The Department of Justice should take a hint from the Microsoft suit: Don't go after Google.

Innovation, the Internet, gadgets, and more.
July 28 2009 5:02 PM

The Case Against the Case Against Google

The Department of Justice should take a hint from the Microsoft suit: no more antitrust actions against tech companies.

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Indeed, in many ways Microsoft's size was a liability, not an asset. This is the classic innovator's dilemma; the company was so intent on protecting its cash cows—it derives most of its revenue from two products, Windows and Office—that it was blind to opportunities in new markets. Microsoft couldn't make a Web e-mail system like Gmail, because that would have threatened Outlook. And why should Microsoft bother with free online word processing apps when Office was doing so well? When journalist Steven Levy showed Bill Gates the first iPod, Gates' first reaction was, "It's only for Macintosh?" Gates saw the iPod through the lens of desktop computers; if the iPod connected only to Macs, it didn't pose a threat to Microsoft. What he didn't figure out was that the iPod would herald the iTunes Store, allowing Apple to become not only the most influential entertainment company in the world, but also the dominant software maker for mobile devices. Yes, the first iPod didn't work on Windows. In time, it would help render Windows irrelevant.

Google is not nearly as dominant as Microsoft once was, and it exercises its power far more judiciously. Last fall, for instance, it stepped away from a search deal with Yahoo once regulators raised concerns. Still, there are people clamoring for Google's head. The most legitimate charge against Google is that it could use its market share and revenues from the search-engine game to carve out unfair advantages in other businesses. This is essentially the same argument the government marshaled against Microsoft, which spent hundreds of millions of dollars to build a free Web browser and then bundled it with every copy of Windows. Now Google is spending untold sums on a free Web browser (Chrome), two free operating systems (Chrome OS and Android), a free online office suite (Google Docs), and dozens of other goodies. Antitrust regulators argue that such largesse can discourage competition; Google can cross-promote all its software through its search engine and thus scare any potential rivals from taking up arms against it. In the end, trustbusters say, consumers will lose out.

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But that theory doesn't hold up. For one thing, Google doesn't lack for rivals. It faces robust competitors in every one of its businesses. If Google is really discouraging competitors, Cuil, Wolfram Alpha, Topsy, and Bing apparently didn't get the memo. Will any of these search engines outpace Google? Probably not—but it's at least clear that rivals aren't standing back and letting Google take the search business for itself. More importantly, Google has so far been unable to create any winning products in businesses outside of search. Google is losing the mobile OS war to Apple. It's losing the e-book market to Amazon. It's losing the social networking war to Facebook and Twitter. Sure, it's possible this could change; Google has the resources to keep fighting these fights, and eventually it may win. But nothing in Google's history guarantees success. As I argued a few weeks ago, if Google failed to make Google Video the dominant platform for online clips, and it failed to make Google Checkout the Web's leading payments system, why should we believe that it'll have any more success in the market for operating systems?

Varney has said that antitrust enforcement is a key tool for regulators to keep the economy running smoothly. But in the tech business, antitrust regulators are often too slow, fighting battles long after they've ceased to matter to consumers. Right now, regulators in Europe are sparring with Microsoft over whether the next version of Windows can ship with Internet Explorer. This is madness—everyone who buys a computer expects it to come pre-installed with a Web browser, and no one believes anymore that the company that makes the Web browser also controls the Web. That's what Microsoft's critics believed back in 1999. We were wrong.

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