When breaking up makes no sense

Elizabeth Warren wants to break up Facebook, Amazon and Google. Why?

In the 1990s, Microsoft — the tech giant of its time — was trying to parlay its dominance in computer operating systems into dominance in the new area of web browsing. The federal government sued Microsoft for violating anti-monopoly laws and eventually reached a settlement. The government’s antitrust case against Microsoft helped clear a path for Internet companies like Google and Facebook to emerge.

The story demonstrates why promoting competition is so important: it allows new, groundbreaking companies to grow and thrive — which pushes everyone in the marketplace to offer better products and services. Aren’t we all glad that now we have the option of using Google instead of being stuck with Bing?

There is alot to unpack here. First, while the government wanted to break-up Microsoft, it didn’t end up being able to do it. Yes, there was traditional antitrust enforcement (in the US and also notably in Europe) but that isn’t a breakup.

Second, did it help clear a path for Google and Facebook? That is, had the antitrust enforcement not proceeded, would they have been in trouble? Well, of course, we know that we didn’t need to break Microsoft up. But it is very unclear what the other antitrust actions did with regard to Google and Facebook. What was Microsoft doing that might have stopped them? I don’t really know. Maybe something to do with Java? Maybe they would have thwarted Google at the level of Internet Explorer or blocked Chrome? But it is far from clear. We know that in competing with Google, the well-resourced Microsoft was unable to really get inroads on them despite actually having a search engine that was likely equivalent or just a shade worse. Compare that to other inferior Microsoft products that actually succeeded and the case is really hard to parse.

Third, how crippled is Microsoft exactly? Today, when I looked at company valuations, Facebook is at $481b, Amazon is at $793b, Google is at $799b and Microsoft is …. checks notes .. at $840b (even higher than Apple at $810b). So Microsoft is the world’s most valuable company. It wasn’t just the tech giant of the 1990s but it is the tech giant of today!

Fourth, it is pretty odd that Warren is targeting Facebook, Google and Amazon when Microsoft is out there as the tech giant. Moreover, why is Microsoft the tech giant? It is pretty obvious why: it has a virtual monopoly over PC operating systems and PC Enterprise software? You know, the things it actually had a monopoly over in the 1990s when it was pursued by the DOJ. Now we don’t perceive it as so bad as there are alternatives to both of these but, in general, Microsoft does not appear to be operating like a company facing brutal competition. I am not saying it should be broken up. I’m just saying that I don’t understand where Warren is drawing some line. I mean if those other companies are bad for democracy because of their power, why doesn’t that apply to larger ones?

Now all this is not to say that there aren’t significant reasons to look at all of these companies for antitrust reasons. For instance, I think we should get innovative in dealing with Facebook and I am worried about Google’s vertical integration that favours some of its own services over potential competitors. In some cases, divestiture may be the only remedy. And I think the weaker antitrust pushes in the US should be strengthened considerably.

When you delve into a few more of the details, Warren wants a vertical breakup of at least Google and Amazon — by isolating their “platform utilities” (something that I couldn’t see a definition of). For Amazon, this is odd since it opened up its marketplace to third parties when it didn’t have to for regulatory reasons. For Google, it is unclear how breaking up its ad exchange in places will lead to greater competition in search.

But when someone comes out and says these three companies should be broken up and suggests some, in some cases, just punative ways of doing that, we have to take it seriously. Crazy policies have been proposed recently in the US and UK that no one thought could ever be done and then they just happen. I worried that a breakup rather than an innovative approach to opening up to enhance technology competition will end up being another of those things that ends up hurting many without any benefit to anyone.

9 Replies to “When breaking up makes no sense”

  1. In the mid to late 90s, Microsoft was bundling IE4 and effectively killed off Netscape and other browsers. Then they stopped innovating IE, and that made the webpages of the late 90s less powerful (which was great for a non-internet software company).
    The anti-trust push in Europe caused the browser choice window, which helped Firefox and Opera to get installs. With some viable competition again, MS resumed working on their browser, and powerful tools were made available to websites, enabling the internet we see today.
    Without the anti-trust push (and their threat of a break up) I worry MS would have kept their strangle on the internet for another decade.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s