I've been meaning to write about the News Corp - Microsoft deal rumours of which have been afloat for a few days, but lots of traveling and two events got in the way. The deal involves MSFT paying News Corp to block Google from accessing its content and having it exclusively indexed by Bing.
My first reaction to this is that it won't work. I beleive that information wants to be free and we see versions of that play out all over the web. I am all for creative monetization of attention, but gaming the system with biz dev deals does not seem to me the smart way to go about it.
One area that this "shift to free" has worked extremely well is news. There has been much said and written on how the web is killing journalism and that the news room is going to die because of the web. While many print media outlets are being hurt by the reduction in friction in news publishing, I think the casualties have not hurt the quality of the news we consume. If you look at the example of the reporting the blogosphere (especially Arrington) has done of the recent Scamville issue, and compare it with NYT's coverage of it (as Fake Steve Jobs did), you can see how less friction has led to better news in some cases.
In any case, my big issue with this deal is less the economics of attention but the fact that this type of one-on-one agreement for exculsivity is just unnecessary friction. There is no value being created for the ultimate consumer of news. The consumer has so far voted with her clicks that she's found the way Google has directed her attention to news more valuable than the way Microsoft has. Now MSFT and Murdoch are forcing her to either go to two sources for her searches, or switch to what she feels is a lesser search engine.
Now, I also think this is something Google has had coming. In its decisions regarding the economics of attention, Google decided on a black box approach. Albert Wenger has written a smart post on this issue:
One of the reasons that Craigslist is so hard to attack is that Craig has chosen to the give the bulk of the benefits to the network itself (as “consumer surplus”) by operating most of Craigslist for free. Google made a different choice, which is to keep a ton of the economics for themselves (and often in a non-transparent manner, i.e. it’s unclear how much of the economics Google takes). That will eventually create openings for others based on a willingness to share the economics differently.
Microsoft took a first step into that direction with the cash back for shopping. A deal with news organizations would simply be a further step in that direction. It is therefore not clear that Google is maximizing long term value by hanging on to as much of the profit as they are. That is the real heart of the ongoing conflict over news indexing.
As the attention economics gets more and more streamlined, we will see similar attempts at biz-dev'ing by incumbents. Most attempts will be unnovation (to borrow Umair's term), and will not lead to any disruption. The exciting developments will focus on increasing value. I try to keep focused on those.