Why antitrust lawsuits fail

This week, news that the FTC is looking to go after Google for antitrust violation started seeping out. The concern, according the reports, is that Google has built such a strong business in the search and search advertising arena that no one can get into that field.

While I agree that Google is the dominant player in the search and search advertising fields, just as Microsoft was (and still is) the dominant in the PC operating system world, I’d venture that it does not matter.

The Microsoft Example

It seems we are seeing a recurring pattern in the making: Government anti-trust lawsuits in the software business appear to arrive at a time when market forces have already dealt with the problem.

In the 1990s, the landmark antitrust case against Microsoft came at a time when OS dominance started to be irrelevant. The rise of Linux and of networked operating systems made the idea of dominating the operating system arena archaic. The browser, and what was contained within it, was the window to a new world and Microsoft’s dominance in that space already was starting to erode as Netscape’s owner, AOL, put the source code of its operating system in the public domain, giving rise to Mozilla. Meanwhile, Google and Apple, seeing that control of the web browser could be key to the next generation of the internet, started to invest heavily in building and distributing alternatives to Microsoft products.

Today, Microsoft is still a strong player but far from being the dominant player in the space and that dominance was not undone by antitrust regulations but by market forces.

Microsoft’s continued struggled for relevance is not due to the loss of the internet space but to the fact that the computer industry is moving on and consumers are no longer as interested in their offerings as they once were. The model the company had of selling expensive operating systems is one that seems to have been relegated to the dustbins of history as operating system prices have dropped (Apple routinely sells upgrades to OSX for around US$30, Linux is mostly free, and even Microsoft has now been reduced to selling Windows for just under US$100 when it used to charge almost US$300 for previous version); And consumers are increasingly bypassing PCs altogether, as sales have declined, to go for post-PC tablet and mobile smartphones, new offerings that can do most of what a user wants from a PC but come with added portability and lots of new features a PC can’t match.

Over a decade since the antitrust case declared Microsoft a monopoly, the company still sits at the top of the operating system world, a world that is increasingly irrelevant to future consumers.

Evolving Search

In the same way, Google sits at the top of the search world today.  Personal computer users pick it over alternatives (including, ironically, Microsoft’s own Bing search engine) a majority of the time.

But to keen observers, the search supremacy that Google has enjoyed is already starting to erode. While PC searches are still important, the next big market is divided into specific vertical searches, which provide substantially more depth than what Google has to offer (that category includes the likes of duckduckgo, kayak, and Yelp) and mobile searches, which is still a relatively green field and is far from being dominated by Google.

Twitter and Facebook are trying to highlight what’s hot right now and appear poised to offer tools that provide content discovery over the internet based on what is relevant to you, and your friends, right now. They bring an element of immediacy and social behavior that Google’s algorithms cannot match (which explains why Google is investing so heavily into Google+ as it tries to lure you and your friends back into an arena where you will share content on Google’s servers instead of Facebook’s or Twitters.)

Meanwhile, a number of players large and small have arisen to provide searches on mobile devices. On the high end of the spectrum, you have Apple. The Cupertino giant is working hard on providing new ways to search through its Siri offering. While the product is imperfect, it points to a future where voice-driven search will be the default behavior of most users in the mobile world (and Apple is intent on stopping Google there). Along the way, it also shows that integration of multiple data sources as the back-end of a search service may present a much more efficient way to organize content than the one-size-fits-all model Google has mostly leveraged over the past decade. As imperfect as the offering is today (just see the trouble Apple is having around maps) but it has signaled that it sees search as a strategic imperative and will fight to win.

Going deeper into the search stack, there are quite a few companies looking to solve the mobile discovery problem, focusing on different angles. For example, companies like FourSquare, Yelp, and others are providing location-based discovery tools completing searches on your behalf based on your physical location. And, for each specific vertical, there is an app that will allow you to do very specific search (for example, there is an entire subcategory of apps on iOS and Android dedicated solely to helping you find restrooms near where you are. If that’s not a very specific case, I don’t know what is)

On the advertising end, Google’s cash cow is being undermined because the model it has presented in the past (10 links of results with some advertising attached to it) does not translate in a mobile experience. While there are many experiments around mobile advertising, adwords and display banners may not be the solution moving forward, threatening Google’s chances in the mobile space.

Prosecuting the previous curve

The parallels between the two cases seem to point to a serious problem in the way our antitrust system is working.

Because the world of software evolves at a very quick pace, regulators seem to have a hard time grasping at the dynamic changes in the industry. Antitrust lawsuits take a long time to assemble and the process of attempting to get concessions before moving on to the next step further lengthens the process.

If you are to look at the Microsoft case as an example, the stage the FTC is currently at when considering Google is roughly where the similar lawsuit against Microsoft was in 1997. It took another 4 years before the prosecution was complete. By that point, market forces had already diminished Microsoft’s hold on the industry that the lawsuit seemed to be a moot point.

I’ve argued in the past about the fact that we have now reached a point where monopolies cannot really exist in the software world because so many large players are trying to vie for the same crown. In a world where Google, Apple, Amazon, Microsoft, and Facebook are all encroaching on each other’s territories (not to mention enterprise players like Oracle and Salesforce.com), it is hard to see how one company could establish and hold on to dominance for a long time.

In fact, history tells us that such hold is only short-lived. If the 80s were the era of IBM control, the 90s were Microsoft’s days, following by Google in the 2000s, and now Amazon, Apple, and Facebook are trying to go for the gold while the incumbents, far from being completely dead, are trying to redirect their ships towards the new waters.

As a result, Google’s monopoly on search may exist but it is no longer the point of control it once way and merely serves as Google’s sword in a fight that includes other players with equally daunting tools: Apple has figured out how to optimize the combination of hardware and software; Amazon has assumed rough control over large swath of the e-commerce arena; Facebook is all about social gestures and the future of our identities.

To prosecute Google now is tantamount to loading it up with rock boulders and asking it to run a swimming race against those other players.

Looking into the future of this prosecution, if it happens, one may see a cheering government talking about how the lawsuit helped the rest of the industry grow by slowing Google down but the fact that will be ignored is all that cheering is that Google is far from being the dominant player it once was and an antitrust lawsuit will only ensure that another company (and my bet is on either Apple, Amazon, or Facebook in this case) becomes the target of regulators a decade hence because they will have missed the emergence of yet another new giant while being so focused on tearing down the winner of the past round.

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