News executives who insist upon seeing Google as the Great Satan would do well to read James Fallows’ 9,000-word analysis in this month’s Atlantic. Fallows is well-equipped to write the story of Google’s tortured romance with the news industry. He is a veteran traditional journalist with a technology bent who is as comfortable writing for PC Magazine as for Atlantic.

There’s a lot to digest in this article but a few insights struck us as particularly important. One is that Google sees itself as having what one executive calls a “deeply symbiotic relationship” with news organizations. Second is that Google is devoting a lot of bright people and significant amounts of money to help news organizations reinvent themselves. The third is that Google believes advertising will become a lucrative and sustainable source of income for news organizations in the future, but only if they change their tactics.

Thief or Robin Hood?

Google is often pilloried by publishers for “stealing” content. This is despite the fact that Google lifts no more than a few characters from each story, doesn’t sell ads on its Google News service and is the number one source of traffic for most newspaper websites. The real reason Google is so despised is because it has accelerated the “unbundling” of news. This is at the root of the industry’s disruption. Newspapers traditionally have delivered their entire product in one package with advertising in lucrative sections like automotive and food subsidizing the stuff no one wants to pay for, like correspondents in Afghanistan. Search engines have blown apart this model by making it possible for online readers to navigate directly to the content they want. When each form of content is forced to justify its own existence, the world/national news, statehouse coverage and other staples lose out.

Fallows points out that Google and newspapers have a lot in common. Google’s well-being is tied to the availability of high-quality information online. One of the reasons its executives feel such urgency about helping the newspaper industry is that they fear that the loss of this content will diminish Google’s core value. Fallows also astutely points out that Google’s business model is itself a bundle: the company makes the vast majority of its profits from search, which enables it to fund loss leaders like News and Books.

Genuine Concern

Fallows spent a year interviewing Google executives and he portrays their concern about the news industry’s crisis as heartfelt and earnest. Certainly, no Internet company has been more visible in trying to engage with publishing executives. CEO Eric Schmidt addressed the American Society of News Editors last month and has been quoted many times despairing about the industry’s troubles. Of the other online companies that have taken their share of news industry flesh, only Craigslist’s Craig Newmark has shown any concern about the consequences.

Fallows’ piece is basically upbeat. Google executives express unequivocal confidence in the future of display advertising, a vehicle that has been widely written off as a dying intrusion on users’ reading experience. Advertising on the Internet is still in its infancy, executives assert, and advances in targeting will enable display ads to do for readers what Google’s AdWords technology has done: deliver relevant contextual offerings to readers based not only on the article in front of them but also on their self-described interests and recommendations of their friends. As advertising increasingly reflects a two-way dialogue between reader and publisher, “news operations will wonder why they worried so much about print display ads, since online display will be so much more attractive,” Fallows writes.

The company is applying technology to increase the yield of advertising in the same way that airlines adjust their pricing, planes and schedules to maximize revenues per mile. One innovation is an arbitrage system that enables publishers to adjust the allocation of premium priced advertising on a second-by-second basis. Another is Fast Flip, a Google experiment that seeks to mimic the print reading experience on a computer screen. Google has even adjusted its treasured search algorithm to accommodate complaints from individual publishers. There is little or no revenue in these efforts for Google; the company’s motivation appears to be giving publishers more options.

Rethinking News

However, Fallows also emphasizes that Google executives believe news organizations must take responsibility for their own health by rethinking their approach to the business. Krishna Bharat, a distinguished research scientist at Google and the driving force behind Google News, probably reads more newspaper content than most humans. He notes that duplication of effort saps the productive potential of the industry as a whole.

“You see essentially the same approach taken by a thousand publications at the same time,” Bharat says, referring to pack journalism. “Once something has been observed, nearly everyone says approximately the same thing.” This repetition is a relic of the days when readers had limited sources of information and hundreds of reporters might cover the same event. Now this approach has become antiquated. Publishers would get more bang for the buck by pooling their efforts to provide the five Ws and devote more resources to “something else, equally important, that is currently being neglected.”

Executives also emphasize that while they believe the ad picture is bright, a continued overreliance on display advertising will be the news industry’s undoing. Instead, they advise a “lots of small steps” approach based upon continuous experimentation and diversification of revenue streams. “The three most important things any newspaper can do now are experiment, experiment, and experiment,” says Hal Varian, Google’s chief economist.

Which, when you think of it, is how Google works.

Presentation by Google Chief Economist Hal Varian

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