Editors' note: This is a guest column. See the authors' bios below.
Ten years ago this week, an appeals court upheld Microsoft's conviction for monopolizing the PC operating system market. The decision became a key legal precedent for U.S. antitrust enforcement. It also cemented the government's confidence in its ability to pick winners and losers in fast-moving technology markets--a confidence not borne out by subsequent events.
Now this sad history seems to be repeating itself: By uncanny coincidence, news broke just last Friday that the FTC had begun an antitrust investigation into Google's business practices. Unfortunately, there's no reason to expect the outcome to be any better for consumers this time around.
There is, in fact, no evidence that the case against Microsoft or its settlement contributed to the spectacular innovation in the IT sector over the last decade. Indeed, they may even have solidified Microsoft's role as the perennial also-ran in this latest wave of technological progress, as the company struggled to keep innovating under the threat of constant antitrust scrutiny in the U.S. and abroad.
The true lesson of the Microsoft case is this: antitrust intervention in information technology has a poor track record of serving consumers. Even Harvard law professor Lawrence Lessig, who was a court-appointed Special Master in that case and has since championed government tinkering with the Internet, finally admitted in 2007 that he "blew it on Microsoft" by underestimating the potential for innovation and market forces to dethrone Microsoft, particularly through the rise of open-source software (which now in part powers Apple's popular iOS).
But even that misses the importance of the broader, unimaginable technological evolutions that rendered the Microsoft case moot before it began. First, the desktop operating system is fast losing its central importance as more and more desktop applications are run in "the cloud" (Webmail, Salesforce.com, Tweetdeck, etc.). This evolution has been driven largely by open Web standards like HTML--which predate the remedy in the Microsoft case.
Second, Microsoft's desktop operating system is significantly threatened by the mobile revolution, and Microsoft's own forays into this market have been singularly unsuccessful. Tellingly, in 2007, when Apple transformed the mobile market with the iPhone, Microsoft released Windows Vista, the "Edsel" of operating systems. Apple's market cap is now larger than Microsoft's--a result unthinkable just a decade ago.
Finally, Microsoft has struggled to compete with Google, a company that supports with advertising revenues a growing variety of free (cloud-based) offerings beyond Internet search and in areas (operating systems, e-mail, Web browsing, word processing...) central to Microsoft's business.
In all three cases, Microsoft moved too slowly to keep up. And in all three cases the government and the courts (and likely even Microsoft itself) failed to anticipate these evolving threats to Microsoft's business.
The Microsoft case demonstrates how hard it is for antitrust regulators to determine which technologies and business models will ultimately best serve consumers, largely because they simply cannot predict how digital markets will evolve. The Justice Department of 1998 (when the Microsoft case began) couldn't have predicted the rise of Google, Facebook, Twitter, Chrome, Android, the iPhone, or cloud computing. Indeed, who in 1998, or even 2001, could have imagined that Microsoft would face an existential threat to its Windows, server, and Office-focused business model from a company that provides free, ad-supported services built on a core Internet search business--and that was incorporated just a month before Microsoft's antitrust case began? So how can today's FTC possibly predict how search will change, or how Google's success might be disrupted by "social" search (e.g., via Facebook), "semantic" search (understanding language), or any other combination of possibilities?
Even if Google today were the monopolist Microsoft supposedly was a decade ago, it doesn't follow that another drawn-out antitrust battle and cumbersome consent decree will actually benefit consumers. If anything, the futility of the Microsoft case demonstrates the wisdom of letting rapid technological change play out in digital markets.
Moreover, the Justice Department in the Microsoft case at least seemed genuinely focused on antitrust's bedrock consumer welfare standard. But today, the FTC seems to be motivated largely by a desire to lower the bar for future antitrust interventions, with Google's rivals cheering the agency on. Recent statements by FTC Chairman Jon Leibowitz (a Democrat) and Commissioner Thomas Rosch (a Republican) suggest their agency intends to prosecute Google under "Section 5" of the FTC Act rather than the agency's more traditional Sherman Act "Section 2" authority. Commissioner Rosch has claimed that a Section 5 unfair competition claim could address conduct that has the effect of "reducing consumer choice." But a reduction of choice of competitors put out of business by pro-competitive behavior is not a harm to consumer welfare, and such a case would (and should) fail under Section 2. The fact that Google's rivals--including Microsoft itself--are complaining about the company suggests, ironically, that Google's practices are in fact pro-competitive and thus pro-consumer.
It took Professor Lessig years to admit that he "blew it" on Microsoft. Here's hoping Chairman Leibowitz and the FTC are quicker to recognize the dangers of antitrust intervention in fast-moving markets. Another legal precedent like the Microsoft decision will hamstring not only Google but also, eventually, other innovative companies that might someday dethrone Google. How will that benefit consumers?