MySpace/Google

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Not content with its position as the dominant internet search provider, Google is noisily hoovering up the biggest third-party distribution deals. In the past year, it has bid aggressively to become the default search engine on Dell computers and to be search provider to AOL’s high-traffic sites. Now it has won the affection of fast-growing MySpace and its parent News Corp.

Google did lose out to Yahoo on an advertising link with Ebay. But for most, Google’s pitch is hard to beat. In MySpace’s case, Google is guaranteeing $900m of search-related revenue over about three years. At almost 100 per cent margins, that more than covers News Corp’s $580m acquisition of MySpace last year.

Apart from guaranteeing a fat cheque, Google also has the best advertising network and monetisation per query. That means the figures for News Corp could be even higher if MySpace users change their habits and start to search on the site itself rather than heading off to Google. Also, with its international advertising network, Google gives MySpace a quick route to expanding its search business overseas.

For Google, the deal ties up another source of internet traffic. It also keeps it out of Microsoft’s paws. While Google’s software rival has deeper pockets, its relatively new advertising network cannot offer the same revenue per query to partners.

Coupled with heavy technology spending, Google’s alliances make it tougher for competitors to catch up in paid search. The question is whether Google can use its links with the biggest media companies to get better access to their content for, say, video search. The “if you can’t beat ‘em join ‘em” attitude towards Google might work to boost search revenues. But it could be more dangerous if media groups extend it to other areas.

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