Break out your history books, folks. It’s time to take a look at
monopolies and how the definition may apply to Google’s dominance
of the Web in recent years. Sound like dry subject matter to you? It’s
not really, if you consider the obscene implications the past may have
in relation to the future of the Internet.
A Brief History of US Trusts and Monopolies
Is the history lesson really necessary? Well, yes, if you want to
truly understand how to answer the question posed by this article. Never
fear – I’ll keep things seriously brief.
A monopoly is essentially capitalism on steroids. The hallmark of a
monopoly is a virtual lack of competition. This lack of competition
typically leads the monopoly in question to set higher prices, given
that there’s no market forces to keep it in check. Inferior products can
also result from the lack of competition – and the public will still
purchase them if for no other reason than a lack of options.
Here’s the idea of an old school trust: it’s an arrangement between
several investors who hold stock in different companies. The
stockholders transfer their shares to one combined set of trustees. The
reward for their contribution comes in the form of a certificate
entitling them to a specified share of the jointly managed companies’
consolidated earnings. Since trusts dominated many of the biggest US
industries in the late 1800s, they were effectively monopolies in each
of their respective economic areas.
After the Standard Oil Trust formed in 1882, the company and its
affiliates had control of greater than 90% of oil refining and marketing
in the United States. Needless to say, this did not sit well with the
American people. That’s why Congress passed the Sherman Antitrust Act in
1890. The measure effectively destroyed trusts and monopolies that
hampered international and interstate trade. From that point on, the US
government had the power to bust open companies that had too much power
and break them into smaller pieces.
Fast forward to recent history. Microsoft was the first large-scale
tech company to be accused of industry monopolization in the US. In a
historic 1998 court case, plaintiffs alleged that Microsoft held an
abusive monopolistic power on the personal computer industry.
How?
Well, the issue was centered upon the company’s practice of bundling
Internet Explorer with its Windows-based operating system. Plaintiffs
accused Microsoft of holding a monopoly on Internet browsers since most
consumers used the Internet Explorer software prepackaged with their
PCs. The case ended with a settlement and a slap on the wrist for
Microsoft.
What’s really interesting here is that Nobel economist Milton
Friedman, who has since passed away, commented on the case’s outcome by
speculating that the Microsoft decision set what he called a “dangerous
precedent” which would lead to greater government regulation of tech –
and he thought that would impede progress.
Then along came Google.
Google’s Rise to Power
Google really began taking shape as the company we know it today back
in 2000. During that year, the company celebrated a sequence of pivotal
events: it announced that it had indexed over one billion pages, it
teamed up with Yahoo, and it rolled out its search platform in 15
different languages.
Of course, everything began to snowball from there. Google went onto
acquire a large number of companies, and it introduced its AdWords
program to generate revenue to sustain its growth. Sustain it did – in
fact, by 2011, over 96% of the company’s profits came from AdWords… to
the tune of $32.2 billion dollars!
However, Google has had its share of hardships over the past couple
of years. Despite record profits, it’s dealt with patent suits numbering
in the thousands from competing technology companies. It has battled
lawsuits from governments and individuals around the world. It’s had
trouble getting Google+ to catch on. It had a leaked earnings report to
contend with last month. Nevertheless, Big G has held strong as the most
powerful tech company in the world – and it’s growing stronger every
day.
Google’s Chokehold: Stifling Innovation?
The strategy for Google’s growth seems to be multifaceted, but the
main features include the nurturing and expansion of its AdWords program
(its bread and butter) and the acquisition of companies to flesh out
its ever-growing patent portfolio (its suit of armor).
Take, for example, the mobile industry. Apple and Google are in a
cutthroat battle to the death to snap up as many patents as possible.
They’re doing this to protect themselves from lawsuits as they blindly
feel their way through the ever-evolving landscape of mobile
development. A total of $20 billion in patent purchases and patent
litigation fees was spent across the board if you include all the heavy
hitters in the industry.
Why?
The more patents a company has, the more protection it gains for the
new intellectual property it creates. Google is always coming out with
new products, so it needs all the protection it can get. Defending
against lawsuits is one thing, but acquiring companies and patents like
gangbusters is quite another. For many, the patent and company
acquisition strategies alone are enough of a basis to accuse Google of
monopolizing the tech industry – and stifling innovation in the process.
FTC Sets Sights on Google
This is an unprecedented time for governments around the globe.
Google is facing pressure from a variety of countries, a possible
backlash against the fear that Big G’s monopoly is – quite frankly –
taking over the world.
For example, a settlement was finally reached in a recent group of
French lawsuits. The suit took issue with Google’s digitization of
French books, and the litigation had stretched on for six long years. In
the UK this month, the government will begin investigating Google’s
alleged tax avoidance. There are many other suits out there – you can
find a detailed list of some of the bigger ones here.
Google is even being sued by, um, the world, in one case. Guess
unchecked global domination makes you one heck of a tasty target.
In the US, Google hasn’t had it much easier. U.S. Federal Trade
Commission Chairman Jonathan Leibowitz is pressuring Google to make some
major concessions in the agency’s antitrust investigation. If it
doesn’t take action soon, the company will face an antitrust lawsuit of
unprecedented proportions.
So, is Google a monoply?
The FTC lawsuit means that the US government certainly seems to think
so. The outcome of the suit will really begin to solidify the argument.
Regardless, here’s what is certain: Google is a worldwide, globally
dominating force. Many governments are beginning to try to check that
power into submission. But Google’s reach is far and its pockets deep.
My take? Google can sidestep government intervention all it wants.
Amazon, Apple, Microsoft, Facebook, and pals will continue to be the
thorn in G’s side – and, quite possibly, the silver bullet of
competition that will protect our global, digital society from
totalitarian dominance.
Nell Terry
