You want a good internet economy with lots of jobs? Here’s How.
I’ve been blogging for a long time, and I was managing editor of both the Agonist, and FDL. While at both jobs, advertising income wasn’t my responsibility, except indirectly (I was responsible for traffic), I kept an oar in and an eye out.
Here’s the deal: advertising revenue collapsed. In particular it collapsed in 2007/8, and it kept collapsing. The reason it collapsed is that in the old days you sold your ads direct, or through brokers who offered good deals. As time went by, however, the percentage offered dropped and dropped and dropped. The brokers consolidated, and one broker took the lion’s share of the market: Google.
The reasons are simple enough: Google can offer the widest portfolio of websites to advertise on, and for all but the best branded websites, it determines more traffic than any single other factor. For people with no brand, it determines almost all the traffic.
Google takes the value because Google takes the value of websites: content creators don’t matter for squat because without Google they don’t get read, or watched. Oh, there are some exceptions, websites with a large enough community to provide their own traffic and push (Facebook, YouTube, etc…), but for the long tail and even the lower part of the fat end, Google is it.
I bring this up because of the extraordinary open letter from a German publisher about Google.
“We are afraid of Google,” Dopfner wrote. “I must say this so clearly and honestly since scarcely one of my colleagues dares to do this publicly. And as the biggest of the small fry, we must perhaps be the first to speak plainly in this debate.
“The discussion about Google’s power is not a conspiracy theory propagated by people mired in yesteryear,” he added, noting that Springer is making a big digital play and now reaps 62 percent of its profits from digital business.
Attacking what Schmidt had characterized as Google’s willingness to compromise with the European Commission over a 4-year-old complaint about its practices, Dopfner declared: “This is not a compromise. This is the introduction, sanctioned by an E.U. authority, of that kind of business practice which in less honorable circles is called extortion.”
Google is remarkably similar in important ways to Walmart. If it doesn’t carry your goods, or sticks them in a lousy place on the shelves, you aren’t going to sell much. The information problem in economics has absolutely not been solved, people cannot find what they would actually want to read or buy, but only what a few key companies show them (see Apple’s App Store for another example, or Steam, both of which take 30% in exchange for giving people a lottery ticket to make some money.)
This is pure rent-seeking, pure skimming off of other people’s work, and while it makes a few companies obscenely profitable (Apple doesn’t even know what to do with all the money it’s sitting on) it destroys businesses. If you have to pay 30% to someone simply as the price of getting your product before consumers in theory (often not in practice), a lot of businesses simply become unviable, and the jobs at Apple or Facebook or Google do not make up for all the jobs they kill. If Google doesn’t serve your website in the first few pages, it’s not going to be read. You will make a deal with Google (if you’re big enough for them to care) and you will create your content to pander to Google’s preferences as embodied by their algorithms, or you won’t get traffic, and even if you do get traffic, well your ads don’t pay squat, because Google takes almost all the profit.
Companies like Google, the key App stores, Walmart and so on must be heavily regulated, and the amount of commission they can take must be fixed by law. If it isn’t, well, you get to read all sorts of articles wondering where the tech jobs are, asking why Instagram has so few employees, while Kodak had tons. The reason is that tons of people are providing value to Instagram, or Google, or Apple, or Facebook, and they either aren’t getting paid, or are getting peanuts: they create content, that content has value, but because someone stands between them and the people who pay, they aren’t rewarded for the value they create.
You want a good economy again? You want an internet economy that lives up to the early hype and which provides even more jobs than the old economy? Break or regulate Google, Apple, Facebook and all the other gatekeepers, scrapers and information brokers.
(Oh, and reduce patents to only a few years, and enforce mandatory licensing, and a million (ok hundreds) of cell phone companies will blossom, driving smartphone prices down to a tenth of what they are today, or more. It’s called a competitive market, and it doesn’t work in a strict protected works world.)
You can have an economy that works, or you can have a few oligopolist companies which make obscene profits and create oligarchs: your choice.
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