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Murdoch’s plans to cut off Google will increase his revenue

By on November 23, 2009
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Rupert Murdoch has taken aim at Google for “stealing his content”. Google has riposted by saying that news content “is not a big part of how we generate revenue”. Observers have argued that Murdoch doesn’t get the Internet and will destroy his own business. But maybe he just gets it better than we do.

Murdoch’s News Corp and Microsoft are reported to be in discussions to “de-index” News Corp’s websites from Google and have them listed only in Bing. Microsoft would pay for the privilege and has apparently approached other web publishers with the deal. The Financial Times quotes one web publisher as saying that the plan “puts enormous value on content if search engines are prepared to pay us to index with them”.

What is Google for, anyway?

Funnel image

Google’s role on the web is to be the largest source of leads into the “funnel”. All websites then aim to monetize their users by converting them from visitors -> regular visitors -> purchasers.

But are Google’s leads really that valuable? Ryan Chittum at the Columbia Journalism Review estimates that traffic that arrives at the Wall Street Journal from Google only generates $11.7 million in advertising revenue each year. That’s not very much, especially if you take Murdoch’s view that Google is benefiting from WSJ content more than the WSJ is benefiting from the traffic.

Ryan goes further, arguing that all traffic isn’t equal. The 25% of traffic that comes from Google is unlikely to generate 25% of the advertising revenue. Those are transient users who drop in, scan a page, and leave. They are worth way less than the regular users, over a million of whom are paying cash to subscribe and are fully engaged with the brand and content.

Abandoning the funnel

Conventional wisdom says that web publishers should maximise the routes into the top of the funnel as cheaply as possible. Minimise Cost Per Acquisition and you don’t have to worry about getting maximum revenue from each customer, because your cost of acquiring and servicing them is so low.

But the fixed costs of the Wall Street Journal are too high to make that model work. Newsrooms full of well-paid American or European journalists (I mean well-paid compared to bloggers, crowdsourced news providers or offshored developers) are extremely expensive to run. The Journal can’t afford to follow a Twitter or Facebook strategy of viral acquisition and low monetization.

It has to monetize like crazy.

And my guess is that it has realised that the conversion rate of Google users to subscribers is rubbish.

So what’s the alternative?

I work in games, so my example will come from games.

World of Warcraft.

There is nothing viral about Warcraft. It generates over $1 billion in year in boxed sales and subscriptions without the help of Google. (I know that newspapers are different, given the cheap cost of switching, but stick with me).

How does Warcraft get those users?

It advertises. It spends a huge amount of money on advertising. And you know what, that’s OK. If you know how to monetize your audience, then spending a shedload on acquiring them is good business.

And that, I think, is Murdoch’s strategy. He is used to spending money on acquiring readers to his newspapers. He sees the online versions as being no different.

Instead of relying on Google to generate “fly-by” traffic, he will spend cold, hard cash on advertising to acquire users. He’ll aim to persuade advertisers to pay premium rates for his loyal, targeted audience. He’ll target his advertising on users who are likely to subscribe for premium content, or at least stay loyal to the site in some form. And if Microsoft will pay him to drop Google in favour of Bing, and in the process replacing the revenue that Google users generate in the form of advertising impressions on his sites, that’s just a bonus.

It’s a risky move. Web wisdom says that users will just click to another source of information rather than pay for it.

But we’re seeing a massive experiment in the battle between “viral” business with their low CPA and low monetization per user and “monetized” business which spend to acquire users in the belief that they can be monetized very effectively.

And you know what, I’m not sure I want to bet against Murdoch.

About Nicholas Lovell

Nicholas is the founder of Gamesbrief, a blog dedicated to the business of games. It aims to be informative, authoritative and above all helpful to developers grappling with business strategy. He is the author of a growing list of books about making money in the games industry and other digital media, including How to Publish a Game and Design Rules for Free-to-Play Games, and Penguin-published title The Curve: thecurveonline.com
  • Hmm, that's a pretty big generalisation, Basil. Can I just ask a question. Have you never paid for any of the following:
    A subscription to World of Warcraft or other MMO?
    Virtual goods or gifts on Facebook or any other game?
    An Xbox Live subscription?
    A downloaded game on Xbox, PSN or Wii?
    An iPhone app?
    An iTunes piece of music or a Spotify subscription?
    A ringtone?

    All of those are items that young people pay for online.

  • BasilHuman

    Murdoch is an idiot and his idea will fail.

    People willing to pay for content on the internet defines OLD PEOPLE.

    The younger generation won't be going anywhere near Newscorp websites, and they are trained not to even notice advertising online.