Google Antitrust Inquiry: Microsoft's History Looms Large
Is Google the next Microsoft?
The question, which has been asked most often in regard to Google's ability to innovate, takes on new significance amid reports that the Federal Trade Commission is on the cusp of launching a wide-ranging antitrust investigation into the Internet company.
Exactly two decades after the FTC launched an inquiry into Microsoft's competitive practices, opening up a slew of regulatory actions, the Wall Street Journal, citing unnamed sources, reports the FTC is now preparing to serve Google with subpoenas and will probe whether the company has abused its dominance in the search market to unfairly promote its own services at the expense of rival offerings.
A Google spokesperson declined to comment on the reports.
There are notable similarities between Google today and Microsoft circa 1991, when the latter company found itself in regulators' cross-hairs. Both companies are enormous, highly profitable and indispensable for consumers -- and both have been accused of using their massive reach to choke off their competitors. But experts also say that the disruptive, ever-evolving nature of the Internet makes Google in many ways more vulnerable to competition than Microsoft in its day.
Google is learning a lesson that Microsoft knows all too well: there is a downside to being big and significant market share brings with it the scrutiny of antitrust watchdogs. Google-owned websites tallied over one billion unique visitors worldwide during the month of May, making Google the first Internet company to reach this milestone and placing it 100 million users ahead of its nearest competitor, Microsoft. It claims over 65 percent of the U.S. search market and last month processed 11.2 billion searches.
Microsoft and Google have used similar strategies to grow their empires. Both seek to be at the core of consumers' digital interactions, whether powering their PCs or their web browsing, and strive to stay dominant by aggressively expanding their offerings so that users never have to exit the Google or Microsoft ecosystem.
Just as Microsoft wanted to provide both the software used on computers, in the form of its Windows operating system, and the gateway to the web, via the Internet Explorer browser, Google aims to extend its reach to serve consumers not only when they search, but when they send emails, place calls, look for directions and buy a smartphones. Google has essentially made it possible to do everything online without ever leaving its network of properties, a move that recalls Microsoft's own efforts to manage the user experience on desktops and laptops.
"Google is the next generation of Microsoft in that it has created a trusted corporate environment where we relinquish control, autonomy, privacy to a benevolent corporate overload," said Jonathan Askin, a professor at the Brooklyn Law School. "In the way that Microsoft attempted to control the computer experience, Google is trying to control the online experience, which has serious antitrust implications because Google has become so sticky."
Microsoft ultimately found itself crosswise with the antitrust division of the Justice Department over the issue of tying one dominant position to an emerging product -- specifically by building Internet Explorer, then a still-budding web browser, into software that had a stranglehold on computers. Similarly, Google has successfully branched into other products and used search as a gateway to every other conceivable web service, from word processing to shopping to e-books.
Yet some experts counter that the nature of the technology involved makes it difficult to compare Microsoft's antitrust lawsuit and the FTC's reported investigation into Google.
In the 1990s, there were few alternatives to Microsoft's Windows operating system -- rival computer and software manufacturer Apple, for example, was near bankruptcy in 1997 -- and disconnecting from the Microsoft ecosystem was costly, time intensive and complicated, requiring companies to overhaul systems and retrain personnel. By contrast, users can stop using Google's search engine at any time. Switching is free, requires simply typing a different web address into a browser and requires essentially no new skills.
"There's no lock-in with a Google search engine. If you want to have six different search engines all on your desktop, you can do that. It's all free," said University of Iowa law professor Herbert Hovenkamp. "That's a very different situation than Microsoft was in. ... It was very hard to escape from the Microsoft operating system, but here the escape costs are zero."
But saying goodbye to Google isn't quite so easy, especially for users who have come to rely on services like Gmail, the company's email client, or Google Voice, its Internet-based phone system, among other products. By getting consumers to sign onto its myriad interconnected services, Google has got many users hooked. It has grown far beyond a search engine and now provides browsers, applications, operating systems and more, seamlessly syncing users' information across sites and devices.
"Google has a lot of control over lots of consumers," said Askin. "It's the path of least resistance: Consumers love the convenience of tying devices into Google, and they'll sacrifice a lot for that convenience."
What distinguishes Google's from the Microsoft of two decades ago may ultimately have more to do with the ecosystem in which they exist than with the operations of the two companies themselves.
With the barriers to building an Internet company lower than ever and the pace of change greater than ever, new Web startups have the potential to disrupt entrenched players like Google. Facebook, which now competes with Google head-on for user information and advertising dollars, was still in its infancy the year Google went public.
"I'm not sure they're ready to launch a real antitrust inquiry into Google given the inability of Internet companies to maintain control over their consumers," said Askin. "Someone could come along and create a new algorithm that's more effective than Google's. It's just much easier to compete against a Google because there are no monumental start-up costs to coming in and providing a competing capability."
And even if the FTC does pursue an in-depth antitrust investigation into Google's business practices, it may not be government regulation, but rather Silicon Valley innovation that ultimately erodes Google's dominance in the search market and eases regulators' fears.
Askin notes that Microsoft has seen its position in the technology industry weakened not by penalties imposed by the Justice Department, but by the miscalculations and mistakes of its own leaders.
"Microsoft was not brought down by government, it was brought down by other creative Internet companies," Askin explained. "The problem with Microsoft was not excessive government intervention, it was a lack of vision and the inability to anticipate how profound broadband Internet would be in the world of Internet information."
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First Posted: 06/23/11 09:48 PM ET Updated: 08/23/11 06:12 AM ET