Is 'This Time Different' Concerning Big Internet Dominance?

from the a-question-worth-asking dept

I've made a similar point a few times in the past, but now that the antitrust knives are out for the big tech companies (mainly Google, Facebook, Amazon and Apple), it does seem worth noting just how quickly the tech landscape seems to change. I moved to Silicon Valley 20 years ago. At that time, the "dominant" companies were: Microsoft, Sun, Oracle, Netscape, IBM, SGI, Intel and Yahoo. Those were still the days of "no one gets fired for buying IBM." Google's headquarters today were once SGI's. Facebook now occupies Sun's headquarters (affectionately nicknamed Sun Quentin, for its resemblance to the prison a bit north of here). A decade or so ago, I remember the general refrain about the startup ecosystem was that there were three "dominant" companies in the marketplace that any startup was trying to sell to. The so-called "GYM" companies: Google, Yahoo, Microsoft. Yet, today, all anyone can talk about is "GAFA" (Google, Amazon, Facebook, Apple) or in some versions "FAANG" (add in Netflix).

The tech market is one of disruption. It's a celebrated term around here -- often mocked by outsiders. But dominance has a way of falling. And falling fast. So I appreciate a recent piece by Ryan Bourne at Cato asking some fairly pertinent questions regarding the new antitrust focus on "GAFA."

Almost exactly the same arguments about how “network effects” might make Facebook or Google entrenched monopolies were used against Myspace, Microsoft’s Internet Explorer and AOL’s Instant Messenger. Analysts worried that web managers optimizing sites for IE because of its high use numbers would ossify the browser market in Microsoft’s favor. In the case of AOL, 40 companies wrote to the Federal Communications Commission asking it to make AOL’s network compatible with others. Of course, Myspace was rendered obsolete by Facebook, Internet Explorer by Google Chrome, and AIM by, well, a lot (there are many apps with instant messaging facilities).

But it’s not just network effects. In 2007 Forbes was running articles about how economies of scale for Nokia would act as a barrier to entry for rivals. The higher profits were generating “more money to invest in research and development.” It was said Nokia’s supposed technological superiority meant “no mobile company will ever know more about how people use phones than Nokia.” That year saw the first iPhone launch.

Today, consumer groups wail against Apple’s supposed “monopoly” power with its app store, saying it’s unfair to bundle it into its phone while prohibiting other means of download. Yet similar arguments were made about Apple’s iPods inability to play songs that weren’t downloaded from iTunes. Of course, developments in the music purchase market, mobiles and speaker technology completely unbundled music purchase from listening devices.

None of this is to say that there can't be antitrust concerns or market-power concerns to watch out for with these companies. But, the burden should be on those insisting that the only obvious thing is to "break up" these companies to explain why this time is different, and why no new competitors will be able to really enter and disrupt the legacy players.

When I first came to Silicon Valley, it was just as the antitrust effort against Microsoft was heating up -- and I totally supported it at the time. In retrospect, it's unlikely that case did much at all. There were other forces at work that limited Microsoft's power (though it's still a very big company doing quite well). After working around here for over two decades, though, and seeing just how much this place changes every few years, I've yet to see a convincing case that "this time is different." Indeed, I see plenty of entrepreneurs who are eager to disrupt the big players.

Filed Under: antitrust, big tech, dominance, internet companies, monopolies
Companies: amazon, apple, facebook, google

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  1. icon
    Thad (profile), 1 Jul 2019 @ 9:39am

    When I first came to Silicon Valley, it was just as the antitrust effort against Microsoft was heating up -- and I totally supported it at the time. In retrospect, it's unlikely that case did much at all.

    I think that's more about how toothless the antitrust judgement was and how completely Netscape had already collapsed by the time it was rendered than because antitrust action wasn't justified. Though given that the US government's approach to antitrust action is much the same now as it was twenty years ago, I don't expect antitrust actions today to end much differently.

    And given that it took a company with Google's market power in search and advertising to start threatening Microsoft's market dominance, I can't say that speaks to a thriving competitive market. It's true that fortunes rise and fall, but the problem of market concentration in a few hands doesn't change, even if occasionally a new set of hands comes in to displace another set.

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