Killing AdSense

Nick Carr argues that "Google ... is vulnerable to a pricing attack on its AdSense service" and that Yahoo or Microsoft should "introduce a free version of AdSense":

Immediately, you put a lot of pricing pressure on an important source of revenues and profits for Google.

Turning the delivery of contextual ads into a free service for publishers would put Google under financial pressure ... but it wouldn't cause any harm, of a material nature, to Microsoft.

Turning the AdSense market into a free market would help neutralize that edge and generally redefine the competitive dynamic to Microsoft's benefit.

Rather than trying to play the advertising game, Microsoft could seek to end the game. It could seek to eliminate the high margins advertising brokers, like Google, currently enjoy.

No surprise that I agree with Nick on this one given that I have made similar arguments in the past. Back in Dec 2005, I wrote "Kill Google, Vol. 2", where I said:

AdSense revenues -- revenues from ads placed on other sites -- may be particularly vulnerable to attack. This was 43% of Google's revenue in Q3 2005. With these ads, the owner of the site gets roughly 70% of the revenue from the ad. Google takes the other 30%.

It seems like Microsoft could do a fair amount of damage here by trying to drive the share the advertising engine takes in this deal to near zero. To do that, it just needs to launch its own AdSense-like product and be willing to set its take to its breakeven point.

A few months later, I wrote "Kill Google, Vol. 3", where I said:

If I want to beat Google? I would throw everything I have got at an AdSense killer.

AdSense is now about half of Google's revenue and their future growth. Microsoft should strangle Google's air supply, their revenue stream.

Microsoft should use its cash reserves to make being an advertising provider unprofitable for others, lowering ad broker revenue share to near 0%.

Microsoft should ruin AdSense, undermine it, destroy it. There should be no business in AdSense-like products for anyone.

If Microsoft wants to win, it should play to its strengths. It should not seek to change the game. It should seek to end the game.

Of course, since Microsoft just spent $6B to try to compete in the advertising market, killing the market may be less attractive that it was in the past. Too bad. It might have been a good way to save $6B.