The Australian government is in the midst of a bold attempt to have tech companies pay the publishers of content that is shared on their platforms. This is one of the fundamental cases facing tech in the coming years. Large tech companies have enjoyed relatively little regulation and scrutiny given the nature and size of their businesses. While many of these issues will take years to litigate, Alphabet Inc.'s (GOOGL) Google seems to be floating a strategy of search brinkmanship to scare regulators and governments into backing down.

Key Takeaways

  • Google and Facebook, Inc. (FB) would have to pay for news content shared on their monetized platforms according to a proposed Australian law.
  • Both companies have proposed ways to avoid payment under the law, but Google's solution is apparently to shut down search in Australia.
  • Google's reaction appears to be disproportionate and a bit of a public relations bungle by the tech giant.

Big Tech's Platform Dodge

Google and Facebook have long argued that they shouldn't be expected to pay for the content that they curate from publishers. In the case of Facebook, this content is usually shared by users on the social media platform. Google uses algorithms to compile content for its services like Google News. In both cases, the companies collect ad revenue off the traffic to their sites and, until some recent agreements were inked, share none of that back to the publishers.

Instead, Google and Facebook have long argued that the publishers benefit from traffic when users click through on the content. Unfortunately, both Google and Facebook have, at times, tweaked their platforms so that a part or whole of the content itself is brought in-app or into the site platform for easy consumption without the user leaving, removing much of the benefit of traffic argument from the arrangement. As the anger of publishers caught the attention of lawmakers, Google and Facebook started signaling a willingness to pay for content that they republish, with Facebook stating in 2019 that it would start to license content from news organizations. Google made a similar move in February 2020.

The progress on both initiatives is unclear. Australian lawmakers were tired of waiting around and took action of their own, proposing a law that will essentially force Facebook and Google to pay for the content they monetize for their own sites. European countries, including France, have previously tried this with very little to show for their efforts, but the Australian push seems to have a great deal of political will behind it.

The Brinkmanship Response to Regulation

The most interesting thing about the Australian proposal, aside from potential precedents being set, is the differing reaction from the two internet giants. Facebook and Google have taken a similar tact in their opening gambits, but the scale is quite different. Facebook has said it could end up tweaking the platform to prevent Australian users from sharing news links. While this dodges the core question of whether Facebook should be paying content creators, this is a relatively tame way for the company to separate itself from the issue. Facebook's position is that it wants to work with publishers to come to an agreement but that the law as proposed gives too much bargaining power over to the publishers.

Google, however, has seemingly chosen a much more aggressive negotiating position. According to The Wall Street Journal, Google's managing director in Australia has told lawmakers there that having to pay publishers for links that appear in search would force the company to shut down Google Search for Australian users. This clearly rubbed lawmakers the wrong way, as Prime Minister Scott Morrison is quoted as saying, "Australia makes our rules for things you can do in Australia. People who want to work with that in Australia, you're very welcome. But we don't respond to threats."

A Miscalculation by Smart People

This suggests that Google has miscalculated, perhaps badly. It is stunning that a company that was once reportedly working to alter its search algorithm to be compliant with Chinese censorship would be unable to figure out a technical solution to allow for it to operate its core search function in Australia. For example, the company could operate non-monetized search services in Australia or adjust the search and news features so that just a clickable title appeared. Those are just two alternative proposals that the company could have countered with, and one would hope that the intelligent people at Google would be able to come up with many better ones.

The Bottom Line

The idea of shutting down search in Australia comes off as being more of a threat than a realistic technical issue. It also places Google into an awkward spot where it will have to backpedal significantly to find that magic area of compromise where Australian publishers get a bit of what they want and Google can continue to profit as well. This type of brinkmanship from Google seems frankly out of character and may well hurt its credibility in future cases. At a time when big tech companies are facing serious social license issues, Google needs to put as much thought into the public relations side of its business as it does in the innovation side.