Google, Antitrust Antagonism, Patent Trolling, and Joseph Schumpeter

Google has been in the news lately for all the right reasons, but also some wrong ones. The FTC is investigating its use of patents held by Motorola Mobility, recently acquired in a deal thought by many to be as much about intellectual property as hardware expertise. The European Union has also fined Google on antitrust grounds, claiming that it unfairly leverages its dominance of online search to serve its promote its own content.

This is not the first time the technology, advertising, and media giant has faced pressure from regulators. Google has fingers in lots of pies. Its name is synonymous with the dominant search engine that made its reputation, and with search itself. It arguably boasts the most popular and capable email platform, Gmail, integrated with a constellation of cloud services and social networks including Docs, Play, YouTube, Maps, Picasa, and Drive. Indeed, the same integration that draws competitors’ ire and regulators’ scrutiny is a crucial element of the firm’s UVP. It has turned Android into a mobile operating system that rivals and in some cases surpasses Apple’s iOS. And its Chrome web browser recently overtook Internet Explorer as the most popular in the world, commanding almost a third of global market share barely four years after its release. The question is, does Google constitute a monopoly?

Squint a little, wind the clock back fifteen years, and this narrative looks very familiar, because in the pre-Facebook era, it fit Microsoft like a tailored suit. The most popular web browser. The most popular email client. The most mature, integrated ecosystem of services. A widely-used (if mediocre) mobile operating system. The most popular productivity suite and PC operating system to this day. Microsoft was sued. And investigated. Its dominance seemed unassailable. Then a company with the mission of organizing the world’s information and making it accessible to anyone, anywhere popped up. Also, Steve Jobs had recently returned to Apple; he was already starting to turn an operation that had been days away from bankruptcy into the world’s most valuable publically-traded company (or second-most, depending on how Exxon’s stock is doing). Windows and Office remain popular, but now face viable competitors. Furthermore, there is a prevailing sense in the industry that the computing paradigm Microsoft popularized is dying. This is the era of super smart phones and practical tablet devices. The Metro interface and platform-straddling (x86 and ARM) of the Windows 8 operating system reflects an uncomfortable balance between loyalty to the past, relevance to the present, and openness to a future that will require Microsoft to further evolve or die.

Google is just as mortal as Microsoft. A sword of Damocles overhangs every overlord, particularly of the tech world, and its name is change. Change is unpredictable because by its nature, innovation challenges the human imagination. Its threat conditions companies from becoming complacent in their practices. As Schumpeter wrote in Capitalism, Socialism, and Democracy:

[I]n capitalist reality as distinguished from its textbook picture, it is not competition [within a rigid pattern of invariant conditions, methods of production and forms of industrial organization in particular] which counts but the competition from the new commodity, the new technology, the new source of supply, the new type of organization (the largest-scale unit of control for instance)—competition which commands a decisive cost or quality advantage and which strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives. This kind of competition is … so much more important that it becomes a matter of comparative indifference whether competition in the ordinary sense functions more or less promptly.

Patent trolling such as Apple’s recent legal victory over Samsung which has blocked the sale of the Galaxy Tab 10.1 device (thanks to Apple’s spurious claims of infringement related to the iPad) obviously impedes intraparadigm competition, but it also distracts companies from the creation of new worlds. As Steve Jobs said, “A lot of times, people don’t know what they want until you show it to them.” Overbearing regulators have the same stymieing effect. If hubristic regulators are not mindful of change’s inevitability, they will only undermine the competition they seek to promote.