The Empire always strikes back. Every revolution inspires a counter-revolution. Luke Skywalker and the Rebel Alliance didn't win independence overnight — and neither, it seems, will the www.
Microsoft is negotiating with News Corp to pay it to remove its content from Google's index. Uh-oh: the Empire — industrial-era business as usual — is striking back. Will the rebels be crushed?
Not a chance. Blocking Google is about as smart as eating a pound of plutonium. Here's why MicroFox is making a big mistake.
Substitution. The simplest flaw in the MicroFox's strategic logic? MicroFox is trying to create artificial scarcity instead of value. That might have worked in the 20th century, but in a hyperconnected world, creating artificial scarcity kills orthodox businesses dead. That's because though MicroFox can block Google, there's no way to block people from using Google to find stuff that doesn't suck. Artificial scarcity is usually a one-way ticket to oblivion, as people simply defect to better alternatives.
Network economics. Search engines live or die by network effects. Murdoch's challenge isn't "de-indexing" the stuff of the newspaper — but de-indexing all the viral and network effects that flow from newspapers. If MicroFox could remove all the tweets, links, and blog posts that flow from newspapers, their threat would begin to be credible. But they can't — and so the threat is limited in value.
Conflict. I spent a couple of days discussing MicroFox's move with investors, entrepreneuers, and media bigwigs. Many said: "a little competition in search? Isn't that great"? It would be — but this ain't competition. It's what I've termed conflict: the opposite of competition, or anti-competitive behaviour. MicroFox's goal isn't to offer a better alternative to consumers. It's explicitly, simply, to deny Google. It's what regulators call "exclusive dealing."
Unnovation. Isn't, I said to one notable investor, real competition about building a better search engine — not just cornering the market on content? That competition and conflict are so easily confused by those at the very pinnacle of the economy speaks volumes about why our economy's in a mess. The fundamental challenge of the 21st century is learning to make radically better stuff, because for the last several decades, most industries have been unnovating. MicroFox is just deal-making — not making a radically better search engine, or better news media. And for that simple reason, Google will always outcompete it.
Scarcity. As I point out in my recent IdeaCast, the challenge for newspapers is scarcity — real scarcity, not artificial. Can newspapers offer distinctive perspectives, rich with knowledge, expanded into topics, that make readers authentically better off? That's what scarce, distinctive news might look like.
Thick value. The real challenge for every industry today is learning to create thick value — value that makes society smarter, healthier, authentically better off. Yet, MicroFox, as ever, illustrates the shortcomings of 1.0 strategy perfectly. Murdoch's move is a page straight out of the thin value playbook: bluff, threaten, withhold. Yet, if Murdoch "wins," society is worse off. Readers lose, because choice in news is limited, and prices inevitably jacked up, without better news having been created.
At the end of the day, what MicroFox is missing is the big picture. The future of advantage is fair, not unfair.
Every Constructive Capitalist knows that Google's revolution wasn't just about search. It was about learning to not engage in unfair tactics like these. Google's far from perfect — but it strives to be less evil, less unfair, less, well, 20th century, than rivals. Its next great challenge? To get even more radically fair. Google's big flaw is that it hasn't kept exploding the boundaries of fairness in recent years, leaving its suppliers beggared. Today, Google must find radically innovative ways to share a portion of the thick value it has created with content guys, without the exclusive dealing that MicroFox uses. There's no reason that sharing value has to involve kickbacks and side deals.
What kind of publishers are likely to seek these sorts of exclusive deals? Those whose content isn't competitive on a level playing field to begin with. The same is true for search engines. That's classic adverse selection — uncompetitive players falling into each others' arms. And it's why this strategy is easily dominated.
Let me try and put it even more simply. FairTrade is turning food upside down through the power of a fair advantage. Who will create a FairTrade for media? That's every media player's next great challenge. MicroFox, still trapped in the confines of strategy 1.0, can't take it on. But somewhere out there is a Constructive Capitalist who will — and when they do, kiss big media goodbye.
Empires always strike back, but the Force is with the fair. It's awesomeness that gives you the power to, like Google, create real value. So how unfair is your business? Is the force with you?
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NB — Here's some more basic econ for those who are interested:
How much will Bing will be willing to pay News Corp? The value of the advertising revenue that marginal traffic generates for Bing. But that value depends first on how valuable Bing ads are. If Bing ads were maximally relevant, no exclusive deal would need to be struck in the first place. The fee is an admission that ads aren't valuable enough to publishers alone. When Google's ads are valuable enough to offset the marginal gains from fees to publishers, exclusivity will fall apart. Conversely, Google will always be able to offer greater exclusivity fees than Microsoft, should it choose to do so.
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