In War With Publishers, Tech Companies Take Wrong Approach

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Publishers have been offered a seriously raw deal in the war over content on the internet. Linking to another site is free, and there are few revenue sharing agreements between publishers and technology companies. Supported throughout the development of the internet by leading companies like Yahoo, Google, and Facebook, what might be termed the American model of content has largely won out throughout the world.

The results for publishers have been bleak. Despite some limited success with paywalls at a handful of top newspapers and a couple of exceptional startups, traditional business models have largely failed to translate into the digital world. The future looks even more challenging, with increased competition for eyeballs with the exponential growth of content as well as the flatlining growth of internet users in the developed world.

It shouldn’t surprise anyone that publishers are striking back.

Their most notable success so far has been in Spain, where the local publishing industry got what appeared to be a lifeline in the form of a new law that compelled news publishers to charge for snippets of their stories when they are used by companies like Google. The search company’s response to the law was to announce that it intended to shut down its Google News product in Spain, which it completed earlier this week.

Reading the tech press, you will be forgiven for thinking that Google is a weak child fighting the supremely powerful and profitable publishing industry. The reality, of course, is entirely the opposite.

On their surface, these sorts of policies, which publishers have also advocated in Germany, seem ridiculous to the technologists inhabiting Silicon Valley. Charging for snippets and setting up payments between technology companies and publishers is looking backward, an attempt to prop up a dying industry. Far better to invent new and untested publishing technologies (Bitcoin micropayments!) and rebuild the industry from the ground up.

Unsurprisingly, these disruptions have led to tech companies keeping all the power for themselves, and forcing the revenue of content to zero. Just take Google News, which is the epitome of the problem. One of Google’s arguments against the Spanish law was that the portal makes no revenues, since the company doesn’t place ads on the portal page.

There are two flaws with that reasoning. First, Google obviously makes revenues from the site – there is a search bar right at the top of the site where the company places its search ads (aka the majority of revenue for Google).

But even more pernicious is the opportunity cost of a portal like Google News for publishers. Consumers have several “daily habits,” as Marissa Mayer, the CEO of Yahoo and former Google search executive, likes to point out. One of those daily habits is checking the news, often several times a day. Google News is a free product with no advertising, aggregating snippets from other sites using algorithms to create a front page for the web that almost no publisher can hope to compete with. The company employs no writers or editors for the site, but relies on that talent from publishers. In fact, it even has the audacity to ask publishers to select “Editors’ Picks” – uncompensated of course.

The response is always the same. “Yes, but Google News is referring viewers to those publishers!” That is the American model, where we avoid payments around content but instead compensate websites by offering them referral traffic. Yet, we have enough experience with this model to know that it is as valuable as Monopoly money for publishers.

Referral traffic doesn’t work for publishers for the same reason the internet hasn’t worked for publishers: there are still no business models for publishers that can compensate companies for producing high-quality content. That includes traditional models like advertising and subscriptions as well as Silicon Valley novelties like crowdfunding journalists, native advertising, and Bitcoin micropayments.

But even worse, referrals are hardly voluntary. They are an important source of power for technology companies, forcing publishers to do their bidding lest they risk losing some of that almighty firehose of traffic. Publishing executives may not be able to monetize that traffic, but they are almost certainly held accountable for their traffic numbers. Someone has to make all of those headlines ready for algorithms to consume, and it never is the technology company. As the Romans might say, beware of Google bearing gifts.

Interestingly, the number one referrer for traffic, Facebook, seems to have taken a markedly different attitude toward its relationship with publishers. The social network has consistently stressed their desire to fill their news feed with higher quality content, and the company has responded by offering better tools to publishers to get their articles targeted to the right readers.

Diverging from Google’s approach though, the company also could potentially host content from publishers right inside the Facebook app, while offering some sort of revenue sharing agreement. That may be just another way to seize power from publishers, but at least Facebook seems both willing to admit its readers appreciate good content and that it is willing to provide the tools and revenues for publishers to produce that kind of content.

As the world wide web heads into its third decade, it is time to take stock of what has happened to the publishing industry. It has been gruesome for the bottom line, but it has been a godsend when it comes to audience development. It’s time for the leading tech companies to seek out better models that will protect great content, and may very well help their own bottom lines as well.

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