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Letter to the editor

Like greats before, Google may be antitrust target

By STEVEN PEARLSTEIN, Washington Post
Published October 30, 2007

My first visit to Google came the day after it had announced a 57 percent increase in quarterly sales, the day its share price had broken through $650, rumors swirled that its executives were mulling an investment in Facebook, its political troubles in China were splashed across the Wall Street Journal, and the cafeteria was featuring oysters and a seafood concoction in a puff pastry shell.

In other words, just another day at the world's hottest company. These days, Google conjures equal doses of respect and fear. When it comes to employee loyalty, corporate transparency, social responsibility - or the ability to spur innovation - Google has become the gold standard.

We have seen this story before. We saw it at AT&T in the 1950s, IBM in the 1960s, Intel in the 1970s and Microsoft in the 1980s. They were the hot technology companies of their eras. And, in time, their success was so overwhelming that each became targets for antitrust enforcement.

In just about every industry, the biggest companies enjoy competitive advantages. This is quite true in industries with high up-front costs. In Google's case, after it has set up its servers and devised its algorithms, the cost of displaying one more ad is near zero.

But there is another reason for the winner-take-all quality of technology markets, sometimes referred to as a "network effect." Simply, a networked market is one in which customers are better off doing business with the company with the most customers.

Google has the biggest bank of search history to use to improve its algorithms. Better quality generates larger market share. As a result, Google accounts for about two-thirds of Internet searches done in the United States.

Just as AT&T, IBM, Intel and Microsoft did, it has won its near-monopoly fair and square.

Here's where the antitrust law comes in: At its heart, its aim is to ensure lower prices and greater choice. In most markets, that means ensuring there are enough competitors. But in markets that tend toward a dominant firm, competition comes from a new technology or way of doing business that upsets the terms of competition.

It is the government's job to make sure the monopolist doesn't eliminate emerging contenders, by buying them up or leveraging its existing monopoly.

Google executives bristle at the idea that government intervention might be necessary. Their line is that their do-no-evil company would never, ever put shareholder interests ahead of its users or society in general.

I don't doubt their sincerity. But as history reminds us, the path to monopoly profits is often paved with good intentions.

[Last modified October 30, 2007, 00:25:04]