Since the field trial release of the Google+ project on June 28, Google’s stock price has risen by almost $150 per share. Ironically, this dramatic spike in the market came less than a week after the Federal Trade Commission announced its intent to serve Google with subpoenas regarding its dominance in web-search advertising.
The allegations are reminiscent of those raised by the Department of Justice against Microsoft in 1998 over the legality of the bundling of Internet Explorer with its Windows operating system. Like Microsoft, Google aims to monopolize its industry by expanding its offerings so that consumers never have to operate outside its empire. And just as with Microsoft, the government would do well to let the free market run its course instead of engaging in intrusive regulatory practices.
As of 2011, Google holds the overwhelming share of the U.S. search market at 75.9%. This figure dwarfs that of its share in U.S. display ads (9.3%), but critics argue that Google has manipulated the industry in subtler ways, such as by favoring its subsidiary YouTube in video searches.
It should be noted that Google’s case differs from Microsoft’s in several key ways. Whereas Microsoft drew criticism for its predatory behavior in offering subsidies to original equipment manufacturers who shipped Windows computers, Google’s favoritism so far appears self-contained. Additionally, the legitimacy of an antitrust case is questionable in a market with no significant barriers to entry: The cost of creating a search engine or social network in 2011 is negligible compared to the cost of founding a software company in 1998.
These distinctions notwithstanding, the Microsoft case has already elucidated the inherent folly of antitrust law: A de facto monopoly is often best defeated by the free market itself. As former Chairman of the Federal Reserve Alan Greenspan once pointed out, attempts at regulating lawful business only serve to stifle competition and resulting innovation. The existence of antitrust laws themselves may even discourage business owners from executing ideas that might be dismantled by government.
At the core of United States v. Microsoft in 1998 was the highly contentious browser war between Internet Explorer and Netscape. Netscape, which once enjoyed an 80% share of the browser market, fell significantly in popularity around the same time Microsoft began packaging Internet Explorer with its operating system. In the case settlement, Microsoft was allowed to continue this bundling practice, with the stipulation that its application codes be monitored by third-party companies for five years to ensure the absence of predatory behavior.
Internet Explorer’s popularity peaked at 96% in 2002 and began its significant decline with the release of Mozilla Firefox in 2004. As of 2011, Internet Explorer continues to hold a plurality market share at 45% to Mozilla’s 30%, but in spite of Microsoft’s vast advantage in resources over the Mozilla Foundation, it can no longer be called a monopoly. A lack of competition allows for price control, but it also eliminates incentives for improvement. The stall in browser innovation surrounding Internet Explorer’s monopoly led to a window of opportunity on which Mozilla’s creators capitalized.
The aftermath of the Microsoft case thus demonstrates that de facto monopolies, despite what their terminology might suggest, remain vulnerable to industry competition. In the technology sector alone, there are many more instances of this phenomenon: MySpace’s defeat by Facebook, Yahoo’s fall to Google, and, perhaps in the near future, Facebook’s fall to Google+.
Amusingly enough, Microsoft itself filed a complaint with European Regulators against Google in March. Their accusations come amidst a 95% share by Google in the European search market and followed a submission by Google to a 20-year period of scrutiny by the FTC due to privacy breaches to its Buzz social network.
Microsoft’s behavior is highly disheartening, as efforts by competing firms to press antitrust charges against industry giants are cannibalistic by design. The beauty of the information age has been the power of the technology sector to operate largely free from government regulation. (An argument might even be made that without the unnecessary regulation measures imposed by the Supreme Court settlement, Microsoft might have managed to advance Internet Explorer despite its monopoly.) The U.S. government, and more importantly, the technology sector itself should respect this.
As the late Milton Friedman said of the Microsoft case in 1999: “Antitrust very quickly becomes regulation. Here again is a case that seems to me to illustrate the suicidal impulse of the business community.”
Photo Credit: Wikimedia Commons