Paying for market share? That may be the future of networked markets

Summary:Microsoft to show search engine users the money: Microsoft Corp. will share a part of its advertising revenues from its search engine with users, the company's chairman Bill Gates said in a panel discussion on an Indian television channel.

Microsoft to show search engine users the money:

Microsoft Corp. will share a part of its advertising revenues from its search engine with users, the company's chairman Bill Gates said in a panel discussion on an Indian television channel.

Gates said that search engines like Google (Profile, Products, Articles) Inc. get their revenues from advertising because people use these search engines. "Google's business model is not based on free software," Gates said. "Their business model is based on advertisements from which they make a lot of money."

But they don't share these advertising revenues with the end users who help them get the revenue, Gates said. "Google keeps all of the money with itself," he added.

This may be the shortest route to paying people for their attention, yet. Say what you will about Microsoft, but this is a smart move. How do you break the relationship between a company (Google) and the people who like what it gives them for free? Give people money to use the things Google gives away for free. This has been one of my main critiques of Google, that it is harvesting value without sharing the value with the people who generate it—advertisers are not the source of value, people paying attention are.

Now everyone's talking about Google's character, while Microsoft's wide reach is becoming passé. That may be the key to surprising thinking, like this idea of paying people for clicking on ads, coming from the Great Silicon Forest of Redmond, Wash. Then, it's only a matter of time before Microsoft gets the attention of phobics back, again.

UPDATE: More on the idea and its viability from Henry Blodget in Get Paid to Search: Now MSN's Talking:

How, exactly, the company would do this remains a question, but the idea is far from absurd. When your mere click on a link generates a couple of dollars of pure profit, it's easy to see how you might come to believe that getting paid something for your decision/attention is fair. And at current prices, Google could split per-click revenue 50/50 with searchers and still have plenty of profit to spare. (Of course, the stock would drop 80%, but that's a different issue). [Emphasis added.]

I'm telling you, between the vastly expanded customer support costs Google has to take on with services like Talk and Base, along with challenges like this from Microsoft, Google's margins are in deep trouble.

UPDATE2: Nicholas Carr adds his two cents (which may be what an ad pays you someday just for looking at it), echoing my thoughts, in Buying eyeballs:

What Gates is saying - and it will not be music to Google's ears - is that there's too much profit right now in online advertising.

He's right. Earlier today, in a post at SiliconValley.com's Google discussion, I argued that the wide profit margins Google enjoys on internet advertising are unsustainable:

... if Google has reaped a great and well-deserved bounty from creating a superior search engine, it has also been lucky. It happened on its ad-driven business model just as the advertising world began an epochal shift of dollars over to the net, and the dominant position of its search service and related ad-serving service has meant that it has taken in the lion's share of the spending. Moreover, it's been able to run its AdWords and AdSense services as black boxes, hiding to a large extent the way it divvies up the money that comes in. Advertisers and publishers haven't complained much because their choices have been constrained. In the end, though, markets abhor both black boxes and oversized profits.

Competition, from Yahoo and Microsoft as well as others, can be expected to reduce the profits that flow to the owners of Internet ad-serving mechanisms, while also making pricing more transparent. Moreover, advertising is a cyclical business, and at some point we'll see a stemming of the flood of advertising dollars to the web. Combine greater competition with advertising cyclicality, and you end up with a Google that operates with a considerably lower profit margin than it enjoys today. Then add in the company's free-spending culture, and, well, you've got a problem.

Technorati Tags: competition, Google, media economics, Microsoft

Topics: Google

About

Mitch Ratcliffe is a veteran journalist, media executive and entrepreneur. He was editor of the ground-breaking Digital Media newsletter in the 1990s and a frequent contributor to ZDNet over the years. He led development of the first Web audio/video news network at ON24, sat on the board of Electric Classifieds Inc. and Match.com, and wor... Full Bio

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