The Skirmish That Could Threaten Google News

Brazilian news organizations that have pulled out of the service say they aren't hurting much. What if others follow suit?

Schmidt and Hollande met at the Elysee Palace on the 29th. (Reuters)

What if Google had to start paying for each link that shows up when you do a search? It would totally wreck the company's business model, right? And maybe change the nature of search engines too?

An insurrection may be coming, and it is starting with Google News. Here's the timeline. A couple of weeks ago, a group of 154 Brazilian news websites comprising 90% of the country's market share made a pact to jump out of Google News. The websites, which are part of Brazil's National Association of Newspapers (Associação Nacional do Jornais, or ANJ), had been negotiating with the search engine. They wanted it to pay a fee for linking to their content.

Google execs said the plan could only backfire and hurt those websites by wrecking their traffic, but ANJ responded that the website is "irrelevant" and announced that its members had agreed to ban the site, which they then (really!) proceeded to do. (The press release, in Portuguese, is here.) Now ANJ is reporting that its members have only seen a 5% drop in traffic since the embargo.

So far, maybe not a big deal. Brazil is an important emerging market, but it's only one country. Here's what's really a problem for Google: This week, it has been reported that news sites in France, Germany, and Italy are close to pulling the plug on Google News too. They're asking for the same kind of "Google tax," and -- like their Brazilian counterparts -- threatening to ban Google News if the search giant won't comply. The latest reports come after a tense-sounding meeting between French prime minister Francois Hollande and Google executive Eric Schmidt. Google has denied reports that the French government also slapped it with a one billion dollar tax claim.

We've seen both major companies (News Corp.) and countries (France, earlier) threaten to do this before. But now that one country's press has made good on the threat without (from what we know so far) suffering major losses, other countries and companies may have incentive to try Google for two reasons. In the short term, they may now have cause to expect it won't destroy their businesses. In the long term -- and this is great news for them, terrible news for Google -- more bans in more countries will give media companies greater leverage in negotiating with the search company. The soul of a search engine is its comprehension of everything. It is supposed to look through the entire Internet to find you the pages that best respond to your query. If major portions of the Internet's news-universe are foreclosed to Google News, it loses its utility.

If media companies in different countries could cooperate for long enough, they'd have the power to wreck Google's business model.

The consequence: If enough countries' media opt out of Google News, they will either destroy the service or leave the search giant with no choice but to acquiesce to their demands for a "Google tax." In other words, this time, it looks like it could be serious.

So far, search has relied on a sort of implicit compact between media companies and search engines that both parties have assumed is mutually beneficial: By collecting relevant links in one place, Google funnels traffic to content providers. Google gets ad revenue because advertisers want to be at the broad part of that funnel -- the place where a huge number of people are sifting quickly through a large amount of content. Media companies theoretically get ad revenue for being at the funnel's narrow tip -- the place where search (and social, and etc.) spits users out, and where they presumably engage both advertising and content with more depth than they do on the search engine itself.

Sounds nice. The problem is that, in practice, there's an imbalance. Being at the broad opening of the funnel has proven way better for raising advertising revenue than being at the narrow tip. Google is making way more on ads for just directing people to content than the actual providers of that content are making on ads.

Now media companies appear to have decided that -- while search may be mutually beneficial in a narrow sense -- Google is getting so much more of the benefit that it doesn't make sense for them to hold up their part of the compact. They may further reason that, in some cases, Google has actually eaten up ad dollars that in the past would have gone to these media companies themselves: in other words, the compact is not only not helping them, but actually hurting them. They want some of these advertising revenues redistributed.

To be clear, while the media in these four countries have the same demand, they are using different tactics to get Google to capitulate. The ANJ jump-out was a business decision made by a trade group after negotiations that did not involve the government. In France, Germany, and Italy, meanwhile, media companies have asked the countries' governments to intervene in various ways, both as a party to negotiations and with the passage of laws. (For a take on how the dispute is shaking out in each country, see this thorough article in the New York Times.) Moreover, the measures would impact any search engine provider that uses snippets of content underneath headlines. So it is a bit misleading to call all of the measures "Google taxes" -- although, effectively, and from Google's perspective, that is exactly what they are.

If Western European news sites also start jumping out of Google News, it raises questions not just about the viability of the Google News model for aggregating content but possibly, just maybe, about the viability of search as we now know it. Why? Many of the media companies that provide content to the main Google search engine -- not just the ones whose content also goes to Google News -- could conceivably have a stake in getting paid for their links. What would happen, say, if the New York Times wanted Google (or Google-owned company YouTube) to pay for links?

The key is cooperation among the companies that produce content. If major content providers were ever to coordinate a jump-out of the search engine, that would radically reduce its utility, and may indeed force it to start paying-to-link. Which in turn wrecks the business model.

A multi-country opt-out extreme enough to force Google's hand is far in the future. Still, the fight over Google News raises the possibility, and Google sounds worried. As Tech Crunch noted in its article on Google's recent overseas problems (also linked above):

When France recently made a similar complaint [referring to an earlier attempt to get Google to pay for content], Google responded that it sends over 4 billion clicks to French sites each month. Laws that curtail the search engine's ability to crawl or display content, 'would threaten its very existence,' argues Google. Indeed, Chairman Eric Schmidt is headed over to France right now on a (please, please don't divorce us) goodwill mission to smooth things out.

That last bit refers to this week's meeting with Hollande, who told Google that the search engine must compromise with French publishers or face legislation requiring it to pay for content. Google says it will stop carrying links to French news sites rather than pay fees, as it has in Brazil, but it's easy to see how that strategy could backfire on the company if it's forced to repeat it in country after country.

In other words, if the media can just hold it together to cooperate against the search giant, they may be able to score serious, Google-damaging concessions. This sort of group action may be the future of media industry attempts to establish secure footing in an era of changing technologies. (For further evidence, see the coming Penguin-Random House consolidation reported earlier this week.)