Phillip Pearlman, Sam Zell, Valleywag, and me

Phillip Pearlman is a hedge fund manager, stock blogger, and psychologist who I read occasionally. I am not sure if I started reading his blog first or he started reading my blog first, but in any case Phil sent me an email yesterday pointing to some comments Sam Zell made recently in regards to newspapers and Google.

If all of the newspapers in America did not allow Google to steal their content, how profitable would Google be?

Phil suggested, and I agree, that Sam’s a savvy and tough businessman and might actually have the guts to take on Google. But Phil and I disagree on how that fight would likely end.

And I must point out that Google doesn’t "steal" the newspapers content, but more on that below.

Then I saw that Nick Denton was taking the defense of Sam Zell. Nick’s a smart guy so I read his post, In Defense of Sam Zell, a few times.

Here’s one paragraph from Nick’s piece.

What if a collection of newspaper groups got together, a little like
NBC and News Corporation have combined in video, and negotiated terms
with the more compliant internet companies such as Yahoo? Yahoo agrees
a larger revenue share for hosted newspaper articles; the print groups
block Google’s search engine in return. Unless Mountain View agrees to
the same terms. It’s not that preposterous once you think about it.

The video thing is completely different. In that case, YouTube is showing the entire video, not pointing to it on NBC’s website.

Maybe Nick’s talking about Google News. It’s a business he knows a fair bit about since its pretty similar to his previous company Moreover. But even Google News doesn’t showcase the entire news story. It’s a headline aggregator for the most part with a small two/three line blurb from the article.

But Google News is not Google. If you look inside of Google, there is only one and a half businesses that really matter. Search and ad networks. Search being the one that really matters. And ad networks is the one that matters more and more every day.

If Sam Zell blocked Google from crawling all the Tribune papers, I doubt Google would miss a beat. I would bet that less than a tenth of one percent of all searches and clicks on Google are related to Tribune newspaper content. If all the newspapers followed suit, I doubt Google would miss a beat. I would bet that less than one percent of all searches and clicks on Google are related to newspaper content.

Ad networks are a different story. Newspapers are probably a bit more important to Google in the ad network business. But most newspapers use Google to monetize their remnant inventory. If they had a better option for that inventory, they’d move in a nanosecond. But they don’t. Viacom has decided to go with Yahoo! for this business instead of Google. They will pay a price for that as Yahoo! will not monetize their remnant inventory as well as Google. Maybe over time Yahoo! will catch up, but in the short run, a move away from Google for remnant inventory costs you money. Maybe Sam Zell will lead the newspaper industry away from Google and into the hands of Yahoo!.

But even if he did, I think it won’t cost Google much. What Google realizes and Sam Zell might not is that the web is full of great content and less and less of it every day is coming from newspapers. And more and more of it is coming from people like Phillip Pearlman, Valleywag, and me.

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