The Atlantic monthly published a long interesting piece on “How to save the news“. Rather than the usual dark prophesies about how the Internet is killing journalism — “Plummeting newspaper circulation, disappearing classified ads, “unbundling” of content…” — reporter James Fallows presents “the Google point of view” which is quite optimistic. Google’s involvement in the question may be captured by a quote from Google executive Nikesh Arora:
As long as there is great content, people will come looking for it. When there’s no great content, it’s very hard for people to be interested in finding it.
The general point of view of the article may be summerized by a quote from CEO Eric Schmidt:
Newspapers don’t have a demand problem; they have a business-model problem.
So new business models should emerge that will let newspapers do what they should do in more efficient ways, and then make money. The current inefficiencies of the industry are of course obvious, and Google’s Chief Economist Hal Varian is quoted as saying:
Burdened as they are with these “legacy” print costs, newspapers typically spend about 15 percent of their revenue on what, to the Internet world, are their only valuable assets: the people who report, analyze, and edit the news.
What these new business models will be is not yet clear, and the general spirit is captured by a quote from Clay Shirky of New York University:
Nothing will work, but everything might.
So are there any insights from theory?
Turing's Invisible Hand 
Of course there is a theory viewpoint too. The argument your post is trying to make is that search and content is complementary. If you are serious then you know that complements should have a flow of money transfer between them in order to generate the most value.
If you go and buy an iPhone in the USA, you could get one at less than $100, whereas the average price of an iPhone which Apple gets is about $600. The difference is paid by the complement, to the extent it generates the paying users for the ATT network.
If you believe what you wrote, may be you could contact Hal Varian, Eric Schmidt, and all others to pay to New York times for every search happened on Google due to New York times content (ex-post this is easy to measure by the number of clicks on New York links).
@Kamal: Aren’t most news articles linked from Google News? I hardly find myself searching for news via Google, I’d rather go to Google News. But then, Google News doesn’t have any ads (same for Google Reader), it’s just redirecting traffic to news sites that do have ads. This traffic certainly generates revenue for the news site. Doesn’t Google in this sense create money flow from Google to news sites?
Google news does not have ads? I just went to Google news, searched for Microsoft related news, and found 5 ads.
In my knowledge, nobody is forcing Google (or Microsoft or Yahoo) to run news portal. These companies do because it is profitable, either directly or stratgically. This is the argument this post is making, i.e., it is in Google’s interest to make news organizations survive (this is precisely the definition of complementary goods/services).
News had been free for a long time. Even during the day when our household used to get paper news paper, the money we would pay would not cover the cost of the paper the news was printed on. So news always made profit by bundling (such as classified bundled with news).
The situation of news these days would be analogous to if somebody unbundles the left and right portion of Google/Bing search engine.
One side, news got unbundled from classified, but on the other side, news has started giving value to search engines such as Google/Bing. But they are not getting equivalent amount in exchange. ATT not only passes $100 to Apple which customer pays for iphone but pays additional amount on top of that. You would not have an iphone if you ask Apple to provide an iphone for $100 (and not charge for the value Apple provides to ATT).
Yes, the ads on the news sites belong to the news sites. But a part of the ads on the Google/Bing news also belong to these news sites, as without these news sites, there is no Google/Bing news.
If and when Google loses its monopoly, it and it’s rivals will have to pay content providers for the right to index the content. In today’s reality Google is monetizing the toil and talent of other people. In this context I find the quotations you brought objectionable.
Anon, I agree with you. If in a complementary good situation, if one side is fragmented whereas the other side is intact, then the fragmented side and the people loses.
Here the intact side is search engines, and the fragmented side is content providers, and the complementary nature is that you need both. Search engines without the web is useless, and the web without search engines is not as useful.
It’s a little funny to put emphasis on search engines as complements to newspapers and as those who take revenue away from them. Only a small fraction of search results are to newspapers or journals, and in that case the user is referred to the newspaper who is then up to the challenge of retaining the reader and then monetizing him (e.g. using subscriptions or ads). The more specific “news search” is completely not monetized by Google either (no ads) and is too small to be seen as a significant factor.
Similarly, journals have a multitude of other channels to attract readers (from their own hard-copy editions, to their website, blogs, social-media presence, to advertising). Most websites of any kind that provide significant content, get most of their traffic not from search engines but rather from people coming there on purpose. Searches are just an extra channel to get new users who will hopefully stick around and later come on purpose. Indeed it is easy not to be indexed by Google and other search engines (via a no-robots directive), and hardy anyone chooses to do so.
I’m afraid that the problems that the Internet brings to newspapers are much wider and do not have much to do with search engines: increased competition from loss of locality, user-generated content and richer media, to name a few. It seems that only newspapers and journals that will have unique content that is desired by some segment of the population will survive (e.g. afaik the Economist is doing well).
Well Noam, if you did not think there was a connection, it would be funny to quote Eric Schmidt, Hal Varian, and other Google executives in your post. Clearly your post is making this, as you called, funny connection.
Here is a quote from another Google executive, who should also be quoted here, since she is giving the actual numbers and not opinions. Here is what Marissa Mayer said 2 years ago:
“The online giant figures that Google News funnels readers over to the main Google search engine, where they do searches that do produce ads. And that’s a nice business. Think of Google News as a $100 million search referral machine.”
You know this is only direct accounting and from 2 years ago, when there actually were no ads. Today Google News page is full of Youtube ads, ads on searches. Google news shows up on many regular searches, one of the main reasons people go to Google.
BTW, your logic in the last sentence seem inverted. The readership of many struggling news-site has gone up, but revenue went down. It shows the desirability went up. You seem to have taken a circular reasoning that who are doing well, they are the only desirable content provider. If you look at their money flow, those who are doing well, such as Bloomberg has market power to manages their content well (i.e., not everybody can simply see it in a timely manner).
News sites do not have a problem with content quality, but they have a problem with their business model. Most of the desirable news is still collected by journalists and not by user-generated content. The main problem is that they have a Search Engine type ad business, i.e., demand targeting, it was called classified which is taken over by Craigslist. But they lost one, and gain another. They started providing a lot of value to search engines, and they are not able to monitize it. If Google is really interested in fixing this, they should start by finding a way, how can the news orgs get a direct cut on the searches where they show up at the top, and an indirect cut for keeping the user on that search engine. They could of course find a way since they have (or access to) brilliant people like you. Yes there might be other things wrong in the news business model, but they could start with something they can fix (as this fix is in Google’s hand).
“Increased competition from loss of locality, user generated content, richer media, to name a few”.
I agree. Moreover the concept of “new” has completely changed with the advent of internet. I was a daily buyer of newspapers. Now, the amount of information is so huge and time so limited that i almost never read newspaper, even gratis ones on the web. I prefer to expend my limited time in other kind of news. And for the “predictable” news of any field (elections results and other political issues, stock prices, natural desasters, weather forecasting) there is a bunch of sites where you can get more accurate and quick information than in newspapers.
The situation of this sector is quite interesting (not only for the newpapers): content providers (as the author of this blog and the writer of the comments in this thread), service providers (such as search engines), network owners (telecom companies) and information consumers, each one fighting for their share of the cake. Up to now service providers (thanks to their control of advertising) and consumers (getting free or grartis information) are winning, but the fight within service and network providers has already started, and we will see in the future the content providers revolution, for sure (as Anon said: “Google is monetizing…talent of other people”). So let´s see how the sector evolves.
Movements for vertical integration has been unsuccesfull in the past (i.e. telecom companies generating content was usual in the prehistory of internet and AFAIK has almost disapeared). There are now some other movements of vertical integration such as service providers building its own network, and we must wait and see their result. As usual, horizontal ones are more likely to be succesful.
As for the newspapers i do think they have an important and clear function in all this story, which implies, as said, a redesign of their business model, but of course it correspond to them to discover it. If they don´t discover it soon someone will do it anyway and occupy their territory.
It’s a little funny to put emphasis on search engines as complements to newspapers and as those who take revenue away from them.
The issue isn’t necessarily that search engines are taking revenue away from newspapers(there are many reasons why they are losing revenue), it is that search engines are profiting from their content and newspapers are not being properly compensated for it.
The revenue that search engines generate thanks to news could be a new source of revenue for newspapers, but currently search engines are not sharing it.
I understand that Google News does not show ads and that few searches are for news but, as Kamal points out, there are other more subtle ways in which Google profits from news. I don’t think it is unreasonable for newspapers to demand that a proper accounting be done of exactly how much Google is profiting from news and ask for their share.
[…] Schmidt, E. (2010). How to save the News. (J. Fallows, Interviewer) Retrieved from https://agtb.wordpress.com/2010/05/13/the-future-of-journalism/ […]