Web war 2.0 may be good for Internet's consumers

The world's largest software firm should pay Time Warner, News Corporation and others to block Google from indexing their content -- and make it searchable exclusively through Bing, Microsoft's new search service. Media companies would thus get badly needed cash, and Bing might take market share from Google.

On Nov. 23 it emerged that Microsoft and News Corp. are talking about just that. Although the discussions may come to naught, or prove a mere ploy in the media giant's negotiations with Google, the news caused a stir.

It is a sign not only of how far Microsoft is willing to go in order to turn Bing into a rival to Google, but also of how the Internet could well evolve.

It should come as no surprise that News Corp. would be the first to discuss such a deal. Rupert Murdoch, its boss, has long criticized Google for "stealing" his newspapers' stories by linking to them on Google's news site.

He has also announced that he wants to charge for more of the content his firm puts online. What is more, he needs to renegotiate the deal that gave Google the exclusive right to place contextual advertisements on MySpace, a social network owned by News Corp.. In 2006, Google agreed to pay $900 million over three years for the privilege, although it may in the end pay less, as traffic on MySpace has not met the targets specified.

Google is unlikely to want to pay such a high price again, given MySpace's declining popularity and disappointing ad revenues. Google also knows that Murdoch will think twice before blocking the biggest source of traffic for his newspapers' websites.

More than a quarter of all visitors to the Wall Street Journal's site, for instance, come from Google's various sites, and much the same is true for most other papers, according to Hitwise, a market-research firm.

Microsoft, for its part, cannot afford to let Google rule the search business and, by extension, grab the lion's share of the online-advertising revenue that is expected to pay for many services in the age of cloud computing.

In recent years the firm has invested billions in its search capabilities. With Bing, it has finally come up with a plausible rival to Google, even outperforming it for some searches, such as comparing prices of electronics or looking for cheap flights. To boost Bing's market share, Microsoft and Yahoo!, another online giant, agreed in July to merge both firms' search activities.

Yet all this may not be enough. Since its launch in June, Bing's market share has grown by two percentage points to nearly 10 per cent of all searches in America, but Yahoo!'s has dropped by the same amount to 18 per cent.

Exclusive content deals may just be what Microsoft needs to reach a combined 30 per cent, which some experts see as the minimum to make a dent in Google's business. Microsoft seems ready to spend whatever is needed: up to 10 per cent of the company's overall operating income over the next five years, according to Steve Ballmer, the firm's boss. This would, all things being equal, add up to some $11 billion.

Yet what looks like good news for media firms is worrisome for champions of an open Internet. To them, exclusive content deals are another big step away from an online world where everybody plays by the same rules.

Already, they say, Apple dictates which applications are allowed to run on the iPhone, Facebook tries to discourage members from surfing elsewhere, and Google's back navigation software is only free for users of its operating system for smart-phones.

"We're heading into a war for the control of the web -- and against the web as an interoperable platform," warns Tim O'Reilly, the Internet guru who coined the term "Web 2.0."

O'Reilly is on to something. The question, however, is whether this "war 2.0" is really so unwelcome. A handful of well-funded and powerful platforms, locked in heated competition, could be better for consumers and generate more innovation than O'Reilly's vision of an Internet made of many "small pieces loosely joined."

Republished from the Winnipeg Free Press print edition November 28, 2009 B17