Guest post written by Glenn Manishin
Glenn Manishin is a technology law partner with Duane Morris LLP. He was counsel to MCI in the AT&T antitrust case and served as a principal lawyer for ProComp (AOL, Oracle, Sun, etc.) and several software trade associations in the Microsoft antitrust case. Neither Manishin nor his law firm represents Google.
For the past three years, rivals, public interest advocates and some European Union bureaucrats have attacked Google, calling it an “evil” monopolist. Putting aside the somewhat snarky reference to Google's famous creed, these attacks are illuminating more for what they cannot and don’t say than what they do.
We are not talking here of the formal legal definition of a monopoly. (Of course, it’s unlawful to monopolize a market, not to become a monopolist as a result of superior business acumen or execution.) The reality is that Google neither acts like nor is sheltered from competition like the monopolists of the past, something the company’s critics never claim because they just can’t.
Like the Red Queen in Through the Looking Glass, Google succeeds only by running faster than its competitors – merely to stay in the same place. There’s nothing about Internet search that locks users into Google’s search engine or its many other products. Nor is new entry at all difficult. There are few, if any, scale economies in search and the acquisition of data in today's digital environment is relatively cost free. Microsoft’s impressive growth of Bing in a mere two or so years shows that new competition in search can come at any time. As a result, Google has always been surrounded by scores if not hundreds of competing providers of search, and succeeds relative to those rivals because its algorithms and search results are deemed superior – more accurate and useable – by Web patrons.
Classic monopolists such as the AT&T Bell System, Microsoft and others all share certain distinctive characteristics. They rest on their laurels and do not innovate. The Bell System gave us the “Princess phone” in the 1960s before competition changed everything. After squelching an upstart Netscape in 1995-98, Microsoft basically stopped developing and improving Internet Explorer. In contrast, Google continues to innovate in many spheres of Internet and e-commerce activity, from mobile operating systems to books to social media. Not all have been successful, but that is the nature of our competitive market system. Failing sometimes is inevitable unless one is protected from competition by regulation or entry barriers. Google isn’t, so its success is hardly guaranteed.
Classic monopolists increase price, because they have the power to do so. Google search is a free product, supported by advertising. And that advertising is not priced by Google itself, rather through an auction among advertisers bidding on the use of search keywords. Google doesn’t control price, let alone raise prices. At least in America, we do not follow the archaic lead of the paternalistic French, who recently fined Google, on competition grounds, for making Google Maps free to users in order to protect legacy publishers of printed street maps.
Economists call these twin bad effects “monopoly sloth” and “deadweight loss.” As federal judge Learned Hand famously observed in 1945 about Alcoa, “Possession of unchallenged economic power deadens initiative, discourages thrift and depresses energy; that immunity from competition is a narcotic, and rivalry is a stimulant.” The last thing even its critics can fairly accuse Google of being is slothful. The loss economists loath from monopolies results from supra-competitive pricing, which transfers some of the economic value of a product from the consumer to the producer. It’s not just difficult, but impossible, to ascribe any of these monopoly effects to Google’s estimated 70% share of Internet search.
Monopolists also have no incentive to reduce costs and increase efficiency, because the absence of competition assures them of selling products very profitably. AT&T’s network and phones, for instance, were “gold-plated” and overpriced because it had no incentive to keep costs low. Microsoft’s so-called “bloatware” is legendary. In contrast, Google is a recognized a leader in Silicon Valley at devising new ways to store and generate data more efficiently, to operate massive data centers with thousands of computer servers more cheaply, and to utilize the power of digital technology to pioneer disruptive, cost-reducing changes in traditional markets, from email to travel booking services. Google’s fancy cuisine may be legendary as well, but it operates financially with a keen eye to thrift and the bottom line, something true monopolists care little about because they need not.
Finally, classic monopolists restrict output and use their power to lock in consumers. AT&T for decades prevented subscribers from plugging all but its own phones into the telephone network. Microsoft stopped Windows users from deleting or even switching away from Internet Explorer. Yet Google is a champion of open data, making it trivially easy for any Google user to export their e-mail, bookmarks and other data for use in competing applications on different platforms. Google’s Chrome browser has new and useful features but doesn’t hamper any consumer from switching, almost instantaneously, to a different Web application. You can take it with you, in other words.
William McGowan, legendary founder of MCI and the architect of the former Bell System’s demise, once quipped that his lifelong ambition was to be sued by the government for monopolization. Only partly in jest, this remark illustrates a fundamental conflict in American views of marketplace competition and antitrust. That system permits any company, no matter how small or large, to aspire to become the dominant firm in its market, driving competitors out. This sort of competition, brutal as it may be, ultimately yields better outcomes than government mandates or central economic planning.
Google doesn’t act like a monopolist and shares none of the characteristics sheltering classic monopolists from competition. Its astounding success in Internet search is universally regarded as a consequence of better design, superior code, better products and plain old hard work. Like Lewis Carroll’s other queen, the Queen of Hearts, Google really has no power at all. Just as the Alice in Wonderland queen could majestically dictate “off with their heads" with absolutely no effect, Google must continue to run faster simply to stay in the same place. That’s not a monopoly; instead it is a success story that should be applauded.
