It's being called the "Google tax."
A report commissioned by the French government and released this week suggests slapping a tax on the online ad revenue of the Web giant and of other major Internet portals. The purpose? To finance France's ailing cultural institutions, which the government believes are being hit hard by illegal downloading made possible in part by the search services of companies such as Google .
Critics panned the proposal as a lazy reaction to innovation in the digital age. But it's France's answer to the same question that is being asked in array of industries ranging from news to telecom, books and music: What do you do when Google comes along and changes everything?
A decade ago, the Web company made its name by helping people find things on the Internet. But Google no longer believes the future of the Web is on the personal computer. Instead, the company predicts most people will soon be connecting to the outside world through mobile devices. If that prediction is right, it means that's where advertising dollars are going too.
Today, Google is expanding into more areas than at any time in its history: smart phones, e-readers, operating systems, on-line stores. Its unveiling this week of the first Google-branded phone running on the Android system, the Nexus One, was just the latest such expansion.
And in almost every sector it touches, Google is disrupting the ecosystem, creating a new wave of winners and losers in its wake.
THE FUTURE OF NEWS
In the battle between News Corp. and Google over the future of digital news, Josh Cohen comes armed with the persuasive power of billions of eyeballs.
Of course, the senior business product manager at Google News doesn't frame the tirades that News Corp. chairman Rupert Murdoch has unleashed against Google as anything other than a continuing conversation between friends. But when he talks about Google's effort to act as a one-stop hub for the world's news, Mr. Cohen emphasizes that publishers are getting something out of it, too.
"No doubt Google benefits from the ability to index lots of high-quality information - news or otherwise," he says. "But the other part is the value we deliver for publishers: Just in traffic alone, in any given month, Google News sends a billion clicks to publishers worldwide."
The tensions between the Web giant and Mr. Murdoch heightened last month when the media mogul accused Google of stealing information - and revenue - from his company's many news websites.
"Our customers are smart enough to know that you don't get something for nothing," Mr. Murdoch told the U.S. Federal Trade Commission.
"And yet there are those who think they have a right to take our news content and use it for their own purposes without contributing a penny to its production."
There's more at stake in this battle than Mr. Murdoch's threat to have his news sites - including such heavy-hitters as Barron's and the Wall Street Journal - removed from Google's search engine. The news industry represents a prime example of a sector where Google's innovation has changed the entire landscape. While several news outlets, including The New York Times and The Washington Post, have embraced Google's news services as a means to survive, others still believe the search engine is engaging in little more than high-tech theft.
Some newspapers have focused on beefing up their digital offerings in order to better compete against myriad blogs and other Web outlets, while others have also turned a critical eye to where many of those Web outlets are getting their news in the first place.
During a recent 30-day period, more than 75,000 websites reused at least one U.S. newspaper article without obtaining a licence, according to a study released last month by the Fair Syndication Consortium, a collection of publishers looking for ways to compensate content creators.
It's that kind of unlicensed use that's at the heart of the dispute between some of the biggest names in traditional news and their new-media counterparts.
"We can no longer stand by and watch others walk off with our work under misguided legal theories," Associated Press chairman Dean Singleton said at the AP annual meeting last year.
However, Mr. Murdoch is in a better position than most to fight Google because News Corp. is in possession of a rare entity among news organizations: the newspaper that has made a pay-wall model work. The Wall Street Journal is one of the few newspapers that has succeeded in getting readers to pay for on-line content, in large part because the paper dominates a niche market with plenty of exclusive stories. But for news outlets that do most of their reporting on non-exclusive stories, such as breaking news, getting people to pay when a free alternative exists has proven very difficult.
"What we're seeing is a forcing of the issue over what's 'differentiating content' versus 'commodity content,'" said Jim Pitkow, chief executive officer of Attributor, a Web-content monitoring firm that founded the Fair Syndication Consortium.
"Competition is now a click away, and that forces differentiation - there used to be little market substitution. Now there's complete market substitution. None of this stuff is going away."
DIAL G FOR GOOGLE
What traditional newspapers have gone through, telecom companies may be next to suffer.
With the launch of its Nexus One smart phone, Google has waded into unfamiliar and very sensitive territory. By selling the phone through its own online store, the Web giant is essentially giving carriers a taste of a less lucrative future.
"This is a complete end run," said Peter Misek, an analyst with Toronto's Canaccord Adams. "What it does is basically try to disintermediate the carriers and make them nothing more than dumb pipes. That's what happened in the landline world of the Internet. It is a significant risk for telcos around the world."
In pairing its Android mobile operating system with a sleek, HTC Corp.-designed phone, Google is staking out valuable real estate as the premier gateway between smart phone users and the Web.
The company is still partnering with some carriers: first and notably, T-Mobile USA, through which Google is offering its $529 (U.S.) smart phone for $179 on a two-year contract. But Canaccord Adams' Mr. Misek doubts "partner" is the right word: No carrier will be allowed to sell the phone through its own retail stores. Google is also shopping it around, striking a blow against carrier exclusivity.
For carriers, that exclusivity can be a big deal: Rogers Communications Inc., for example, had a lucrative iPhone monopoly over its rivals until the end of 2009. Indeed, all three major carriers in Canada boast at least one exclusive model.
But carriers aren't the only companies feeling the effects of Google's move. When the search firm first developed Android, the mobile operating system was presented as one that anybody could use or alter. It still is, but for phone makers such as Motorola and LG who designed Android sets, they now find themselves in direct competition with the very same company that was supposed to be their software ally in the fight against BlackBerrys and iPhones.
"[Google]would directly benefit from accelerating the adoption of the mobile Internet by democratizing it," writes Richard Tse, an analyst at National Bank Financial.
"The problem is, they could disrupt the landscape in doing that, especially if they don't care about making money the traditional way."
It is, ultimately, the traditional way that is in jeopardy, and not just in the world of news and telecom. Google's penchant for the unprecedented extends to myriad other industries.
Nexus One has some nifty features but it's more important for what it signifies than what it actually is
When the search firm began digitizing and indexing books, it didn't take long for authors and publishers to dispatch their lawyers.
Whereas Google believed it could take snippets of any work it pleased and make it available online under the fair use policy, many of the creators of those works disagreed.
The Google Books project, as such, is still stuck in the courts, with everyone from Google's competitors to foreign governments chiming in with legal opinions.
Recently, the company even went into the electricity business. Upset at its options for purchasing renewable energy, Google simply applied for permission to become a wholesale power distributor. After news of the move surfaced, a Google spokeswoman was forced to make clear that the application "does not signal our intent to operate as a retail provider of electricity."
Even in the traditional online search market, Google is in uncharted territory. No search engine firm as big has dominated the market as long. Hoping to quell accusations of monopolistic behaviour before they surface, Google is spending much more time and money on lobbying, and its lawyers are studying every acquisition target very carefully for the likelihood it would be viewed as an anticompetitive move.
Still, in news, telecom and virtually every other industry, many companies would rather side with Google than against it. Wind Mobile, the upstart wireless carrier that launched in Toronto and Calgary in December, says it wants to bring the Nexus One phone into Canada.
Wind is hoping Google will help Canada follow the lead of Europe, where the GSM phone standard and switching SIM cards between phones is commonplace.
"People don't get subsidized TVs when they sign up for cable," said Chris Robbins, Wind's chief customer officer, knocking the practice of selling expensive phones cheaply with long, fixed-term contracts. "The whole concept doesn't make sense."
THE E-BOOK MARKET
On the same day Google announced the Nexus smart phone, a few smaller firms also made announcements.
A couple of electronic book-reader manufacturers at the Consumer Electronics Show in Las Vegas said their devices - which run on Android - would give users access to about one million free public domain works from Google's massive digital library. Google had previously worked out such a deal with Sony - now, it's providing the operating system as well as the books. Add e-readers to the list of industries in which Google has picked a side, and is helping determine a winner. Add Amazon to a list of competitors that ranges from Microsoft to your local phone book.
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It is the sheer variety of pies in which Google has a hand that make the company such an important test case. Even as traditional industries struggle to deal with the Web firm's presence, smaller startups can look at Google's experience to determine what they too will face should they attempt to innovate in a well-established field.
That's perhaps why so many critics were quick to pan the French government's proposed tax on the big Web portals as a way to subsidize traditional cultural industries.
"The likes of Google and Facebook are crucial partners for media companies," wrote Forrester analyst Ian Fogg.
"Yes they should be doing more, but they should be encouraged to co-operate as key business partners, not alienated and made enemies of with levies."