On Tuesday, Oct. 20, the U.
S. Department of Justice (DOJ) filed a lawsuit against Google Inc. under the
provisions of the Sherman Antitrust Act, charging that the firm is a “monopoly
gatekeeper for the Internet.” This
is the first time the DOJ has used the Act since 1998, when similar charges
were filed against Microsoft. The
Microsoft case failed to break up the company, as the DOJ once announced its
intentions to do, but reduced the dominance of Microsoft’s Explorer browser by
opening up the browser arena to more competition.
By one measure, Google has
an 87% market share in the search-engine “market.” I put the word in quotes, because nobody I
know gives money directly to Google in exchange for permission to use their
search engine. But as the means by which
87% of U. S. internet users look for virtually anything on the Internet, Google
has the opportunity to sell ads and user information to advertisers. A person who Googles is of course benefiting
Google, and not Bing or Ecosia or any of the other search engines that you’ve probably
never heard of.
Being first in a
network-intensive industry is hugely significant. When Larry Page and Sergey Brin realized as
Stanford undergraduates that matrix algebra could be applied to the
search-engine problem in what they called the PageRank algorithm, they immediately
started trying it out, and were apparently the first people in the world both
to conceive of the idea and to put it into practice. It was a case of being in the exactly right
place (Silicon Valley) at the right time (1996). A decade earlier, and they would have lapsed
into obscurity as the abstruse theorists who came up with a great idea too
soon. And if they had been only a few
years later, someone else would have come up with the idea and probably beat
them to it. But as it happened, Google
got in the earliest, dominated the infant Internet search-engine market, and
has exploded ever since along with the nuclear-bomb-like growth of the WorldWideWeb.
It’s hard to say exactly
which one of the classic bad things about monopolies is true of Google.
The first thing that comes
to mind is that classic monopolies can extract highway-robbery prices from
customers, as the customers of a monopoly must buy the product or service in
question from the monopoly because they have no viable alternative. Because users typically don’t pay directly
for Google’s services, this argument won’t wash. Google’s money comes from advertisers who pay
the firm to place ads and inform them who may buy their products, among other
things. (I am no economist and have only
the vaguest notions about how Google really makes money, but however they do it,
they must be good at it.) I haven’t
heard any public howls from advertisers about Google’s exploitative prices for
ads, and after all, there are other ways to advertise besides Google. In other words, the advertising market is
reasonably price-elastic, in that if Google raised the cost of using their
advertising too much, advertisers would start looking elsewhere, such as other
search engines or even (gasp!) newspapers.
The dismal state of legacy forms of advertising these days tells me this
must not be happening to any great extent.
One other adverse effect of monopolies
which isn’t that frequently considered is that they tend to stifle
innovation. A good example of this was
the reign of the Bell System (affectionately if somewhat cynically called Ma
Bell) before the DOJ lawsuit that broke it up into regional firms in the early 1980s. While Ma Bell could not be faulted for
reliability and stability, technological innovation was not its strong
suit. In a decade that saw the invention
of integrated circuits, the discovery of the laser, and a man landing on the
moon, what was the biggest new technology that Ma Bell offered to the general
consumer in the 1960s? The Princess
telephone, a restyled instrument that worked exactly the same as the 1930s
model but was available in several designer colors instead of just black or
beige. Give me a break.
Regarding innovation, it’s
easy to think of several innovative things that Google has offered its users
over the years, including something I heard of just the other day. You’ll soon
be able to whistle or hum a tune to Google and it will try to figure out what
the name of the tune is. This may be
Google’s equivalent of the Princess telephone, I don’t know. But they’re not just sitting on their cash
and leaving innovation to others.
In the DOJ’s own news
release about the lawsuit, they provide a bulleted list that says Google has
“entered into agreements with” (a politer phrase than “conspired
with”) Apple and other hardware companies to prevent installation of search
engines other than Google’s, and takes the money it makes (“monopoly
profits”) and buys preferential treatment at search-engine access points.
So the heart of the matter
to the DOJ is the fact that if you wanted to start your own little
search-engine business and compete with Google, you’d find yourself walled off
from most of the obvious opportunities to do so, because Google has not only
got there first, but has made arrangements to stay there as well.
To my mind, this is not so
much a David-and-Goliath fight—Goliath being the big company whose name starts
with G and David representing the poor exploited consumer—as it is a fight on
behalf of other wannabe Googles and firms that are put at a disadvantage by Google’s
anticompetitive practices. From Google’s
point of view, the worst-case scenario would be a breakup, but unless the DOJ
decided to regionalize Google in some artificial way, it’s hard to see how
you’d break up a business whose nature is to be centrally controlled and
executed. Probably what the DOJ will
settle for is an opening-up of search-engine installation opportunities to
other search-engine companies. But with
$120 billion in cash lying around, Google is well equipped to fight. This is a battle that’s going to last well
beyond next month’s election, and maybe past the next President’s term, whoever
that might be.
referred to articles on the DOJ lawsuit against Google from The Guardian
as well as the Department of Justice website at https://www.justice.gov/opa/pr/justice-department-sues-monopolist-google-violating-antitrust-laws,
and the Wikipedia article “United States v. Microsoft Corp.”