Breaking News: Facebook is planning to go toe-to-toe with Google, challenging its supremacy in Internet search. Or maybe not.
Facebook is certainly hinting at a major foray into search, which is enough to keep the media wheels spinning. But the company may have nothing more in mind than some needed tweaks to its existing website search capacity. Or maybe this is much ado about nothing—other than polishing Facebook’s image as a go-getter on the eve of its IPO.
Still, the rumors du jour should serve as a reminder that no corner of information technology is safe from what Joseph Schumpeter famously called “creative destruction.” That, in turn, should remind us that the public policy governing what is OK to do in the marketplace and what’s not is based on assumptions that rarely apply to the industries powering innovation and growth in advanced industrial economies.
Antitrust policy is built on the notion that market concentration, collusion or nasty behavior toward rivals undermines efficiency by allowing producers to charge more and to block innovation. That’s not a bad rule of thumb for “old economy” industries. Before Japanese auto makers broke through the barriers, Detroit charged too much, divvying up most of the surplus between workers and managers. Worse—much worse—auto industry technology and productivity stagnated, as stakeholders sheltered their pockets of privilege from the winds of change.
But high-tech industries in general, and information technology industries in particular, are an entirely different sort of beast. Market concentration and huge profits are typically a consequence of economies of scale and returns to intellectual property, not monopoly power. (It costs no more to produce 10 million copies of Microsoft Office than 10 copies.) And while the management of the current crop of winning companies may be as eager as monopolists of yore to bar the doors to rivals, rapid technological change denies them the opportunity.
Thus IBM’s lock on mainframe computing was broken by the arrival of small-scale computing. Microsoft’s dominance of business-applications software faded with the rise of the Internet. Google’s position at the top of the latest pecking order is under siege from innovators in social networking and mobile communications. And Facebook faces ill-defined but serious threats from a dozen firms (not least of them, Twitter) eager for attention and gigabucks.
That reality has not stopped government regulators from applying the old rules. IBM and Microsoft fought competition authorities on multiple continents, even as they lost their fleeting dominance. It’s hard to say whether the suits (more precisely, the caution induced by government scrutiny) handicapped them much in the endless race to stay at the head of the pack. Or, for that matter, whether Google will also suffer from the slings and arrows of antitrust fortune. But, with hindsight, it’s obvious that the IT behemoths must run ever faster to stay in place—and that competition regulators can’t show that their intervention has made the products of the IT industry any better or cheaper.
For one thing, in a world lacking bright lines to delineate anticompetitive from merely aggressive business behavior, good policy is inherently difficult. For another, competition policy is not set or enforced in a vacuum.
The challenge to regulators is devising smarter, more flexible enforcement of the antitrust laws in an era of rapidly evolving technology. They must be able to distinguish the fruits of innovation from old-fashioned monopoly profits. And they must withstand intense pressure from interest groups with billions to win or lose. Probably the best case for optimism is that the forces driving change in information technology are apparently very robust—that it takes a whole lot more than regulators are likely to dish out to slow progress.
(This post was also published in The Wall Street Journal.)