Third in a series of three articles.

Having offered an interpretation of the extent of newspaper circulation damage in 2004 and a report on the companies' December Media Week presentations to the investment community, it's time to stick my neck out with a forecast of my own for 2005. Borrowing a famous laugh line from the 1967 movie, "The Graduate," I want to say one word to you -- just one word (well, three, actually):

Google and Yahoo.

And not to slight our friends up in Redmond, Washington, Microsoft too may be making some New Year's noise in the news business (see sidebar). Then there are blogs and all the rest of the voluntary, participant, free online universe, so well-chronicled in Dan Gillmor's book, "We the Media," which will continue to proliferate in quantum leaps.

Google and Yahoo go first among the new forces in news for three reasons. They have boatloads of capital to invest in new ventures and acquisitions. They have strong existing news aggregation products, increasingly able to become the personalized "Daily Me," so long a staple of thinking about the-newspaper-of-the-future. Their principal revenue base is advertising, the lifeblood of newspapers' income.

Chew on this. As the year turns, the two hot technology companies have a market capitalization (shares of stock multiplied by share price) of roughly $100 billion, about $50 billion each. By contrast, the publicly traded newspaper companies, about 65 percent of the industry, are valued at about $80 billion.

As explained below, neither Google nor Yahoo (nor anyone else) has a way to access all that market value. But their kitty for news investments, even if such services remain a fraction of their total business, is formidable. Google is under particular pressure to put to use what it raised in its hugely successful Initial Public Offering (IPO) in August 2004  -- and has satisfied the market with a rapid-fire sequence of big announcements, most recently a project to put the contents of the world's leading research libraries in searchable online form.

The timeliness of the challenge to the newspaper industry is more from the second factor, the likely breakthrough of news aggregation services like My Yahoo in 2005 from the domain of motivated techies to something easy for the ordinary online customer to access. We borrow shamelessly here from Morgan Stanley managing director and technology analyst Mary Meeker's October 2004 "Update from the Digital World." She lays out in persuasive detail how the latest upgrade of My Yahoo, offered to the company's 20-25 million customers in September, turns a corner in ease of use. As savvy students of technology hits and misses have long observed, the big winners are those so easy to use they are virtually self-explanatory -- like a basic Google search.

Until now RSS (really simple syndication) feeds, the standard means for compiling your own news report from multiple sources, required a degree of user sophistication and have displayed content choices in uninviting, super-abridged list form. Neither issue is disappearing overnight, but Meeker contends that My Yahoo gets a lot closer to real simplicity and also serves a menu of special interests from the content-rich blogosphere.

She also takes on what most traditionalists have considered the killer argument against blogs -- they are not professional, not vetted by qualified editors, and therefore not reliable. True to a degree, Meeker says, but users are comfortable with old, new, and sole proprietor volunteer offerings side by side.

The six most popular Yahoo sources are just such a mix of traditional and new age: The New York Times, Gizmodo, BBC News, Slashdot, Yahoo News: Top Stories, and CNET As for the volunteer/citizen-participant sector, she offers an elegant analogy from Rick Smolan, co-creator of the "Day in the Life" books. About a quarter of the photos in his 2003 book, "America 24/7" came from mom-and-pop contributors. Which is not to say professionals wouldn't do a better job in a given situation. Sometimes, however, the legions of amateurs are in the right spot at the right time and capture a great image.

Google's news product (accessible from its front page display) has been out several years now and flies under the coy banner "untouched by human hands." That is to denote that the content is compiled, and updated several times an hour, by the same sort of computer algorithms that do Google searches. (For a similar service with an especially international perspective and some elegant design elements, check out*.) Google News, described by the company as still in its "beta" trial period, also supports a small degree of personalization and more may well be on the way in 2005.

The final leg of how these companies are emerging as direct competition is their advertising income stream. As I wrote last year, until the Google IPO, there was some mystery about how the company makes money. Required IPO disclosures got specific -- 96 percent from advertising, a steadily rising share during the company's brief history and at extraordinary margins. Yahoo's financials show 75 percent of revenue from advertising through the first three quarters of 2004 (most of the rest from sale of premium services). Advertising's share has been rising quarter by quarter.

The plot thickens at this point because Google's AdSense product is the principal provider of lucrative contextual advertising (targeted to potential buying interests identified by what the reader chooses to read). New York Times Digital and other newspaper websites use AdSense for these ads and split revenues with Google. Particulars of the deal are obscure enough that it is hard to say whether newspapers are welcoming the fox to the hen house or hold an upper hand in the arrangement thanks to the size and demographics of their audience.

When our analyst friends recommend stocks or evaluate industry prospects, they typically drop in a few qualifiers here. I disclaim any intent, let alone power, to move markets in this piece, but here are a few reasons this 2005 scenario might not materialize.

Market capitalization is one valid indicator of company worth, but it comes with a giant asterisk. Google, Yahoo, and their shareholders have no way to cash in anything like the $100 billion capital "value." As soon as any substantial number of shareholders started selling, the stock price would start to fall, indeed it might collapse. You might say that story, writ large, was the essence of the technology bubble that burst in 2000. A few naysayers have even opined that new media are no more likely now to supplant the reliable, if homely, virtues of the old than they were last time around.

Still the companies have lots to invest. Google's most recent financials showed $1.8 billion in cash on hand.

I should also stipulate that analyst Meeker is a headliner and an enthusiast in the technology field and in a dozen years has probably earned the overworked shorthand description of "controversial." Those who put some serious money on her early recommendations of Microsoft and Dell would be very rich by now. But she took heat for over-estimating Internet stocks during the irrational exuberance years. So my take on Meeker's take on My Yahoo and the ease of getting the news you want online when you want it is that her report is authoritative but not gospel.

Finally I need to make clear that this is in no way a prediction that the newspaper industry will be blown away by electronic competition in 2005. Rather I am saying the extent and shape of direct competition will become much more apparent than it has up until now.

In fact, I emphatically part company with the tech true believers who crow that newspapers are dead but they don't know it. Leo Bogart and others have noted that newspapers probably deserve more credit than they get for adaptability and innovation. Take the historical example of totally replacing the little-merchant paperboy delivery system with better-paid adult part-timers. Or as noted in my report on the Media Week conferences, give the industry props for a credible counter to the challenge to classified recruitment and for currently cooking up an alternative to Craig'sList with its popular free ads for general merchandise. As Super Bowl season is upon us, fans rediscover the truism that tough, ingenious defense can take you a long way.

Conversely, it is hard to escape the conclusion, well articulated by Bogart in a Media Studies Journal article five years ago, that the industry is slow out of the blocks when it comes to making more basic and thoroughgoing changes. "Newspapers have been conservatively run," Bogart wrote, "averse to risk and unwilling to make the kind of investment in research and development that characterizes growth industries."

In the instant case, newspaper sites might politely be described as doing nothing special so far with personalization. There really isn't any reason The Washington Post can't offer you an online edition with, say, Fairfax County news displayed on your homepage -- or even the score of your kid's high school football came. That used to be expensive and complicated but it isn't anymore.

So look for 2005 to be the year the heat gets turned up on newspapers to get better, and innovate faster online as credible rival versions of the "Daily Me" emerge in the marketplace. I'll stop short of predicting the result of this collision course. But to quote children's author Maurice Sendak, "Let the wild rumpus start."  

CORRECTION: The wrong URL for was included in an earlier version of this story.