Cory Doctorow has a clear crystal ball. Earlier this month, Rupert Murdoch accused Google of stealing his content and threatened to cut the search giant off. Cory guessed that Murdoch might be angling for a search-engine payment deal:
Murdoch has no intention of shutting down search-engine traffic to his sites … what he’s hoping is that a second-tier search engine like Bing or Ask (or, better yet, some search tool you’ve never heard of that just got $50MM in venture capital) will give him half a year’s operating budget in exchange for a competitive advantage over Google.
If the FCC thinks it’s important to require that bloggers disclose when firms give them products to review (a requirement from which news organizations are exempt), they should require Microsoft and News Corp to mark these search results “paid advertising.”
After all, in 2002, the FCC advised search engines “to provide conspicuous labels for commercial search listings or face possible action.” If a web site restricts its results to only one search engine, that sounds like a commercial search listing to me (however, IANAL).
And will Microsoft privilege News Corp links over competing news organizations that don’t succumb to the bribe? (And how will we know?) One of the reasons consumers trust Google is because the company does not co-mingle organic and paid search.
What’s in it for News Corp.?
Short-term? Cash flow.
Advertising revenue for Fox Interactive fell 16% in the first quarter 2009; most of that division is MySpace. In August, News Corp. announced a fourth-quarter $203 million loss “due to huge charges at MySpace” and laid off 700 workers. Moreover, earlier this month, News Corp. announced that year-on-year earnings dropped $22 million.
The MySpace deal, which was touted as visionary in 2005, has not met expectations as traffic (eyeballs) moved to Facebook. In 2006, Google and MySpace signed a $900 million contract making Google the exclusive search advertiser on MySpace. Reportedly this deal accounts for a third of News Corp. revenue from MySpace. However, because MySpace has not “met minimum traffic requirements and guarantees,” News Corp. may be short as much as $300 million on that contract.
Long-term? That’s a good question. Google provides 25 per cent of WSJ.com’s total traffic, and about half of that comes from Google News. The $64 question: which has the greater long-term value, the eyeballs coming to news sites from Google or Microsoft’s bribe?
What’s in it for Microsoft?
The New York Times has 17.4 million unique web site visitors a month; the Wall Street Journal, 8.0 million. However, Murdoch owns far more properties worldwide than the New York Times, so that’s potentially more eyeballs that might become captive to Bing.
If Microsoft can make this deal work with News Corp., it may be able to bribe other news organizations away from Google. According to the Financial Times:
… Microsoft has also approached other big online publishers to persuade them to remove their sites from Google’s search engine. [...] “This is all about Microsoft hurting Google’s margins,” said the web publisher who is familiar with the plan.
Microsoft is doing what it always does: it’s trying to buy its way into a market that it’s been unable to crack, even after throwing millions (billions?) at it (while Google spent its time building an index and sticking to the knitting, so to speak). According to BusinessInsider:
Microsoft has been investing hundreds of millions a year in its Internet business for more than a decade and that investment has yet to generate a single dollar of return. If you add up all the losses investment, in fact, you get a number that is similar to what Microsoft plans to invest over the next 5 years: $8 billion.
[...] the reason Bing had lost $8 billion over the previous decade was that it had been trying desperately to catch up with other industry leaders–namely, AOL and Yahoo–and that it had tried and failed to do this despite hemorraging money while both of those companies coined it.
This is not the first time that Microsoft has tried to circumvent the open web or used its Windows monopoly rents to kick its way into a new market:
1998: The browser war between Microsoft and the Netscape Communications Corporation already threatens a truly global marketplace that is fully accessible with any browser on any computer platform…. Such appetites ignore that the Internet exists in the first place because its technical protocols are open standards, freely available for use by everyone.
1999: In fact, the rise of Microsoft’s Internet Information Server (IIS) as the dominant Web server on NT shows much the same pattern as the rise of IE as the dominant browser: Microsoft got pole position by exercising its unique leverage as an operating system vendor.
Nor is it the first it used its deep pockets to bully a market leader:
1999: Microsoft publicly pressured AOL to adopt an open messaging standard after the leading online service blocked Microsoft’s new messaging software from communicating with its own offering.
However, this gauntlet is symbolic. Google has said that news traffic is a minor portion of its business. Google had 146 billion unique visitors in June 2009. If every single New York Times unique visitor started at Google, that would be 0.01 percent of Google’s monthly traffic.
Nothing I’ve read explains why Microsoft is willing to invest so much money to try to buy eyeballs away from Google. The Murdoch skirmish does nothing for its franchise moneymakers, Windows and Office; both face long-term reduced profitability due to the disruptive nature of digital information.
The real question: how will the internet public react?
Will consumers reject this contractual vertical integration and tell Microsoft and Murdoch to take a hike? What about the advertisers, will they want to have their ads on web pages that are restricted to only one search property? Will bloggers link to articles from news organizations that defect from the open web? Or will the Twitter search integration that is taking place at both Bing and Google (eventually) make this entire discussion moot?