Just before the tech bubble crashed in 2000 Microsoft had a market capitalization of $586 billion while one-time rival Apple’s cap languished at $17 billion. Now the two tech icons are running neck and neck — a reversal of fortune the bloggerati are inclined to ascribe to a combination of Steve Jobs’ genius and Microsoft’s flatfootedness. That seems reasonable. But there’s another story here — one that suggests just how myopic America’s trustbusters are in focusing their attentions on the dangers of market power in highly concentrated, high-tech industries.
Remember why the Antitrust Division brought an antitrust case against Microsoft in 1998? In a nutshell, the feds contended that Bill Gates’ monster so dominated the market for key information technology (the PC operating system) that rivals couldn’t compete without a little help from Uncle Sam.
Fast forward to June 2010. Microsoft has lost 40% of the market in Internet browser use — Google‘s Chrome browser and the “open source” Mozilla Firefox browser control one-third of the market along with 100% of the media buzz. And in spite of years of effort, Microsoft owns a mere 3% of the search market worldwide, compared with 84% for Google. Indeed, the notion that Microsoft can use its dominance in operating systems as leverage to push other software makers off their own turf is such a non-starter (to everyone but regulators) that the world barely noticed when the company started giving away terrific anti-malware software to Windows users.
Microsoft isn’t killing on other fronts, either. It barely qualifies as a major presence in smartphone platforms or in music players. (Remember the Zune: Someday, it will be a show stopper on trivia quizzes). And even Microsoft’s near-monopoly in office productivity software is finally being challenged, as Google and others offer free applications that live entirely on “the cloud.” The move has forced Microsoft to match their free Web offerings, accelerating the erosion of the traditional market for Office.
So now that the king is dead, should we be worrying about the anticompetitive behavior of the pretender to the throne? The Federal Trade Commission thinks so: It is investigating Apple for its efforts to leverage its market power in digital music and mobile devices to other services. But look more closely and Apple’s quasi-monopoly begins to resemble that of Microsoft’s a decade ago. Practically since the introduction of the iPhone, it’s been conventional wisdom that Apple had a hammerlock on high-end smartphones because it had created an incontestable lead in mobile apps. Yet, in a matter of months, Google’s Android managed to build an online store with 70,000 apps, and one forecaster thinks Android devices have a good shot at passing iPhone sales in the next few years. Arguably more ominous from Apple’s perspective, Android users are already clicking on more mobile ads than their iPhone counterparts.
So what does that mean? The markets for information technology products are, often as not, highly concentrated. But concentration doesn’t equal true market power the way it does in, say, steel or air travel because IT is changing so rapidly. Indeed, a competition policy that uses share of total sales as the cue for antitrust investigation in any technology-driven market may actually undermine competition. For without the prospect of huge profits associated with temporary market dominance, investment in expensive, long-shot technologies would surely diminish.
To be clear, there’s a place for antitrust regulation in protecting consumers from the abusive practices of companies that gain and keep market power by what the law calls “restraint of trade.” But where market power follows from innovation, the burden of proof ought to be on those who argue that dominance will endure.
(This blog post was published earlier on Forbes.)