In 1974, the Department of Justice filed suit against AT&T, alleging that the company enjoyed an anti-competitive monopoly by controlling long distance, equipment and local phone service. It took eight years, but AT&T was finally broken up in 1982, although local phone service remained regulated another 14 years, until 1996. The breakup of AT&T was a success for regulators, but an abject failure for consumers. Because of the antiquated dysfunction legislated into the quickly changing industry, telecom service in Europe and Japan quickly outpaced that in the U.S.
With bipartisan political support from Congress, U.S. regulators seem poised to repeat the mistake.
In February, the Federal Trade Commission (FTC) created a task force to examine competitiveness in the tech industry. Government task forces may deftly examine traditional, hard-asset intensive businesses (think steel mills), but not industries built on intangible, intellectual assets. (Think Google.) These types of businesses move too quickly for the slow wheels of government. (It took 22 years to only somewhat deregulate telecom.) Additionally, natural competition is aided by low traditional capital barriers to entry.
It did not require legislation for Facebook to supplant Myspace as the world’s most popular social media platform – at least, for now. (Ask your children or grandchildren; few people under the age of 25 use Facebook.) And Facebook has been a public company for only seven years. Technology is swift. Government is many things, but swift is not one of them.
The federal government’s track record in even understanding technology issues is horrible. In 2013, the FTC alleged that Google used its dominant web search engine to damage its rivals, ultimately driving up prices for advertisers. What anyone who either buys or sells advertising will tell you, however, is that online advertising – particularly via Google – has driven ad prices through the floor, while simultaneously allowing extraordinary demographic targeting.
It’s not even obvious what financial costs consumers must bear as the result of the dominance of Google, Amazon and Facebook. In a neighborhood with a single gas station, prices are almost certainly higher than in similar neighborhoods with multiple gas stations. In technology, however, size has actually created pricing efficiencies. The use of Google and Facebook is free for consumers and their advertising models have reduced prices at the expense of their traditional competitors – just as Amazon reduces consumer prices at the expense of traditional brick-and-mortar retailers.
The irony is that the federal government appears to be about to “crack down on” Google just as the free market has beaten them to the punch. Although Google currently has 60 percent of the world’s search ad market, in the past year, Amazon generated $10.8 billion in ad revenue, much of which came from Google.
David Moon is president of Moon Capital Management. A version of this piece originally appeared in the USA TODAY NETWORK.