Ads and News: Google Capitalizes on Old Idea

You remember. The exquisite journalistic/commercial mix that sustained newspapers for many a year. News and Ads. Ads and News. Both, together, side by side. Reaching mass markets that wanted to know things and buy stuff.

We're seeing daily the damage done to that newspaper model, as newspapers themselves become higher-priced, niche vehicles for comfort-seeking baby boomer + readers and as Google (GOOG) and other news aggregators become the new mass marketers, reaching broad swaths of every population group everywhere.

So, within that context, it's no surprise that Google has just added its paid search ads in it Google News pages. There they are, on the right hand side of the page, just as we've all become accustomed to on the search and other (just added on Google Finance and Google Earth as well) pages.

That's of course what Google does, making most of its $20 billion or so a year from those small paid search (Ad Words) ads. In response to the claim that Google is a one-trick pony, CEO Eric Schmidt likes to say, yeah, but it's a pretty good trick: The Internet. It's not really the Internet though; it's those little paid search ads.

Remember, too, that when Google launched Google News a couple of years ago, it made a point of saying it wouldn't have any ads on it. That statement blunted publishers' concerns that Google was using -- say it ain't so -- newspaper-produced news to make money! It, of course, reserved the right to sell ads, but "had no plans."

Flash forward to 2009. Google News is now the eighth-biggest news site on the web, having moved steadily up on the competition. (Only two newspaper-owned networks, the New York Times (NYT) and the Tribune, are ahead of it.) Google is shuttering some money-draining initiatives and even freezing staff. So it needs money too.

How will newspaper publishers respond?

What they'd like to do is demand payment. AP, Reuters (TRI) and AFP -- wires -- have all extracted money from Google for for content licensing.

Local news publishers, though, have not.

Now they find themselves in a too-familiar fix. Not only have they allowed Google to index and snippet their stories -- "fair use" has never been finally adjudicated in the course -- but they've grown dependent on Google traffic overall. Google traffic began as a gateway drug and now has become an addiction. If publishers could collectively agree to pull their content off Google, their own traffic would suffer significantly.

Google has colonized the news and is now making claims to better local news customization as well. For news publishers, it's one more sign of a humbled, niched place in the world, a world in which they don't control two things that built their success -- the advertising technologies of the day and the distribution vehicles to serve them.

Disclosure: no positions

Comments

[Marcap:]

Google seems to trying anything and everything to increase revenues, while of course hoping to increase profits and at the same time put more value into its shares. But unfortunately, it does not appear to be working. While revenues are up slightly, profits have actually been declining over the last several quarters. And Google shares are trading much closer to their 52 week low, than near their year's high. In my opinion, Google is still a very overpriced stock at $340, and I think it is very unlikely that it will rise much higher anytime soon.

Feb 27 11:46 AM

[Robert Osaz...:]

Great article. I still wince when I hear of newspapers talk of partnering with Google and Yahoo. Local newspapers still have an unmatched opportunity to corner the market for local advertising, as well as going beyond advertising to help businesses use the web to promote their products and services locally. Local businesses still have not figured it out. If Google takes that opportunity away from newspapers, then its truly game over. locoforlocal.blogspot....

Mar 01 03:47 PM

[jay fredric...:]

Google looks as though they have all the pieces in place for total worldwide domination in the advertising business. I predict that Google will end up owning McClatchy, Gannett and Tribune within the next two years. They need the newsgathering power of the reporters on the ground, and hiring these folks would be a lot easier if they bought out the entire operations.

Mar 05 04:16 PM