “lousy news business” is investigative reporting. The long pieces that take weeks and months. Is anyone online doing it? Perhaps the well off Huff. Post? I don't think so. Does aggregation hurts traditional journalism? Without a doubt it does.

Jonah Peretti

HuffPost started an investigative journalism fund with a few partners and it has already broken a bunch of stories that would have been economically prohibitive to cover otherwise. Raised a few million dollars but that does not come close to offsetting the cuts at big papers. It is a challenging time, but I think the future of investigative journalism is brighter than people think. It is commodity reporting that is really in trouble.

http://benatlas.com/ Ben Atlas

Jonah, I am aware of the Huff. Post fund. Jay Rosen plays a part in that.

Can you explain why investigative reporting has a brighter future compared to the news. Seems counterintuitive.

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Chad

I don't think it is a “historical accident” that news used to be profitable. Marketing has changed.

Before you could market to sports fans by advertising in the sports page. There was a time when it was difficult to be more targeting with your message (until you went to direct mail).

Today, anyone other than a brand id marketer will likely claim that sports fans is too general of a market. Google makes it much easier to be more exact in our targeting.

Similarly, I don't think a horse & buggy was a historical accident. Horses and buggies were necessary tools at a point in history and advances in technology made the irrelevant. Same is happening with newspapers but it wasn't an accident – just change.

http://www.cdixon.org chris dixon

–

http://benatlas.com/ Ben Atlas

Murdoch is an old man that doesn't use computer, leave him alone his is the last print guy that is forced to tinker with the net issues, doesn't mean he gets. It's hard to figure out even for people versed in the medium. It will be trial and error for most of us.
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http://www.brekiri.com/blog/ Greg4

I'm glad you made this point so clearly, Chris. It's somehow been overlooked in most of the newspapers vs. Google debate. The reason the papers are going after Google is because that's where the money is. There's not much point in complaining about Craigslist killing the classifieds business.

There's the hyper-local idea, but almost no one seems to be able to really pull that off. I think the FourSquares and Yelps of the world are going to eat papers' hyper-local lunch, too.

I think it's inevitable that there will be huge consolidation in news, several times more than what has already occurred. Rather than every city having a national news bureau, I expect there to be five in the country. Papers have already been getting hollowed out by the news wires, but the trend has been a bit obscured by these papers' nominal ongoing existence.

Investigative, Pulitzer-Prize-type journalism will be the province of a few differentiated outlets (The New Yorker?), high-profile bloggers, and non-profits. I'm becoming more and more convinced that there's a big role for non-profit models in news. The papers have always talked about news as a public service. Soon, it will be economically as well as conceptually.

http://www.cdixon.org chris dixon

I keep hoping some rich person will buy the NYTimes and make it a non-profit.

http://twitter.com/michaeljung michaeljung

Wrong.

Rich persons have their hands mostly in half a dozen businesses in, means that it will undermine the reporting about these associated businesses. See Salon piece about Mexico mogul who bought recently in into NYTimes holding and NYT didn't report about the unfair business practices of the associated Grupo Televisa owned by the Mexican mogul. You don't need to write a disclosure when you don't write about it. Period.

Here the story – http://www.thebigmoney.com/blogs/sausage/2010/0…

MJ.

PS: Disqus Twitter Login is broken

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http://ouriel.typepad.com OurielOhayon

Not so sure about that. What you are pointing to is that a large part of the news business has no future. But there will always be a business for news. it s just that most breaking news are becoming a commodity via the vectors you mentioned.

But there will always be a demand for quality, vertical, nicely edited news that either people will be willing to pay for or that will be monetized because of the quality attention via ad dollars.

But there is no doubt that this is a shrinking business.
http://www.wac6.typepad.com William Carleton

Chris, to my mind, that recent Columbia School of Journalism report, “The Reconstruction of American Journalism,” further reinforces your point. Even as it lauds what it calls “accountability journalism” (a fair enough phrase for the kind of institutional reporting which everyone is lamenting the passing of), it notes that such journalism has been around only for forty years, and was itself the result of disruptive market forces.
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http://chintanpatel.net/ COP

Dude, In next session, when you query for

“cheap tickets afghanistan”

tell me what ads you see.

Data RULZZZ11011!

http://chintanpatel.net/ COP

IT sorta like HUNCH…you know the smart decision engine tool?

its like you teach the “Machine” everytime you “Say” something coool ain't it?

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http://aditya.sublucid.com adityac

Maybe there is money to be made from news, but because our consumption pattern has changed so much nobody's quite figured out how?

Well, I mean, Bloomberg sort of has (more from data, but real-time news makes up a good amount of that feed), and the social news sites sort of have, as well?

But they're both aggregators, perhaps the bigger question is whether non-analytical content (ie. just reporting) is a lousy business…
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http://www.sachinrekhi.com/ Sachin Rekhi

I definitely agree with you about news being a poor performance context for ads.

Your argument is exactly the reason that I'm not super bullish on real-time search engines. People often make the argument that real-time search can easily monetize because it's just search, but I suspect most real-time searches are news oriented and thus have a disproportionately larger percentage of difficult to monetize inventory than a general search engine like Google.

http://www.cdixon.org chris dixon

Totally agree.

http://twitter.com/maxniederhofer Max Niederhofer

Concur. Very little potential for intent harvesting in real-time search.

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billinboston

This is a smart analysis. But blaming the classified ad debacle on craigslist is only partly right. Along with craigslist, jobs sites like Monster.com, real estate sites like Zillow and car sites like Edmunds.com captured big chunks of the most lucrative part of the classified business. Who do you know who goes job hunting in the local newspaper? Short order cooks?
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http://www.twitter.com/marshallclark Marshall Clark

Seems like hard-news worked as a loss-leader for newspapers – something to get readers in the door, but not something that was easily monetized. Understandable given the lack of brand advertisers wanting to be associated with the typical F.U.D. approach to mainstream news.

I guess the question is – now that we've managed to unbundle the news, how does this type of reporting get paid for?
Diogenes

News will survive but in a much more diminished form and probably combined with financial news such as Bloomberg, Reuters or FT. Investors will still care about “hard” news — especially combined with analysis as opposed to straight reporting.

On another related subject, I believe that news is the foundation of our democracies around the world and is critically important to a smart, well-informed electorate. Trouble is most electorates aren't interested in being smart and well-informed.

Also related (sorry for rambling) consider this: Is free (such as Craigslist) predatory pricing? I bet you could build a case around this. Lawyers, please chime in.
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IPLOYA

Since when is malpractice money making?

http://www.cdixon.org chris dixon

The most expensive keyword on Google is “mesothelioma” due to
malpratice lawyers advertising.

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Chris Dixon