The Web’s New Monopolists - Justin Fox - The Atlantic

The Web’s New Monopolists - Justin Fox - The Atlantic

The Web’s New Monopolists

JUST BECAUSE FACEBOOK AND GOOGLE ARE INNOVATIVE NOW DOESN’T MEAN THEY WON’T STRANGLE GROWTH AND HARM US ALL—IF WE LET THEM.

By Justin Fox

Ask Jack Dorsey, the co-founder of the social network Twitter and the mobile-payment start-up Square, what his two companies have in common, and he has a quick answer: “They’re both utilities.” Mark Zuckerberg might agree: he spent years trying to convince people that Facebook is not a social network but a “social utility.”

It’s an intriguing choice of words for such of-the-moment entrepreneurs. Utilities tend to be boring, slow-growing beasts. They also—and this is the more important point—tend to be monopolies that are either regulated heavily by governments or owned outright by them.

Earlier in the Iv-B tech bubble companies mutated and competed, often collapsing the way small tree seedlings try to outgrow each other. Often like seedlings these companies run out of resources before they mature or a mutation of another seed grows better than them in the situation. The next stage of plants is to develop as V monopolies in effect, to overshadow their rivals by cutting off their sun. These V trees in a forest interlock their canopies together in a cooperative way to ensure little sunlight gets under them. In the same way large companies interlock cooperatively to stop competition. Each internet company is different in some way, then they don't compete with each other except in small scale skirmishes on the edges such as Google and Microsoft over search engine market share. Antitrust laws are often used to break up this canopy so smaller companies can again compete, this can increase innovation and mutaton but often at the expense of market stability.  

Indeed, once they get beyond a certain size, technology companies do become wary of the word. Google has been called a utility by lots of people, but you won’t hear the company’s executives using the term (at least, I couldn’t find any examples). And Zuckerberg, when asked in 2010 whether, as a utility, Facebook ought to be regulated, said he hadn’t meant the word that way at all: “Something that’s cool can fade. But something that’s useful won’t. That’s what I meant by utility.”

Yet there are lots of useful things in the world—clothing, breakfast, this issue of The Atlantic—that no one would ever think of calling a utility. Yes, there is an innocuous class of computer software known as utilities. But what companies like Twitter, Square, and Facebook—not to mention Google, Amazon, and Apple—aspire to, and in some cases have achieved, is a status similar to that of traditional utilities like Ma Bell. They attempt to position themselves such that customers can’t get around them, or can’t afford to leave them. And when they succeed, they start appearing to some customers, would-be competitors, and regulators like scary monopolies that somebody needs to do something about.

They in effect block custimers and rivals from getting around them like trees stopping smaller saplings from growing.

The connection between attractive business opportunity and monopoly is not new. Pursuing a “short run” monopoly, the economist Joseph Schumpeter wrote in 1942, is what profit-seeking enterprises do—in the process, driving significant innovation and economic growth. In the 1970s, the business-school discipline of strategy arose as the study of how to build and defend these short-run monopolies—a sort of mirror image of the antitrust classes long found in law schools. “Strategy is antitrust with a minus sign in front of it,” says the Columbia Law School professor Tim Wu, who has taught both subjects. That is, strategy tries to maximize what antitrust tries to minimize.

What is new is that the path from looking for an edge to being attacked as a monopoly has gotten a lot shorter—and that gaining a monopoly seems such a plausible goal within some of the fastest-growing parts of the economy. Standard Oil had been in business for 36 years when the Justice Department sued it for antitrust violations; AT&T for 97. By comparison, Microsoft was just 15 when federal regulators started looking into its business practices, 23 when Justice sued. Google, a mere 14 years old, is already under antitrust investigation.