There are a lot of posts worth reading about the potential impact or lack thereof of a possible deal between Microsoft and News Corp (and maybe other news sources as well), including Danny Sullivan, Jeff Jarvis, Andrew Parker and others.  But one thing that I have missed from everything I have read (and it may well be that it’s there and I missed it) is what this is truly all about: the immense competitive pull of Google’s amazing profits!  The big challenge for businesses with network effects is how to split the profits pie between themselves and others.

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.