Should Google pay a tax to media corporations?

Returning from a mostly-offline spring break vacation, I find that the future-of-news debate has been going round in circles. In the most interesting turn of the wheel, Nick Carr weighed in with an elaboration of his argument that Google is a vampirical middleman, sucking the lifeblood from the media industry. His take on this trope is more sophisticated than the usual “Google took our ads, make them pay!” line from the newsroom diehards, and worth a look.

Carr quotes the point I made recently — that participation in Google’s search engine is voluntary, and any news outlet that wishes to opt out can do so easily — but suggests that this is an oversimplification:

When a middleman controls a market, the supplier has no real choice but to work with the middleman — even if the middleman makes it impossible for the supplier to make money. Given the choice, most people will choose to die of a slow wasting disease rather than to have their head blown off with a bazooka. But that doesn’t mean that dying of a slow wasting disease is pleasant.

The problem with Carr’s middleman theory is that it, too, is an oversimplification. It presupposes that the problem news organizations have with Google is that it “gets between them and their readers.” This assumes that the readers were already visiting the media company websites, and Google is interposing itself. But anyone who’s ever looked at a media website traffic report knows that most often Google traffic actually represents something precious for media businesses — new blood, first-time visitors, what the direct-marketing business calls “qualified leads.” In other industries, the media companies would be paying Google for that traffic, but Google gives it away for free.

In fact, media companies are not end-parties to transactions that Google is interfering with: they are middlemen, too, and in more than one kind of transaction. They sit in the middle between readers and the information readers seek; they also sit in the middle between advertisers and the customers those advertisers seek to reach.

Carr, standing in the shoes of the aggrieved media executive, sees Google as stepping in between the media outfit and its readers, grabbing a cut of the revenue. But put on the reader’s shoes and things look different: Google isn’t introducing an additional middleman layer but simply substituting its own, newfangled method of connecting readers with information and advertisers with readers. And if that version happens to suit the medium of the web and win the allegiance of readers, what right do media executives have to our sympathy, or to a “fair share” of Google’s revenue? They had decades to become Google themselves if they chose to.

Carr paints Google as a conventional middleman — an extractor of existing value. But Google, with its efficient, targeted text-link advertising, has actually added value to pages that previously could not be valued at all. Sure, media companies wish they’d done that themselves — I wish I’d done it, too. Now that Google has done so, they have a right to their chagrin; but they don’t have a right to a cut.

So yes, Google is a middleman of sorts, but not in the way your car dealer is a middleman. It doesn’t buy cheap goods from a supplier to mark up for a consumer. Its role in the economic system of the Web has been fundamentally additive: it has (at least in terms of its primary product, the search engine) contributed new value rather than skimming existing value.

This is when the Google Tax crowd cries, “But Google News is stealing our headlines!” Let’s put aside the fair-use argument for a minute and also defer the “incoming links have their own value” point. Even if the “Google News is theft” people were right, they are fighting over (relative)crumbs. News people who focus their ire on Google often choose to eye the company’s vast profits, mostly earned from its enormous search traffic, and then — in a rhetorical dodge that is either ignorant or disingenuous — pretend that most of those profits are earned from Google News.

In truth, Google News is an interesting but relatively small experiment to assemble a news page via algorithm rather than editor. As Google CEO Eric Schmidt seemed to admit to Maureen Dowd last week, that experiment has to date been a failure:

When I ask if human editorial judgment still matters, he tries to reassure me: “We learned in working with newspapers that this balance between the newspaper writers and their editors is more subtle than we thought. It’s not reproducible by computers very easily.”

The relevant point about Google News is that it represents a tiny sliver of Google’s business — it’s a pimple, at best a big pimple, on the balance sheet. I’m sorry to break this news to all the editors and publishers who are clamoring for a share of Google News’s revenue, but they should know that money is not going to save their businesses. And if what they’re really demanding is that Google give them a share of its total search-based revenue for the right to use headlines and snippets of news articles in Google News, then they’re batty. And they have no leverage, because Google can rightly say, “You can walk any time you wish.”

Many newspaper people seem to be under the impression that if Google, and Craigslist, and (fill in your favorite Web shibboleth here) had never been invented, then everything would be OK, and they would be free to transplant their old business model into the new medium. This is delusional. If Larry Page and Sergey Brin hadn’t invented a search engine that really works, and wedded it to a targeted advertising system, somebody else would have. If Craig Newmark hadn’t built a community of free classified advertising, somebody else would have. These functions are made possible by the nature of the Web, and they were both visible and inevitable by 1997 or so. It is the Web itself that unbundles the media industry’s products and undermines its old business model, not the actions of the handful of innovators who saw the Web’s potential and built on it.

Carr takes a long cynical view, arguing that everything will calm down and the media business will recover once the news industry’s present overproduction crisis ebbs and scarcity returns to the information marketplace. This is, for instance, what my old boss Steve Brill is trying to do with his latest venture. I wish him luck, but I think it will be a total failure. It is only the latest genie-stuffing exercise in a world where the bottle itself is busted.

Scarcity will never return to the information marketplace, at least not in its old familiar broadcast-era form. It is too cheap to distribute news today. Producing certain kinds of news remains a costly undertaking, and we’re still figuring out new models to support it, in a rocky transition that is rightfully causing a lot of nailbiting. But those new models are unlikely to resemble the ones that worked in an era when distribution could be controlled by the producers themselves — when the media executive could control both production and distribution and dictate terms to both readers and advertisers. And whatever new models emerge, they are unlikely to provide last century’s monopoly profits.

The Web of Google, Craigslist and you and me is certainly a less hospitable place for the New York Times and CBS and Rupert Murdoch. But in the long run it will be a more interesting, more diverse and healthier environment for the rest of us. In some ways it already is.

See also Mathew Ingram’s response to Carr, in which he offers a parallel argument that Google’s middleman “power” doesn’t reduce the power of content producers but instead amplifies it.