Some key excerpts:
"If you were starting from scratch, you could never possibly justify [the current] business model," [Google Chief Economist] Hal Varian said ... "Grow trees -- then grind them up, and truck big rolls of paper down from Canada? Then run them through enormously expensive machinery, hand-deliver them overnight to thousands of doorsteps, and leave more on newsstands, where the surplus is out of date immediately and must be thrown away? Who would say that made sense?" The old-tech wastefulness of the process is obvious, but Varian added a less familiar point. Burdened as they are with these "legacy" print costs, newspapers typically spend about 15 percent of their revenue on what, to the Internet world, are their only valuable assets: the people who report, analyze, and edit the news.The entire article is well worth reading. It gives a great feel for how Googlers are thinking about the future of news (and is mostly in line with my own thoughts).
"Nothing that I see suggests the 'death of newspapers,'" [Google CEO] Eric Schmidt told me. The problem was the high cost and plummeting popularity of their print versions. "Today you have a subscription to a print newspaper," he said. "In the future model, you'll have subscriptions to information sources that will have advertisements embedded in them, like a newspaper. You'll just leave out the print part. I am quite sure that this will happen ... As print circulation falls, the growth of the online audience is dramatic ... Newspapers don't have a demand problem; they have a business-model problem." Many of his company’s efforts are attempts to solve this, so that newspaper companies can survive, as printed circulation withers away.
The three pillars of the new online business model, as I heard them invariably described, are distribution, engagement, and monetization. That is: getting news to more people, and more people to news-oriented sites; making the presentation of news more interesting, varied, and involving; and converting these larger and more strongly committed audiences into revenue, through both subscription fees and ads.
The best monetizing schemes are of course ones that people like -- ads they enjoy seeing, products for which they willingly pay. Online display ads should be better on these counts too, [Google VP Neal] Mohan said. "here are things we can do online that we simply can't do in print," he said. An ad is "intrusive" mainly if it is not related to what you care about at that time ... "The online world will be a lot more attuned to who you are and what you care about" ... Advertising has been around forever, Mohan said, "but until now it has always been a one-way conversation."
Please see also my Oct 2009 post, "Google CEO on personalized news".