Google: The World's Frenemy

My theory of newspapers (and magazines, but focusing on newspapers).

Lets back up a century or three. Many years ago newspapers sold news, printed on paper (see Benjamin Franklin http://en.wikipedia.org/wiki/Benjamin_Franklin). They charged a lot of customers a small amount each for that news, and made a business out of aggregating lots of pennies. They also could sell advertisements and notices because they were a conduit to a relatively wide audience.

Google http://images.google.com/images?q=benjamin+franklin+newspape...

Front page: http://www.ndsu.nodak.edu/instruct/rcollins/436history/pictu...

Example advertisements: http://mitchellarchives.com/wp-content/uploads/2007/11/1748-... and http://www.earlyamerica.com/image/earlyamerica/past/past.jpg

Over time, newspapers and magazines reduced their reliance on aggregating lots of "pennies" subscribers paid and increased their reliance on advertisements. From a business point of view, this made lots of sense because aggregating pennies is much more difficult that getting large chunks of money from advertisers... and they could.

What newspapers ended up doing was outsourcing the bulk of their news gathering to news aggregation companies like the Associated Press (AP). The up-side was it was cheaper to buy news from AP than create it independently. It was also much more efficient, obviously, since only one source could feed many, many papers. The down-side was that the papers became dependent on the outsourced news feeds and advertisement money. The dark side is that we can have hundreds of papers all feeding the same news source - it looks like there is independence in the news reporting, but it is a mirage.

The result is that newspapers became more and more an intermediary broker ("middleman") and generated less and less actual content. They brokered their local eyeballs to advertisers and outsourced the creation of the product the eyeballs were looking for (news) to aggregation companies.

This made/makes newspapers very vulnerable to disruption by Google, Craigslist, and bloggers/tweeters because they (Google et. al.) are able to use the internet to bypass the local newspapers, to cut out the middleman: the newspapers no longer control access to (local) eyeballs. As a result, they lost their ability to broker eyeballs (acquired by outsourced news stories) for advertisements.

Just to aggrevate the problem for newspapers, the internet is a MUCH more efficient path to eyeballs. The cost of the medium is small compared to physical products (well, internet access is pretty expensive, but it is already purchased by the eyeballs so the incremental cost to layer news on top of the internet is nearly zero). Couple that with the internet-based advertisement to be able to target specific classes of eyeballs, and you have a compelling case for lots of advertisement dollars to switch from printed medium to internet medium.

News aggregation companies are also suffering as a "knock-on" effect. The internet cut deeply into the primary funding source of newspapers - advertisers. As a side effect, this "cuts off the oxygen supply" to news aggregation companies.

Moral of the story? You can make a lot more money as a middleman than as a company that produces a product, but it also makes you very vulnerable to disruption by companies that are more efficient (or more hungry) brokers.

I see Google as a biggest disruptor nowadays. Since they have two huge cash cows (Adsense+Adwords), they can basically offer any software service (Gmail, Office, Photo storage, Maps, GPS, webhosting, etc. etc...) for free or very cheap, since their advertising clients can pay for that. More specialized services often cannot compete, since they don't have such ads money. And this I see is a potential danger, that Google will totally crush a lot of competition in several IT-related industries, and what's more, collect a lot of personal data of all their users in the process.

Microsoft was often criticized for their monopolistic behavior, and rightfully so, but it is nothing comparing to what Google does (or plan to do).

Just to clarify: I don't want to bash Google, I am also their user and their products are usually good, but what I want to say is just the strategy they choose is very disruptive.

""The evidence was now visible that Google was attracting more internet advertising than anyone else, and these dollars were being siphoned from traditional media," we read."

That's just not true. Much of Google's ads come from sources that simply would not have advertised in traditional media, at least not in the same way. Performance marketing, which isn't really possible in a magazine, is a humongous share of their revenue.

I know of people who make a load of money selling things like obscure electronics or truck parts through Google. They pay dearly for those ads, and were never going to be placing them in the New York Times.

"Is it a friend to the fourth estate, on which democracy depends, or an enemy?"

Just.. wow. Suddenly changing the business landscape for an industry(hastening the change, really) becomes a political issue?

Wonder if there is much in this book different to The Google Story, sounds like another rehash of the same story.