schmidtAfter News Corp.’s Rupert Murdoch paraded around in November threatening to de-index his properties from Google, this week it’s the search giant’s turn to respond.

Google took several steps to manage its public image this week. Most of these are pretty minor concessions from the company’s standpoint:

  • It changed its first-click-free program. First click free was a way you could read one story from a publication before hitting a paywall if you found it through Google search. It was also a great way to read The Wall Street Journal: instead of heading to WSJ.com, you could search the name of the story you were interested in on Google and then click through to get the whole thing for free. Now Google has updated the program so that publishers can set a maximum of five articles for readers to access this way.
  • It changed the way it finds permissions to crawl web pages. Now publishers can choose to keep themselves in web search, but not news search or vice versa.
  • And today, CEO Eric Schmidt wrote an op-ed in the Murdoch-owned Wall Street Journal (whose editor actually criticized Google for promoting promiscuity this fall) arguing that Google is playing its part by sending news organizations 4 billion clicks a month and by building products like the Fast Flip.

Schmidt writes:

“With dwindling revenue and diminished resources, frustrated newspaper executives are looking for someone to blame. Much of their anger is currently directed at Google, whom many executives view as getting all the benefit from the business relationship without giving much in return. The facts, I believe, suggest otherwise.

Google is a great source of promotion. We send online news publishers a billion clicks a month from Google News and more than three billion extra visits from our other services, such as Web Search and iGoogle. That is 100,000 opportunities a minute to win loyal readers and generate revenue—for free. In terms of copyright, another bone of contention, we only show a headline and a couple of lines from each story. If readers want to read on they have to click through to the newspaper’s Web site. (The exception are stories we host through a licensing agreement with news services.) And if they wish, publishers can remove their content from our search index, or from Google News.”

Indeed, news organizations are trying to kill the messenger. Right now the punching bag is Google, but in a few years it could be Facebook or Twitter, as both services accumulate attention and an increasing number of links to content. Bing, which reportedly has been in discussions with News Corp. for exclusive search rights, gets a pass because its market share is too low at just under 10 percent.

At its core, the problem is that for decades newspapers had a significant share of a finite number of channels to reach mass audiences. They don’t have that anymore. Audiences have splintered, and we have shifted to a mode of reading that focuses on, as Schmidt put it, an “atomic unit of consumption.” Because of that, newspapers’ pricing power over advertising has vanished and that trend has accelerated with the recession.

So what’s happening now? We’re seeing a process of creative destruction. Old, indebted and inefficient institutions are dying to make way for nimbler, faster ones. In a more visceral example, layoffs at the San Francisco Chronicle have allowed enough room for three startups, including Jack Dorsey’s Square, to move into its building this week. Most, but not all, of the verticals covered in a traditional newspaper are finding sustainable online equivalents. Technology coverage has moved to blogs like this one and other competitors and aggregators. Sports has moved to blogging networks like the Accel-backed SBNation.

The only part that doesn’t have a corollary is public interest journalism. A few non-profits like ProPublica and Spot.us have sprung up, but they may not be sufficient to support regional or local work. And that’s where we could use a bit of collaborative innovation from both Google and the news industry.