Finally, an idea from Microsoft (or at least from Mr. Gates) that might actually cause some tremors in the paid search world. Instead of keeping all that super-high-margin search revenue for itself--the way Google does--Microsoft is apparently thinking of sharing some of it with the folks who create most of the value: the searchers. Or so Mr. Gates reportedly described in India (via Infoworld and Mr. Battelle).
How, exactly, the company would do this remains a question, but the idea is far from absurd. When your mere click on a link generates a couple of dollars of pure profit, it's easy to see how you might come to believe that getting paid something for your decision/attention is fair. And at current prices, Google could split per-click revenue 50/50 with searchers and still have plenty of profit to spare. (Of course, the stock would drop 80%, but that's a different issue).
The important point here is that installing some sort of revenue sharing system is not the same as competing by offering the competitor's product at 50% off (a strategy that might earn some market-share gains but will eventually lead to cash-bleed and mutual destruction). It's also not the same as building a whole business model around paying users to look at ads, as some of the 1999-era dotcoms tried to do. Without a true network effect, there is no free-market justification for incremental profit margins in the 90%-plus percent range, as Google's are now. And if MSN, Yahoo! et al can't compete on functionality and user experience, then perhaps they can lure Google searchers away with other incentives. Especially because even the most ardent Google fan may someday begin to resent the fantastic amount of money that they make for Google each time they click--an amount that, arguably, vastly exceeds the value of search results Google is providing.