The Golden Goose Wants to be Paid

     Microsoft CEO Steve Ballmer and Rupert Murdoch's publishing syndicate News Corporation (News Corp). are considering the concept of charging search engine providers to access indexed online content.  Microsoft seems willing to pay, and New Corp and the rest of the publishing world are hoping they’ve finally found the "cha-ching" angle in an online world.  How does this shift affect the search engine industry, online advertisers, and the average internet user?

The New Order on the Net
     The traditional news publishing industry has fallen on lean times in recent years, as users have learned to search the news rather than just wander through it.  Hard copy news publications are geared to originating the news for everyone, while search engines are the perfect vehicle to distribute specific news that is of interest to the individual.   Since we all seem to have less free time to wade through general information, it's only natural that readers have begun turning more to electronic mediums to target information of higher personal value.  I have no interest in four pages of basketball statistics in the Dallas Morning News sports section, but I do want to know how my favorite NFL teams did over the weekend. Rather than flip through page after page of ink, a quick “Cowboys vs Redskins” search on NexPlore delivers a dozen articles on the game.   This makes the local paper, and to a lesser extent, subject-oriented magazines less viable for my primary information needs.  The fact that the internet “search and digest” method is free, while the printed news  industry charges for less information, further skews my world away from traditional publishing.

     While scanning the sports section, the obituary columns, and home gardening articles will still remain generically attractive over our Sunday morning cup of coffee, locating need-it-now information is not the strength of the printed word.  Newspapers were meant for "presenting news", not helping me find it.... and search engines were never designed to "generate the news" but rather cataloging and distributing it.  The marriage of the two industries - content and distributed search - seemed the perfect match for years... but now the potential for an end to that model is gaining momentum on both sides.

Stolen Value?
     Murdoch has stated that the internet is basically stealing value from his publications. While the traditional publishing empire is valued for insightful reporting, opinion, and presenting the facts, they are becoming less profitable by the page each day, as marketing dollars migrate to the worldwide audience of the online search engines.  Now Murdoch, allied with Microsoft's Bing search engine seem poised to change the dynamics of the game forever.

 

     If Bing is willing to pay hard cash for either exclusive or nonexclusive rights to New Corp content, it won't take long for other content providers to follow the formula. That means search companies will have to scramble and compete for access rights to certain content.  This will increase their operating costs as now for the first time, they would have to pay for the rights to access indexed content from certain sources in order to build and keep their user base.  User traffic equates to exposures, and volume exposure is what drives spending for online marketing.   Search engines that tout the value of their access to content will begin paying for select content. And since we all know that Corporate America isn't fond of swallowing overhead costs, they will try to defray some of it through their advertisers, who will want to see greater return on their investment for each potential new consumer.  So we need to find another way to spread the new costs, while still appeasing the reader, publisher, and online providers.

New Search Engine Revenue Models
     No - search engines won't begin to charge for access or search activity--- that option is long gone. But they will need to find a way to recover their costs in a "pay-for-content" world.  So will the advertisers who fund the search engine revenue model today.   There are several ways to restore the equilibrium, and most don't involve reaching directly into your wallet.

     The first option is for the major search engine companies such as Bing, Google, NexPlore (NXPC) and Yahoo to charge advertisers more for access to their millions of daily users. The dynamic of four or more search engine distributors competing for ad dollar revenue will put some pressure on the search engine companies to be as competitive as possible, so the rates for online marketing shouldn't jump up overnight.

     A second possible but less likely model, will be for search engine and content providers to follow the cable/satellite television model of charging for premium content at a discounted rate to the consumer. Many online content providers such as ESPN already use this model now, but subscription rates have been marginal. In a tweaked system, the search engine providers may begin to offer online subscriptions partnered with their content providers and taking a portion of the subscription sale. Then, instead of paying for your local newspaper or favorite magazine at the news stand, readers would decide if they wanted to purchase a less expensive and more comprehensive subscription by saving a few trees and reading everything online. 

 

     The most likely model is to revalue the online search engine revenue model and the way that advertisers buy online marketing. While “bid” fees program already made successful through programs like AdWords will never go away, other models will need to evolve. At the end of the day, the bulk of search engine revenue still comes from sponsored ads related to a keyword search, and that is where Google, Bing, Yahoo and NexPlore have to get more creative.

Geo Advertising
     Flat rate “geo-advertising”, instead of click-through advertising may become more prevalent.  Search engines can already pinpoint where readers are located, and begin to slice and dice which ads appear in a users browser based on who has paid for top slotting in a given geographic market. In such a model, the search engine might continue to offer all content for free, as long as users "register' with them, providing additional demographic information that will allow the search engines to segment their customer base.  This become more valuable information to provide to the advertisers, and allows the search companies to charge a premium for their ads. A pizza parlor in North Dallas would be able to buy flat-rate priced sponsorship for online “pizza” searches that originate in their target vicinity.  The flat rate geo ad model would allow the search engine companies to simultaneously resell that same advertising slot in other areas to other pizza parlors located in Boston, Atlanta, and Kalamazoo. This generates more revenue for the search engine company, funding their purchases of content rights. In the current model, only one pizza company could have the top sponsor slot, by overpaying for it with ads and click-through that originate far outside of their customer coverage model. Wasted money.

    In a geo model like this, everyone can still win.  Publishers finally find a monetizing model for their content on the internet.  Search engine companies can now offer advertisers a premium priced target marketing model.  Advertisers can spend their money on more "buy-oriented" customers, and end users benefit too.  Register with as many search engines as you want as long as they are free.  See fewer ads that are not relevant to your profile, based on your demographics.  What 22-year old new college grad is interested in retirement planning ads - and how many retires in Florida wants to attend the upcoming skate boarding event in New Jersey? With Geo based ads, the funding for content continues to come from advertisers, who see better results by fine tuning their online marketing. The publishers finally make money through the online world, and end-users continue to receive full access to information.

   Regardless of the new models that evolve, search engines will eventually begin to purchase content rights. The faster and more nimble search engine companies like NexPlore and Bing will be the drivers of the new model. Established market leaders like Yahoo and Google will fight the trend as long as they can, but eventually they will have to share the revenue or become less relevant. Imagine a world where a Google search for financial news didn’t turn up any results from the Wall Street Journal (a News Corp publication)… how long would it be before Bing or NexPlore became the search engines of choice due to their broader content access?

 

You may read about it in the corporate obituary column in a few short years.