Google and the anti-trust challenge

Charles Duhigg has an excellent longform chronicle in the Times on the rise and rise of Google. And it is a disturbing story, symptomatic of the pervasive trend of regulatory capture and business concentration.

This is the anti-trust challenge that is being faced,

Standard Oil controlled 64 percent of the market for refined petroleum when the Supreme Court broke it into dozens of pieces. Google and Facebook today control an estimated 60 to 70 percent of the U.S. digital advertising market.

Anti-trust lawyer Gary Reback has this comparison about the tactics of Standard Oil and Google,

“They don’t need dynamite or Pinkertons to club their competitors anymore. They just need algorithms and data.”

Are algorithms and data any less morally and legally reprehensible than dynamites and snooping?

The legal problem, especially in the US, is with the narrow definition of what constitutes the requirement for anti-trust action. US courts have been more inclined to interpret anti-trust action in terms of consumer interest than competition - to what extent are consumers, rather than competitors, being harmed by Google? But such narrow framing poses problems,

Antitrust has never been just about costs and benefits or fairness. It’s never been about whether we love the monopolist. People loved Standard Oil a century ago, and Microsoft in the 1990s, just as they love Google today. Rather, antitrust has always been about progress. Antitrust prosecutions are part of how technology grows. Antitrust laws ultimately aren’t about justice, as if success were something to be condemned; instead, they are a tool that society uses to help start-ups build on a monopolist’s breakthroughs without, in the process, being crushed by the monopolist. And then, if those start-ups prosper and make discoveries of their own, they eventually become monopolies themselves, and the cycle starts anew... Put differently, if you love technology — if you always buy the latest gadgets and think scientific advances are powerful forces for good — then perhaps you ought to cheer on the antitrust prosecutors. Because there is no better method for keeping the marketplace constructive and creative than a legal system that intervenes whenever a company, no matter how beloved, grows so large as to blot out the sun. If you love Google, you should hope the government sues it for antitrust offenses — and you should hope it happens soon, because who knows what wondrous new creations are waiting patiently in the wings.

And this counterfactual is very difficult to establish,

If Microsoft had crushed Google two decades ago, no one would have noticed. Today we would happily be using Bing, unaware that a better alternative once existed. Instead, we’re lucky a quixotic antitrust lawsuit helped to stop that from happening. We’re lucky that antitrust lawyers unintentionally guaranteed that Google would thrive.

The popular narrative, resonant with the pervasive anti-government and pro-market ideological beliefs, holds that the decade long anti-trust pursuit of Microsoft in the nineties failed to achieve anything beyond token gains, and finally it required a more innovative competitor, Google to keep Microsoft away from dominating the search business.

it was companies like Google, rather than government lawyers, that humbled Microsoft

This narrative is repeated ad nauseum by opponents of regulatory actions to support their arguments in favour of the market mechanism. But a less discussed counter-narrative claims that the anti-trust actions "made all the difference" and "condemning Microsoft as a monopoly is why Google exists today". There was a  transformation in Microsoft's internal culture and business practices,

In the days when federal prosecutors were attacking Microsoft day and night, the company might have publicly brushed off the salvos, insiders say. But within the workplace, the attitude was totally different. As the government sued, Microsoft executives became so anxious and gun-shy that they essentially undermined their own monopoly out of terror they might be pilloried again... In public, Bill Gates was declaring victory, but inside Microsoft, executives were demanding that lawyers and other compliance officials — the kinds of people who, previously, were routinely ignored — be invited to every meeting. Software engineers began casually dropping by attorneys’ desks and describing new software features, and then asking, in desperate whispers, if anything they’d mentioned might trigger a subpoena... Every time a programmer detailed a new idea, the executive turned to the official, who would point his thumb up or down like a capricious Roman emperor... as Microsoft lived under government scrutiny, employees abandoned what had been nascent internal discussions about crushing a young, emerging competitor — Google... Microsoft was so powerful, and Google so new, that the young search engine could have been killed off, some insiders at both companies believe. “But there was a new culture of compliance, and we didn’t want to get in trouble again, so nothing happened,” Burrus said. The myth that Google humbled Microsoft on its own is wrong. The government’s antitrust lawsuit is one reason that Google was eventually able to break Microsoft’s monopoly.

And this only presaged earlier similar occasions where newer technologies spread,

In 1969 the Justice Department started a lawsuit against IBM for antitrust violations that lasted 13 years. The government eventually surrendered, but in an earlier attempt to mollify prosecutors, IBM eliminated its practice of bundling hardware and software, a shift that essentially created the software industry. Suddenly, new start-ups could get a foothold simply by writing programs rather than building machines. Microsoft was founded a few years later and soon outpaced IBM.

Or consider AT&T, which was sued by the government in 1974, fought in court for eight years and then slyly agreed to divest itself of some businesses if it could keep its most valuable assets. Critics complained AT&T was getting the deal of a lifetime. But then start-ups like Sprint and MCI made millions building on technologies AT&T championed, and AT&T found itself struggling to compete. It’s completely wrong to say that antitrust doesn’t matter, Reback argues. “The internet only exists because we broke up AT&T. The software industry exists because Johnson sued IBM.”